The bigger the price, the better.
Starwood Hotels, which owns 11 brands including Sheraton, W Hotels, and St. Regis, spread over nearly 1,300 hotels & resorts in 100 countries, announced today that an unnamed “Consortium” has made an all-cash offer to acquire the hotel group for $76 a share, or $12.8 billion.
That consortium is trying to spoil Marriott’s party. Last November, Marriott agreed to acquire Starwood to form the world’s largest hotel behemoth with over 1 million rooms.
Marriott in turn came out today and announced that the consortium was in fact led by Anbang Insurance Group in China. On March 11, Starwood had approached Marriott with the news of the unsolicited offer and obtained a waiver to pursue the new deal. The breakup fee is $400 million. So if Anbang gets Starwood, it would pay a total of $13.2 billion.
Anbang has been busy recently. It acquired the Waldorf Astoria in Manhattan in late 2014 for a record $1.95 billion from Hilton, at the time majority-owned by Blackstone, after having acquired office buildings in New York and Canada. It also acquired South Korea’s Tongyang Life for $1 billion.
Not all deals worked out. Its €3.5 billion bid for Novo Banco, a teetering Portuguese “systemically important” bank, sank into the quicksand of politics.
But Anbang keeps slugging. Over the weekend, word leaked out that it had agreed to acquire Strategic Hotels & Resorts from Blackstone for $6.5 billion. According to Bloomberg’s sources, Anbang paid $450 million more than Blackstone had paid for it three months ago!
The Starwood deal would be the largest-ever US acquisition by a Chinese company. The Strategic Hotels deal would be the second largest. Both deals combined amount to nearly $20 billion!
Marriott did the math: Its own offer, a mix of mostly stock and $339 million in cash, was worth $72 a share at the time. A sky-high price, the result of a bidding war with Hyatt. But Marriott’s shares have since dropped, reducing the value of the transaction as of March 11 to $63.74 a share, or $10.8 billion.
Anbang is now offering $76 a share in cash or $12.8 billion. So $2 billion more.
This disregard for price, after seven years of rampant asset price inflation that now appears to be peaking in the US and around the world, has been a hallmark of these Chinese deals. But Anbang, which is privately owned, has two big sources of funding: its insurance business and its Anbang Asset Management, in existence since 2011, where very wealthy Chinese can place the proceeds of their labors to be invested overseas.
And it has big plans, according to the Wall Street Journal:
A banker who has worked with Anbang says the firm told him it wants to own a trophy real-estate asset, a bank and an insurance company in 30 countries around the world.
There won’t be any synergies between its insurance business and hotels, other than the flow of money. Unlike Marriott, it doesn’t know how to run a global hotel group, and doesn’t know how tough and competitive this can be, but now it’s spending nearly $20 billion on hotels.
No problem. Anbang is a special company, in the Chinese sense: well-connected!
Founder Wu Xiaohui is married to the granddaughter of Deng Xiaoping, China’s leader from 1978 until 1992. And so in 2004, Wu performed a miracle: in a sector dominated by state-controlled enterprises, at a time when it was difficult to get the required licenses to set up an insurance company, he was able to set up an insurance company.
Since then, he “turned what was mainly a small car insurer into a financial services conglomerate, with assets worth more than 800 billion yuan ($123 billion) as of February last year,” according to the Financial Times:
It has big stakes in “some of China’s largest banking institutions, including China Merchants Bank, according to Chinese media reports. It also owns controlling stakes in six insurers, two asset management companies, a financial leasing group, and a property developer in China.
Anbang’s partners in the consortium are US private equity firm J. C. Flowers and Chinese private equity firm Primavera Capital Group, “one person involved in the bidding process” told the Financial Times.
Marriott shareholders rejoiced on the news that their darling might be off the hook and in addition get the $400 million breakup fee, sending its beaten-down shares 3% higher today. Perhaps they’d lost their appetite for Marriott’s beautiful rhetoric about “significant equity upside and greater long term value driven by a larger global footprint,” etc. etc.
