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Power Sheet – March 15, 2016

It’s crunch time for Marriott CEO Arne Sorenson, and we’ll get a close-up view of high-stakes leadership over coming weeks. In general terms his situation is one we’ve seen many times. He has a deal to buy another company, Starwood Hotels and Resorts, which was agreed to last fall and set to close mid-year. Now a surprising newcomer, China’s Anbang Insurance, has made a higher bid. What should Sorenson do?

The stakes are high. This would be a big deal even for Marriott, creating by far the world’s biggest hotel company by number of rooms and by revenue. The money is significant; Marriott would spend about $12.2 billion for Starwood, while its 2014 annual revenue was about $13.8 billion.

And here’s the real issue for Sorenson: Big mergers can fail to deliver value to shareholders for many reasons – botched integration of the two businesses, cultural wars, unwise strategy – but the most common reason is more mundane. The buyer pays too much. In that case nothing can rescue the deal, and paying too much is precisely the danger the current situation creates.

Here’s why. Anbang shows signs of being a possibly irrational buyer who might be willing to bid way too high. In 2014 the company agreed to pay $1.95 billion for the Waldorf-Astoria in Manhattan, a trophy property, after other Chinese buyers had bought two other New York trophy hotels, the Plaza and the Carlyle. Just last week Anbang agreed to pay $6.5 billion for a collection of luxury hotels that Blackstone Group had bought for $4 billion only four months earlier. And Anbang is offering all cash, while Marriott’s offer is largely stock. Other potential motivations for Anbang: Wanting to buy hard assets outside of China before the yuan loses more value, and possibly a wish by CEO Wu Xiaohui, reportedly a billionaire, to move some personal wealth out of the country, as many wealthy Chinese are doing. Those motives wouldn’t apply to Marriott.

We can’t know the bottom line on Sorenson’s financial calculations. Among the factors: If Anbang buys Starwood, then Starwood remains a smaller competitor while Marriott remains the world’s largest hotel company, and Marriott would collect a $400-million breakup fee. There’s no assurance that regulators in the U.S. or elsewhere would approve an Anbang-Starwood deal. When Anbang’s bid became public yesterday, Marriott stock rose. Either investors think Marriott may also be in play, or they think Marriott was already paying too much and would be better off if its deal doesn’t happen.

And just to add some excitement, under the existing deal Starwood has only until Thursday to talk to other bidders. Starwood and Marriott shareholders are scheduled to vote on the deal March 28.

Sorenson faces some of the most important decisions of his CEO career. Watch and learn.

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What We’re Reading Today

NFL admits a CTE link for the first time

Speaking at a roundtable on concussions organized by the House Committee on Energy and Commerce, NFL senior vice president for health and safety Jeff Miller said there “certainly” is a link between playing football and neurodegenerative diseases such as chronic traumatic encephalopathy. NFL commissioner Roger Goodell has long avoided taking a stance on the science linking former players to the disease. The statement could affect lawsuits and a proposed settlement between the NFL and former players suffering from the effects of CTE.  ESPN

Breitbart journalist, editor-at-large leave…

…over the news site’s reaction to the possibility that one of its journalists was assaulted by Donald Trump‘s inner circle. Reporter Michelle Fields claims Trump campaign manager Corey Lewandowski grabbed her hard enough to leave bruises on her arms while she tried to ask Trump a question. Breitbart managers have  reacted slowly to the accusations, which the Trump campaign says are fabrications. Fields, editor Ben Shapiro, and a spokesman resigned. The organization put up a post mocking their decision, which was quickly pulled. Fortune

Decisive day for Rubio and Kasich

Five important states hold primaries today, including Marco Rubio‘s home state Florida and John Kasich‘s Ohio. Polls show Kasich leading in Ohio and Rubio trailing Trump by a wide margin in Florida. Kasich has said he’ll leave the race if he loses Ohio; Rubio may have to leave if he loses Florida. Trump and Ted Cruz would than have the field to themselves. USA Today

Mother Theresa to be named a saint

Pope Francis announced this morning that Mother Teresa will be declared a saint on September 4. Becoming a saint normally takes decades (Teresa died in 1997), but Pope John Paul II fast-tracked the first step of the process in 2003, and Pope Francis wanted to finalize it before November. BBC

Building a Better Leader

Quality of startups matters more than quantity 

A doubling of entrepreneurial quality can increase GDP 6.8% over 11 years. Harvard Business Review

How a board battled with a CEO

Former AIG CEO Bob Benmosche, who died of cancer just over a year ago, tells the story of his  2009 battle with board chairman Harvey Golub for control, in a book to be published next month. Fortune

A leader with emotional control…

…can do a better job of forming contingency plans without fear taking over. SmartBrief

Reversing Decisions

Putin abruptly pulls troops out of Syria

The decision by Russian President Vladimir Putin coincides with Syrian peace talks in Geneva. It likely means that he believes Syrian President Bashar al-Assad‘s regime will remain intact, protecting Russian interests in the region. Putin spoke on the phone to President Barack Obama, discussing the decision, with both sides agreeing to peace talks. Obama continued to press his belief that a political transition is necessary for Syrian violence to end. The Guardian

Obama won’t allow offshore drilling in the Atlantic

The decision, expected to be announced by the Interior Department today, reverses  plans that Obama announced in January 2015. Environmentalists and local businesses flooded the White House with letters and resolutions, asking him to stop the plans, which would have been finalized this year. The surprise reversal defies the recommendations of state officials in the southeast U.S. and could become a talking point in Republican campaigns. NYT

Trump’s battle with the SEC

In 2002 the SEC charged Trump Hotels and Casino Resorts with using an accounting practice to mislead investors. It was the first case the SEC brought against a company for using the practice, and it chose Trump‘s company because it offered a “stark” example of how businesses can skew numbers to trick shareholders. Trump Hotels agreed to a “cease and desist” with the SEC.  Fortune

Up or Out

Douglas Warner III, James Cash, and Robert Swieringa have stepped down as GE directors. GE has nominated Accor CEO Sebastien Bazin, NYU Stern School of Business dean Peter Henry, and Verizon Communications CEO Lowell McAdam to replace them.  WSJ

Munich Re has named Joachim Wenning CEO starting in April.  Reuters

Fortune Reads and Videos

Valeant slashed its 2016 revenue projections… 

…by $1.5 billion. CEO J. Michael Pearson blames slower growth in the U.S. dermatology, gastrointestinal, and woman’s health businesses. Fortune

Avon to cut 2,500 jobs…

…and move headquarters to the U.K., having sold its struggling North American businesses. Fortune

Aubrey McClendon was driving 88 mph just before…

…his car crashed into a bridge, killing him. Investigators say the former energy CEO did tap his brakes before the crash. Fortune

Theranos CEO to host fundraiser for Hillary Clinton

Elizabeth Holmes has had to defend her company’s blood testing technology to federal regulators. Fortune

Happy Birthday

Supreme Court Justice Ruth Bader Ginsburg turns 83 today.  Biography

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Produced by Ryan Derousseau
@ryanderous
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