Negotiation in the News: Dealing with an unpredictable counterpart

How a shadowy bidder disrupted the sale of hotel chain Starwood.

By on / Dealing with Difficult People

Many negotiators swear by the element of surprise. When the New York Times asked Republican presidential candidate Donald Trump about China’s aggressive moves in the South China Sea, for example, he responded, “I don’t want to say what I would do because . . . we need unpredictability.” He continued, “I wouldn’t want them to know what my real thinking is.”
Wise negotiators understand the importance of concealing their bottom line and other sensitive information lest the other party use it to take advantage. But how does extreme secrecy, such as concealing one’s key interests, motivations, ability to pay, and even one’s identity, affect negotiation?

The recent bidding war between hotel chain Marriott International and China’s Anbang Insurance Group, as detailed in a Wall Street Journal article by Craig Karmin, Dana Mattioli, and Rick Carew, sheds some light on this issue.

Early offers

In April 15, Starwood Hotels and Resorts Worldwide, the owner and operator of Westin, Sheraton, W Hotels, and other hospitality brands, revealed publicly that it was for sale. Anbang Insurance Group, a 12-year-old Chinese company owned by a murky blend of corporate shareholders and holding companies registered across China, expressed interest. But Starwood was skeptical of Anbang’s ability to secure financing, according to the Journal. The Beijing company had been devouring insurers and hotels across the globe—it had purchased New York’s fabled Waldorf Astoria for $1.95 billion—but its broader goals were unclear.

Throughout the fall, Anbang chairman Wu Xiaohui proposed various deal options but backed away in November when Starwood said it wouldn’t proceed without receiving specific financing plans. The same month, Starwood accepted a $12.2 billion bid from Marriott. The deal, which would create the world’s largest hotel company, offered clear synergies and straightforward financing.

On again, off again

Soon, however, Anbang was back in the picture. On March 10, just two weeks before Starwood shareholders were due to vote on the Marriott deal, the Chinese firm submitted a $76 per share, all-cash offer for Starwood.

“Our friends in China have resurfaced,” Starwood CEO Thomas Mangas notified his counterpart at Marriott, Arne Sorenson, the Journal reports. Still cautious, Starwood told Anbang it would have to bid higher and provide proof of financing to displace Marriott. Anbang promptly raised its offer to $78 per share and offered a letter of credit from China Construction Bank for the full amount.

Yet Starwood still had qualms. What did Anbang expect to gain from the acquisition? And what would happen if the Chinese government scuttled the deal after Starwood walked away from Marriott? To address this concern, Starwood asked for and received an extraordinary guarantee from Anbang, according to the Journal: that the deal would still close at the promised price even without Chinese regulatory approval.

On March 21, Starwood announced that it was accepting Anbang’s $13 billion bid and calling off its deal with Marriott.

Clarity, at last

Marriott came back with a $13.6 billion bid that relied more on cash than its previous stock-and-cash offer. Starwood accepted.
Anbang upped the ante once more, this time with an all-cash offer of $81 per share. Starwood convinced the Chinese firm to nudge its offer up to $82.75 per share, or $14 billion, then demanded proof of financing and regulatory approval at the new price. No longer able to compete on price, Marriott made the case that it offered stronger strategic value to Starwood than the mysterious Anbang.

For three days, Starwood waited for Anbang to meet its demands. Then Anbang’s lawyers abruptly revealed that the company was walking away. That left Marriott the winning bidder—but for $1.2 billion above its opening bid, thanks to Anbang.

“It’s great to have clarity,” Sorenson told the Journal, looking on the bright side. “We had very little insight into what the competing bidder was prepared to pay.”

The downside of unpredictable behavior

Throughout its negotiations with Anbang, Starwood tried but largely failed to gain an understanding of the bidder’s interests and motives. While Starwood ultimately profited from the bidding war triggered by Anbang, its lack of knowledge about Anbang and its motives easily could have drawn it into a high-risk deal. Meanwhile, Marriott paid substantially more for its prize because of the involvement of a bidder whose decision making was difficult to understand.

The Starwood deal illustrates the downside of secrecy in negotiation. We may try to get an edge by keeping the other side guessing but end up simply confounding her with our behavior. What’s more, negotiators who maintain an aura of secrecy typically leave value on the table. When you fail to reveal information about your preferences and interests to the other party, you miss opportunities to discover mutually beneficial tradeoffs.

Of course, it’s smart to keep information about your bottom line, as well as sensitive financial and other data, under wraps. But be open and forthright about your underlying interests and motivations. Your counterpart will appreciate your candor and likely reciprocate. Through this process, you will build trust and increase your odds of a successful long-term partnership.

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