So capital flight from China – around half a trillion bucks in 2015 alone, and continuing this year – takes on new forms on an ever grander scale. At first it was residential real estate in certain trophy cities in the US, Canada, Australia, and other locations, then big development projects, particularly in California. And now corporate acquisitions.
And not just hotels. Chinese crane maker Terex Corporation is trying to buy GE’s appliances division. Chinese companies are on a shopping binge in Europe. Alibaba has been acquiring minority stakes in a slew of US consumer-facing “tech” companies, including Lyft, Groupon, and Zulily.
In fact, China became the largest acquirer in the global tech space, with $34.7 billion for the first two months of the year, spread over 222 deals, according to Dealogic, which “accounts for a record high volume share (49%).” So in terms of tech, “for the first time, China is the top acquiring nation globally.”
Last year, Chinese companies spent about $108 billion on acquiring companies outside China, according to Dealogic. In the two-and-a-half months so far this year, they’re already nearly there. They’re buying companies left and right, on the motto: no synergies, no problem, the higher the price, the better. Read… Desperate “Dumb Money” from China Arrives in the US.
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I am silently awestruck right now. What would entail with the acquired business operations and management years from now then. Hm.
Uncle Sam has the military to conquer the world, the Chinese has the Yuan printed army to conquer the world. No blood! A take over non the less.
Japan tried the exact same thing a few decades ago. Bought Rockefeller Center and everybody said America was finished.
Look at Japan today.
China will/has overextended itself. Buying at the top and buying assets in a “free” country while they are a “slave state”. That doesn’t work.
I’m going to guess that in 5 years, or less, President Donald Trump can buy this entire hotel mess for 1/3 the price.
The Waldorf will make an excellent White House.
You can’t conquer the world. The Russians (plus the Chinese) have more and bigger nukes. All the US empire can do is bumble around causing chaos with little purpose. The limits to power are a bitch.
MAD and nukes are Obsolete weapons. From a different time.
Which is why, India, Pakistan, DPRK, and most definitely iran, should not have them.
Why should the US, Russia, China, UK, France, Israel have them, then?
Why should any body, but Israel (if they do), have them.
However the major nations, are not still developing and building, theater use nukes.
Yet, Pakistan, india, iran, DPRK, and to some extent china, Are. At an alarming paces
You only develop and build theater use nukes, if you intend to use them.
How can the Majors, possibly be induced to scale back on, and eliminate, an Obsolete, planet destroying Weapons system.
When the crazy’s, who intend to use them, are still building and stockpiling them, as fast as they can.
Unlike the morons in DC, the Chinese have discovered that making things and providing necessary services is the road to prosperity. They are definitely overpaying, but maybe they think they can run the enterprises more profitably, especially if they use their own imported work force. Something tells me that even the illegals are going to get outsourced.
Why do you just say, ‘DC’? Why not be honest and say, “AL, AK, AZ, AR, CA, CO, CT, DE, DC, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NY, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI, WY?”
Was it just because it was much easier? Not to mention safer. You can bash politicians 24/7 and the herd will welcome you as one of their own. I don’t know if you are religious or not, but the Christians on here know that QE and zero interest just might be part of God’s plan. I’m not the one who said God works in mysterious ways. It was a Christian named William Cowper in 1773. The actual quote was, “God moves in a mysterious way.” But let’s face it, another misquote or contradiction isn’t going to matter in this case.
“God invests in mysterious ways”
I said DC because I meant DC. The people never wanted NAFTA or TPP, it was DC who was invested in betraying the American people.
They are still doing it with immigration and amnesty. As a Latina, it is definitely not safer to be against amnesty. QE and zero interest rates have nothing to do with GOD. They are a huge transfers of wealth to the truly cowardly.
“I said DC because I meant DC. The people never wanted NAFTA or TPP, it was DC who was invested in betraying the American people.”
