By Geoff Colvin and Ryan Derousseau
March 29, 2016

-To no one’s surprise, Anbang Insurance CEO Wu Xiaohui yesterday increased his offer for Starwood Hotels and Resorts to about $14 billion, continuing his bidding war with Marriott International’s Arne Sorenson. Starwood responded to Wu’s bid with a statement that it was in talks with Anbang, and it expected that the bid was “reasonably likely to lead to a ‘superior offer.’” In that case, based on past behavior, Starwood would likely accept the offer and cancel its current deal with Marriott.

This is now the testing time for Sorenson. If Starwood accepts Anbang’s offer, he’ll have to decide whether to increase his bid yet again. Marriott yesterday issued a statement suggesting it may not; the statement said that Starwood shareholders “should give serious consideration to the question of whether the Anbang-led consortium will be able to close the proposed transaction” in light of possible regulatory or financing problems. Marriott investors liked that message – they sent the stock price up in the expectation that Marriott would now escape a deal in which they thought it was already paying too much.

Marriott has been a terrific financial performer over the past several years, and an important reason has been its extremely disciplined use of capital. We don’t know what kind of returns Sorenson could wring out of Starwood or whether they would exceed Marriott’s capital cost. But if Sorenson now makes his third deal for Starwood, investors will be skeptical for sure. It could turn out, however, that he’s playing a game of auction chicken, gambling that a bid would induce Wu to bid still higher, burdening him with an uneconomic deal that would weaken him for years. But then Wu may not care, perhaps being motivated by a desperate desire to move money out of China into hard, non-Chinese assets. This is major league chess.


-When Nikita Khrushchev was running the Soviet Union, he gave a speech denouncing the horrors committed by his predecessor, Joseph Stalin. Khrushchev had been rising through the Communist Party in the Stalin years and had seen Stalin’s behavior up close. So during his speech, someone in the audience yelled, “Why didn’t you speak up?”

Khrushchev gazed out at the audience, fire in his eyes, and bellowed, “Who said that?
Utter silence. He let it linger awhile. Then he said softly, “Now you know why.”

That story is worth remembering as we read recent news about Chinese President Xi Jinping’s efforts to find the author of an anonymous letter, circulated online, criticizing him and calling on him to resign. At least four employees of an online news site that published the letter have disappeared, as have about ten people from a related company, the WSJ reports. Xi wants to know who said that, so he can demonstrate that dissent of any kind will not be tolerated.

Which prompts at least two questions for business leaders. Will Xi’s Communist Party succeed better than Stalin’s did? And how do business leaders stifle uninhibited speech, deliberately or not?

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