Starwood Hotels and Resorts Worldwide Inc, owner of the Sheraton and Westin hotel brands, agreed to a higher $13.6 billion buyout offer from Marriott International Inc, spurning a proposal from China's Anbang Insurance Group.
Starwood said on Monday that Anbang's offer no longer constituted a "superior proposal," adding that it was not allowed to engage in talks with the Chinese company under the latest agreement with Marriott.
Marriott raised the cash portion of its offer to $21 per share from $2, valuing its new stock-and-cash offer at $79.53. The company offered $72.08 per share in November.
Starwood shares were up 4 percent at $83.70 in early trading. Marriott was down 1.2 percent at $72.22.
"We believe this is the best bid Marriott is willing to make," Canaccord Genuity analyst Ryan Meliker wrote in a note.
A group led by Anbang, the owner of New York's iconic Waldorf Astoria hotel, had challenged Marriott with an initial non-binding offer of $12.8 billion on March 14, raising it later to $13.16 billion, or $78 per share in cash.
A deal with Anbang - which would have been the largest ever by a Chinese company in the United States - would probably face a review by the Committee on Foreign Investment in the United States, an interagency panel that reviews deals to ensure they do not harm national security.
Meliker said he did not expect Anbang to increase its offer and drive a bidding war, but did not discount such a scenario.
Anbang was not immediately available for comment.
A Marriott-Starwood combination would create the world's largest hotel chain with top brands including Sheraton, Ritz Carlton and the Autograph Collection.
"The power of the information and guest relationships to me is the greatest value that would come out of this for Marriott," said Bjorn Hanson, a professor of hospitality and tourism at New York University.
"Control of so much information enables for there to be better targeted marketing and pricing," he said.
The combined company will have over 5,500 hotels with 1.1 million rooms worldwide, giving Marriott a greater presence in markets such as Europe, Latin America and Asia and allow it to better compete with apartment-sharing startups such as Airbnb.
Marriott has cleared pre-merger antitrust review in the United States and Canada. Approvals from the European Union and China are pending.
Under the revised agreement, Starwood will pay a breakup fee of $450 million, up from $400 million previously.
The investor group Anbang is leading also includes private equity firms J.C. Flowers & Co from the United States and China's Primavera Capital.
(Reporting by Arunima Banerjee and Sayantani Ghosh in Bengaluru; Editing by Saumyadeb Chakrabarty)
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