DC did something the American people needed. Which is normally, not what they want.
I mean isolationist America worked so well for the American people between 1919 and 7/11/1941 didnt it???
People like you in America dont want TPP either.
However you do need it, even though you deny it.
If we are lucky, the American politicians will do something the American voters want, instead of need, and not sign TPP,
Which will benefit every other nation in TPP a lot, and cost America a great amount, very long term.
Amnesty blanket is stupid, however your, I’m in, and I’m pulling up the drawbridge, Screams volumes.
d,
DC going against the wishes of the people has implication here in America. As you may have already noticed, the politics in America is being turned on its head because the DC crowd thinks it can ignore the will of the people again and again. It can’t. This country has already experienced two major civil wars and may experience others in the future. Unlike our Asian friends, who take the money and run, we stay and fight.
The will of the people, joke.
The will of the American takers. Who are moving into electoral ascendance, will bankrupt and destroy America as we know it. If acceded to.
The job of the administration, is not to do what the people want.
It is to do what is in the best interest (needs) of the people.
Problem being in America today, the congress frequently does what the oligarchs who control it, want. Not what the people need.
America didnt fight 2 civil Wars.
It fought a war of Secession, from the Crown. In which it was successful, due to logical British pragmatic diplomacy, not force of Arm’s.
And an attempted war of Secession by the Confederate states, that is referred to as the “America Civil War” as the Confederate States. Were thwarted by force of Arms..
“DC going against the wishes of the people has implication here in America.”
of the people, by the people, FOR the people,
That which HAS to be done, FOR the people.
Is frequently in conflict with what the people want.
Out of sequence as cant edit it in
Hi from Oz. Settle down, folks! We have seen two or three cycles of boom (aka overpriced) buying of our assets (hotels, office blocks, farms, etc.) here in Australia since the 1980s. The Japanese buying frenzy in the 80s was reversed in the 90s boom, and so it goes on. buy overpriced assets, they eventually have to sell them, often at a huge loss, and often to Aussies who know how to run them profitably. As we say, foreigners can buy our assets, but they can’t take them away!
Exactly. As soon as I saw the words “trophy real estate asset” it was 80s deja vu. For a moment I could hear the Bee Gees.
Within a decade they’ll be selling it all back at a loss.
Remember all the headlines back then? The Japanese were buying Rockefeller Center, Tiffany, MCA and Pebble Beach – how’d that work out for them? Huge losses on a lot of those deals.
I don’t get any impression they care. It’s a bit like a Casino, it launders money at a price. The price may be high, but that’s OK. Very different from previous Japanese buying.
It’ll eventually all end in tears though.
These kinds of deals are public. They aren’t money-laundering like buying condos in Vancouver with smuggled funds.
Dont confuse the fact that China was buying all your ore to knowing how to run a business.
Australia is going to collapse
Being in Australia I agree with that. The land where house prices ALWAYS go up. When the current long run debt binge and property bubble ends it will be really painful as debt is everywhere.
Peak desperation. An attempt to get as much money out of China as possible. Their fear of depreciation of monetary value in China is obviously greater than the fear of deflating assets in the west.
“Peak desperation. An attempt to get as much money out of China as possible. Their fear of depreciation of monetary value in China is obviously greater than the fear of deflating assets in the west.”
You might be right.
Trump + China’s internal contradictions ( a communist country that champions the 1%?) would probably stop the whole Chinese miracle in its tracks.
I’d say it would take the USA five years to build or rebuild everything China currently does. Now, of course this is contingent upon mr Trump slapping hefty tarrifsf on Chinese goods.
The American people seem to think mr Trump is rich enough (and crazy enough) to toss a hand-grenade in to China.
Peak desperation? Absolutely not. Desperation has a long way up yet.
Many dollars flow into China. There is the depreciation but there is also the scramble to get rid of the dollars. Not an easy task.
