Global Glance: March 21, 2016

A quick look at intriguing international stories

By John Bostwick, Managing Editor, Radius

Welcome back to Global Glance. This week we look at:

• How a Chinese insurance company may be changing the nature of M&As
• FIFA’s surprising claim to victimhood
• A strange and lavish soccer school in rural China

How a Chinese Insurance Company May Be Changing the Nature of M&As

A Global Glance back in November looked at Marriot International’s planned acquisition of Starwood, another hotelier. Marriott’s announcement that month indicated the deal would create a combined company that would have been the largest hotel chain in the world, with over 5,500 hotels in more than 100 countries. (Starwood’s brands include Sheraton, W Hotels and Westin.)

In a surprise announcement last Monday, Starwood declared that it had received a non-binding proposal from an unnamed consortium “to acquire all of the outstanding shares of common stock of Starwood for $76.00 per share in cash.” Starwood’s board, the release continues, “has not changed its recommendation in support of Starwood’s merger with Marriott. … [it] will carefully consider the outcome of its discussions with the Consortium in order to determine the course of action that is in the best interest of Starwood and its stockholders.”

The New York Times reported that day that the leader of the unnamed consortium is Anbang Insurance Group Co., a private Chinese company that in 2014 purchased the storied Waldorf Astoria hotel in Manhattan for nearly $2 billion. The Times indicates that the consortium’s offer is for $12.8 billion in cash and “represents a significant premium to Marriott’s deal, which has been affected by a decline in the hotel operator’s stock price since it was announced in November.” The Times notes that Anbang’s bid “is the latest in a wave of overseas deal-making by Chinese companies.”

An article on the takeover bid by The Wall Street Journal explains that, according to analysts, “the slowing Chinese economy is helping drive companies overseas, as Chinese companies seek higher-yielding assets and try to upgrade the country’s industries.” The Journal indicates that “in all, Chinese companies have agreed to $102 billion in foreign deals this year, nearly even with the record $106 billion for all of 2015.” Given that it’s only mid-March, that 2016 number is startling.

On Friday, Starwood announced that it had accepted the consortium’s deal: “Starwood’s Board has determined that the Consortium’s proposal constitutes a ‘Superior Proposal’ and that Starwood’s Board intends to terminate the Marriott merger agreement and enter into a definitive agreement with the Consortium.” CNBC.com reported Friday that Marriot had five days to respond, and “sources told CNBC that Marriott will in fact make a counter-bid.”

For another look at Anbang and its freewheeling chairman Wu Xiaohui, check out “Gate-Crashing, Cutting In: Anbang's Recipe for Billions of Deals,” published last week in Bloomberg.com. That article puts the Starwood bid at $12.9 billion, not $12.8, and also puts the proposal in context: “A purchase of Starwood would bring the amount of acquisitions by Anbang over the past two years to about $27 billion.” Sanford C. Bernstein & Co. analyst Linda Sun-Mattison, quoted in the Bloomberg article, explains Wu’s methods: “It’s definitely not the so-called corporate style, with investment banking teams and rounds of due diligence. … The chairman knows what kind of assets he wants, what kind of characteristics he likes, and he does it.” In other words, we may be moving into a new and different era of mergers of acquisitions in which leaders like Wu, according to Bloomberg, “swoop in at the last minute or preempt any other bidders.”

FIFA’s Surprising Claim to Victimhood

Last Wednesday ministers from the 41 countries that are party to the Organization for Economic Cooperation and Development’s Anti-Bribery Convention, along with representatives from additional countries, met in Paris. An OECD press release explained that the meeting’s purpose was to “discuss measures to strengthen international efforts for combating foreign bribery as well as the role of the Convention and the OECD Working Group on Bribery (WGB) in the broader, global anti-corruption framework.” The ministers also met to discuss such issues as whistle-blower protection and anti-corruption compliance for businesses.

In a statement published that day, meeting chair and Italian minister of justice Andrea Orlando summarized why anti-corruption legislation and compliance is so important to the global economy. It should be required reading for public and private officials at every level: “Corruption increases costs for governments, businesses and citizens. It makes those costs unpredictable. It distorts the allocation of public resources and budgetary and expenditure policies. It decreases tax revenues and resources available for economic and social development. It lowers the quality and level of essential public services. … Moreover, corruption humiliates institutions, citizens and the rule of law.”

