(Reuters) - Starwood Hotels and Resorts Worldwide Inc HOT.N, owner of the Sheraton and Westin brands, accepted a higher $13.6 billion acquisition offer from peer Marriott International Inc (MAR.O), spurning a bid from China's Anbang Insurance Group.
The move dramatically raises the stakes in the bidding war since the deal with Marriott prohibits Starwood from communicating with Anbang, which already owns New York's Waldorf Astoria hotel.
If Anbang had succeeded with its offer, the acquisition would have been the largest ever by a Chinese company in the United States. It would not comment on Monday on whether it was planning a new bid.
Marriott raised the cash portion of its offer to $21 per share from $2, valuing the total bid, which also includes stock, at $79.53 as of Friday's close of trading. The company had clinched a deal with Starwood in November for $72.08 per share.
"In the further diligence we have completed in last five months, we have become even more convinced of the tremendous opportunity presented by this merger," Marriott Chief Executive Officer Arne Sorenson told analysts on a conference call. "That confidence is reflected in our higher offer."
Starwood shares were up 4 percent at $83.79 in afternoon trading. Marriott was down 1.6 percent at $72.02.
"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 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.
"It's likely that the Anbang consortium will increase its offer because that group may be motivated more by obtaining Western assets and shifting capital outside China than by generating value or earnings accretion," Nomura Securities International Inc analysts wrote in a note.
An acquisition of Starwood by Anbang 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. However, sources have said both sides believe that deal would receive CFIUS clearance.
A Marriott-Starwood combination would create the world's largest hotel chain with top brands that also include 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 more than 5,500 hotels with 1.1 million rooms worldwide, giving Marriott a greater presence in markets such as Europe, Latin America and Asia and allowing it to better compete with apartment-sharing startups such as Airbnb.
Marriott's merger with Starwood has cleared antitrust review in the United States and Canada. Approvals from the European Union and China are pending.
Under the revised agreement, Starwood would 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.
Lazard (LAZ.N) and Citigroup Global Markets Inc (C.N) are financial advisers to Starwood, and Cravath, Swaine & Moore LLP is its legal counsel. Deutsche Bank Securities (DBKGn.DE) advised Marriott. PJT Partners Inc (PJT.N) is Anbang's financial adviser, while Skadden, Arps, Slate, Meagher & Flom LLP is its legal counsel.
Additional reporting by Jeffrey Dastin in New York and Sayantani Ghosh in Bengaluru