It’s telling that Mr. Obama didn’t spend time last year at the recently acquired Waldorf hotel, which broke a 90 year tradition. The reason: fear of spying after the Chinese bought the hotel.
Perhaps there is method to the Chinese purchasing madness after all; they are buying top science outfits to copy the know how, and pricey hotels are ideal for spying. Insurers have great insight into national economic activity, as do banks etc. And all these institutions they’re buying are hard to hack.
Im glad our president has brought this into the open as the pattern of purchases is indeed really suspicious. Where are the boring resource companies, the restaurants or other assets foreign nationals usually buy? Maybe this angle also explains their willingness to over pay: When the opportunity to spy on a massive scale is regarded as something the Chinese are getting with the package, paying a few Billions more for priceless info might even seem cheap.
Btw no one should underestimate how ideal hotels are for espionage : modern automated speech analysis can scan every conversation in every room, embarrassing incidents (Great for black mail) happen there and youre using their WiFi. I’ve heard stories of negotiations where people blabbed in their hotels and they were taken to the cleaners!
Interesting perspective. Thank you.
Regards,
Cooter
Jonas –
Every time I traveled on business to Berlin in the late 1980s (before the Wall came down), I always stayed at the Hotel Metropol in Ostberlin. The Metropol was a fascinating place. Every room was bugged. There were police operatives and Stasi agents everywhere. And, many travelers from far away third world countries in Africa and Asia. All of those travelers spoke German. A stay at a mainstream hotel in West Berlin was just plain boring compared to the Metropol.
Now, you would have had to be dumber than a doorknob not to know that you were being spied on. These were the days before the advent of the portable computer. Portable phone – except for a “brick” sold by Motorola – no portable phones. Everyone transported documents. Since I was not on any top secret mission for clients, it made no difference if someone rifled through or photographed my documents.
Yes, I can understand the utility of using a hotel as collection point to spy on people. But anyone carrying around sensitive information in any format would not leave it in any hotel – be it the Waldorf or a Motel 6 near Hoboken, NJ. However, the mere presence of a notable businessman or politician at a tony hotel in NYC would set off alarm bells. The movements of such persons are tracked, from the time they step into a Gulfstream or board a Jet Blue aircraft. Where they are going and with whom are they going to meet. Cell phone intercepts. Record all Wi-Fi and other radio traffic.
Owning a hotel in the center of NYC has other advantages – like sealing off and using parts of the building to headquarter espionage operations. But then, the Chinese bought the largest private vault building from JP Morgan in 2014 – that building at Chase Manhattan Plaza is right next door the the NY Fed. It seems more likely that the Chinese are taking real estate trophies for the sake of prestige and money laundering.
interesting perspective from the country that is by far the number one in spying on a worldwide basis (especially when including their small partner-in-crime from the Middle East)…
Last time I was in Hawaii (1993) the Japanese were buying up everything. When I got back to the mainland from my two weeks vacation they bought up Los Angeles.
That ended not so good for them!
This would mean that the Yuan shorts will be crushed shortly since that’s what happened for the Yen after the Japanese bubble collapsed.
Wait what? Yeah, the market can remain irrational far longer …..
Blow-off top.
This seems like a part of the answer to “why politics persue so many and so huge bubbles?” If tenable assets follow by the book the deflationary route, maybe China will buy every piece of our underware. They have plenty of people but not enough tenables, we inflate tenables and prefer to deflate people.
Here’s a thought. You know all those unicorns that have painted themselves into a corner where they cannot make an exit?
Now, the unicorns probably can still make out by selling themselves to these rich Chinese.
Theranos and Honest Company can even claim to have some innovative technologies. Theranos especially is known to draw first blood very efficiently from its investors, so that should get these Chinese their very own Rambo.
What if these Chinese investors aren’t all ‘stupid’ but (sometimes) simply in it for the long run?