In what just may have been a coincidence, on the very day of the OECD Anti-Bribery Ministerial Meeting, FIFA — soccer’s embattled world governing body — issued a press release about recovering money from FIFA officials accused of accepting bribes. Global Glancers with keen memories will recall that last summer we addressed the story of 13 people, including 9 FIFA officials, who were detained in Switzerland on suspicion of receiving a total of $100 million in bribes. Those arrests were part of a joint anti-bribery effort between Swiss and US authorities.

In last week’s release, FIFA refers to itself as a “victimized institution” and that it “has submitted a Request for Restitution to the US Attorney’s Office and the US Probation Office for the Eastern District of New York, claiming damages from 41 former FIFA officials and other football organizations … who have been indicted in the ongoing investigation by the US Department of Justice.” FIFA is “seeking restitution for the money the defendants pocketed to enrich themselves,” along with “money from the defendants for the damage their actions caused to FIFA’s brand and reputation, its intellectual property and its business relationships.”

The release ends with a lofty, indignant-sounding quote from FIFA president Gianni Infantino, who says, in part: “These dollars were meant to build football fields, not mansions and pools; to buy football kits, not jewelry and cars; and to fund youth player and coach development, not to underwrite lavish lifestyles for football and sports marketing executives.”

If you agree with Infantino’s statement but are baffled by its source you’re not alone. A New York Times article published on the day of the press release observes of FIFA’s request for restitution: “Organizations reeling from scandal rarely ask the government to reimburse them for their employees’ crimes. More often, they pay penalties.” The article adds that the timing of the request is also unusual, given that none of the defendants has been sentenced yet. It emphasizes that the impetus behind FIFA’s efforts here is as much to revive the association’s damaged reputation as it is to recover lost money, and that FIFA leaders are playing a complicated public relations game: “FIFA’s lawyers have in recent months balanced the urge to be early in staking a claim to victimhood with the necessity of allowing time to pass to establish distance from a leadership group tied to scandal.”

The next day, FIFA released its financial and governance report for 2015, which revealed a USD$122 million loss for the year (see page 15 of the report). A related press release notes that this is the first time the association has posted a negative result since 2002. FIFA attributes last year’s disappointing result in part to high expenditures, including “unforeseen costs such as legal fees and costs for extraordinary meetings.” The report also revealed for the first time that disgraced former FIFA president Sepp Blatter’s 2015 remuneration was around $3.6 million (see page 63). An AP story published last Thursday in US News notes that “FIFA agreed to start publishing executive pay in modernizing reforms, approved last month, as a response to American and Swiss federal investigations of corruption implicating dozens of soccer officials.”

A Strange and Lavish Soccer School in Rural China

Let’s stay on point as we wrap up this GG by looking at a story that combines China’s transformative business practices with the beautiful game. Chinese president Xi Jinping’s love of soccer is well documented. I even addressed the subject last year in these blog pages, citing among other sources an International Business Times article that indicated Xi and and other Chinese government officials released a “50-point plan that seeks to turn the country into a ‘soccer powerhouse’” and promised “to establish 50,000 soccer schools in the country in the next decade, and to set up a soccer lottery to help fund them.”

Surely the grandest — and I’m guessing the strangest — of these institutions must be the Evergrande Football School, whose huge ersatz European Gothic buildings and 50 soccer fields sit incongruously in a patch of rural southern China. According to a story last week in CNN.com, the school is the largest of its kind in the world, is owned by a real estate company and was built in less than a year for $185 million, in part to curry favor with the soccer-loving President Xi. (The article doesn’t mention the date of construction, but a video in this Financial Times piece indicates the school was built in 2011.)

CNN.com reports that Evergrande’s tuition is steep — about the cost of an average worker’s salary in China — so most of the school’s students are wealthy. (There are some scholarship kids.) Both CNN.com and The Financial Times articles liken the campus’ architecture to Hogwarts Academy or something out of a Disney film, and the pictures and embedded videos in the pieces justify those comparisons. Here’s CNN.com on the surreal setting: “The manicured lawns and more than $30 million worth of Southeast Asian trees… are all just a few hundred yards from barren vegetable patches, wooden shacks and potholed roads.” It adds that the school is “a stark reminder of China's wealth divide, and a not-so-subtle reminder of the money the country is throwing at its footballing problem.”