Mirae Asset Global Investments Co. Ltd. notified Anbang Insurance Group on May 3 of its decision to cancel a $5.8 billion acquisition of 15 US luxury hotels, putting a brake on its six-year buying spree of global hotel chains and signaling lengthy legal disputes with the state-controlled Chinese insurer.
The South Korean asset manager said that Anbang’s ongoing litigation with a third party over the ownership of six out of the 15 hotels constituted a breach of their contract terms and called for return of the $580 million deposit it had placed in an escrow account.
“We decided to exercise our cancellation right stipulated in the contract after Anbang failed to explain about that issue, despite our notice on April 17 to resolve it within 15 days,” Mirae Asset said in a statement on May 4.
Before signing the agreement with Mirae Asset, Anbang reportedly had found the ownership of the six hotels, including Four Seasons Silicon Valley in California, were transferred in fake deeds to an unknown entity without its knowledge.
Anbang has been in litigation to take back their ownership.
“We have not received any guarantee from US insurance companies that Anbang Insurance holds their ownership. This constitutes a breach of the contract terms that the seller must provide full ownership (of the 15 hotels),” Mirae noted.
The decision to walk away was announced after Anbang filed a lawsuit on April 27 against Mirae in a US court over the failure to complete the payment by the April 17 deadline.
In response to the announcement, Anbang blamed Mirae for unilaterally terminating the agreement and notified the escrow agent not to return the deposit, according to Yonhap news.
Anbang also argued that the legal problems over the ownership have been already resolved in the US which Mirae was informed of, Yonhap reported.
SIGH OF RELIEF?
Financial industry watchers in Seoul showed positive response to Mirae’s decision to drop what would have become the largest cross-border property deal by a Korean company.
“The travel industry will take quite a while to recover from the Covid-19 shocks. Mirae might feel lucky that the Covid-19 broke out before closing the deal,” one of the sources told the Korean Investors.
Luxury US hotels saw a 73% drop to 9.9% in room occupancy in the week of April 12-18, compared to the same period of 2019, according to Smith Travel Research.
For the hotel deal with Anbang, Mirae had planned to raise $2.1 billion through its affiliated companies, including $1.57 billion from Mirae Asset Daewoo Co. Ltd. that is equivalent to 21.3% of the brokerage firm’s equity capital as of the end of March.
The hotels to be acquired included The JW Marriott Essex House in New York, the Ritz-Carlton Half Moon Bay, Westin St. Francis in San Francisco and the Loews Santa Monica Beach Hotel.
Mirae has been snapping up global hotel chains since 2013, with chairman Hyeon-joo Park saying: “Highly-reputed luxury hotels in the best locations can survive a recession and their value never changes over time.”
But scrapping the $5.8 billion deal could mean U-turn on Mirae’s push into the tourism industry.
Mirae also faces a lengthy legal battle over getting back the $580 million deposit, as Anbang remains stern in closing the transaction.
“Our lawsuit filed against Mirae Asset was about carrying out the transaction. Given that, it will not be limited to receiving the deposit,” an Anbang Insurance source told the Korean Investors. “If Mirae loses the case, it will have to acquire the hotels as agreed.”
Timeline of transactions of the 15 US hotels:
– March 2016: Anbang Insurance acquired the 15 US hotels from Blackstone for $5.5 billion
– August 2018: Mirae Asset was named as preferred buyer of the hotels by Anbang
– Sept. 11, 2019: Mirae signed an agreement with Anbang to buy the hotels for $5.8 billion and paid a deposit of $580 million.
– March 2020: Mirae requested a delay to the deal closing.
– April 2020: Mirae Asset notified Anbang of a breach of the contract terms
– April 27, 2020: Anbang filed a lawsuit against Mirae over missing the payment deadline.
– May 3, 2020: Mirae sent a notice to Anbang of cancelling the contract.
By Geunho Im and Hyun-il Lee
<Edited by Yeonhee Kim>