I’m reading more suggestions lately that the central banks of the world are gearing up to buy EVERYTHING with their QE and NIRP policies, and maybe they are already far along with this plan (buyers of last resort in bonds, stock market, mortgages etc. etc). If that is the case, any price the Chinese pay will be fine, especially if their buying is as diversified as it seems.
But wait… The Chinese can’t buy US assets with yuan. They have to use dollars, and they can’t print dollars. So they have to get them from somewhere. The central bank might print yuan and sell them for dollars, but if done in large enough quantity, it would crush the yuan.
That’s where capital flight comes in. They use the dollars they already have. The Japanese can do that too, for a while with their stash of dollars.
And/or they borrow in dollars – which they’re also doing, and which is also a form of capital flight: in a default, let the lender repossess yuan assets.
“in a default, let the lender repossess yuan assets.”
A lot of them are rasing CNY against mainland assets, buying $ assets with it . Then % financing the dollar assets to buy more dollar assets. The $ revenue generated covers $ outgoing +.
The CNY lenders have no recourse on the $ assets.
in china, commonly several lenders, end up holding the same asset as security. leaving them 3, 5, 700% short, in a default, on the asset value.
The more of these transctions that take place, the greater the volume of CNY that ends up in foreign banks books, short term, as the FX transaction go round.
Slowly those TERMS Grow. particularly with the possible SDR CNY inclusion
The money that left Japan, when they brought up a huge amount of the pacific rim, was investment money.
Much of this cash outflow from Mainland china, is like the outflow from Hong Kong 80-97. Its looking for a place to hide, and its never going back.
Many Mainlanders who have something, now, look at XI, and see another Cultural revolution coming.
What’s wrong with you people? You’d whine about winning the lottery. I hope this Red Army of investors buys every hotel chain in the US. Wolf, you just said they didn’t know how to run a hotel chain. When they go broke, Marriott can buy them back for $0.10 on the dollar. Hell, they can take the hotels back to China. Everything is wrong and nothing is right. God made the mountains, God made the sky, God made the people and God knows why. You whine about this and whine about that, if a doctor found a lump in your neck, back and thigh, would you give a damn what these Chinese buy?
Who is “whining” – and about what? It’s your favorite word, it seems, as per your recent comments. But I still can’t figure out what it means when you use it that way.
It is disturbing how China, still technically a communist regime, is being allowed to buy up prestige American companies.
the difference between ‘capitalist’ USA and ‘communist’ China is becoming more blurry every day …
With the FED and ECB silently buying up companies with their QE operations, things are going to look pretty much ‘communist’ in the end (unless the QE is completely unwound some day, which I don’t expect).
I always defined the word, ‘Whining’ as complaining in a petulant way. Surely the are some good things about these Chinese investing these billions here. I suppose they could invest it in North Korea.
So, in my articles, am I “complaining in a petulant way” or am I giving you data, analysis, and commentary on important business, financial, and economic developments?
Yeah, that is exactly what is going to happen. Once commercial and house market collapses banks will buy everything for pennies on dollar. It happened before and it is not any different this time.
Bob please keep your religious views for yourself because I don’t think crowd here gives crap about it, or go and visit theeconomiccollapse.com which is more appropriate for that (all due respect to Michael who runs blog).
First off you don’t speak for this crowd. Second, you do not have to read what I have to say, just scipt over it, like I do your post.
You are one angry and ignorant FOOL.
God and Bible have nothing to do with business and economy.
Look for help before its too late.
Can someone put all of these guys in time out?
You whine like a mule, Miller.
As Bucky Katt in ‘Get Fuzzy’ likes to say, “Whining like a barefoot frenchman in an oak barrel.”
One thing that has to be remembered is that all these properties bought by the Chinese in the USA have property taxes that are collected by local, county and state governments. I would assume that the high purchase prices results in higher assessments and taxes, at least on an individual property purchase. That should help local governments.
After the last couple of decades of Chinese goods being bought by US consumers in Walmart, for example, there’s money in China looking for someplace to go. Global central banks have reduced interest to near zero, and that’s not a way to grow wealth. In China, the GDP per citizen is just under $7,250, and in the USA it is just under $56,000. Where would you invest you money?
The US doesn’t execute their executives either. ;)
Yes we do, but it always look like accident. :))
I wonder, do these foreign owners really pay property taxes?
I know that in several countries (including my own) foreign investors have many tricks for not paying property taxes. And sometimes the tax authorities just find it easier to go after the neighbors than trying to collect taxes from someone who hides behind a chain of lawyers, fake businesses etc. I have heard stories from Spain where foreigners didn’t pay property taxes for 10-15 years and now that the authorities need money they suddenly discovered a new piggy bank ;-)
Ah, but in American the taxing authority places a tax lien on the real estate. So, eventually, when they sell, this amount has to be paid at closing.
Plus, smart investors buy un-paid tax liens and get a great return while they wait about 3 years. Usually, after 3 years they can file a request for title to the real estate. I’m sure China, Inc doesn’t want to lose the Waldorf for unpaid property tax.
Assuming the tax is 5% per year, bad math means the lien holder can, with luck, buy 3 years of liens, thus getting the Hotel for 15% of it’s taxable value without competition.
I don’t think the commies are that stupid. They do have Goldman Sachs advising them…….
“They do have Goldman Sachs advising them……”
Which worked out so well for Greece. I hope GS gives the Chinese tons of “advice”.
Great site. Mr. Richter tells us what’s wrong and Mr. Miller tells us why. That’s as good as it gets.
My god, the overhang from the China bubble and reading Bob Millers comments is going to be epic. sarc
Mr R.
Country X creates a gazzilion X-bucks. Takes the X-bucks and buys Marriott, giving the X-bucks to the owners of Marriott.
The owners of Marriott take the X-bucks and convert them to dollars.
Anybody want to buy and island and start printing up some Y-bucks?
well, ‘everyone’ complains the ‘flow’ of money is gridlocked. Let the money flow. It’s that what these purchases enable?
I don’t care if they buy these high end hotels, I don’t stay there, and before long may be the people who used to stay there won’t be able to afford to stay there either! “The world, however, does not wait, but instead moves on” Dead can Dance.
You think the millennials will stay there…hahahahha . The higher you reach, the smaller the audience.
You don´t suppose the Chinese are playing a very long game with $US, do you? Wouldn that be very . . . uh. . . Chinese?
Wolf- Thanks for the article, data, analysis, & commentary, interesting times for sure. I was wondering if you have come across anything related to what prepalaw mentioned above regarding JPM selling their corporate digs to the Chinese. I had thought this was a very strange occurrence back when it happened but haven’t really seen any solid info come to light since then.
The Chinese have been buying into so many areas around the world, setting up new ports, acquiring mineral/mining rights, & many other things. It would be interesting to see a global map & a list of holdings by Chinese firms. It might possibly connect some missing dots. Do you know of any such maps/lists?
The Chinese have for years been trying to buy (often successfully) buildings near or at least in line-of-sight of important US government, corporate, or other installations.
The US is doing this overseas as well. It’s the oldest trick in the book. This was important a while back. Now given that everything gets routed via the internet, it’s probably more important to hack into servers, rather than to spy on conversations in an office or conference room.
There is nothing ‘wrong’ with the Chinese buying up assets, I’d say it is an unintended consequence of currency wars; as the Yuan threatens to devalue, those with Yuan assets or those wishing to maintain / increase their value put money into USD based assets.
The problem may be in the future, similar to the Japanese lesson, in that if the USD reverses course (iirc from ’85 til 87 the dollar depreciated, culminating in 87 Wall St rout), then Chinese owned assets will sell up and go somewhere else. The Japanese went back to Japan and their bubble exploded over the 87-89 years before popping spectacularly.