(Bloomberg) – Two top ten Extended Stay America Inc. owners plan to vote against proposed acquisition by Blackstone Group Inc. and Starwood Capital Group, arguing that the $ 6 billion offer undervalues the accommodation company.
Tarsadia Capital LLC, which owns around 3.9% of Extended Stay, said in a letter to shareholders on Monday that it not only believes the price is wrong but that the timing is wrong as the travel industry has its own Recovery from the pandemic begins. The family office said it was concerned that Extended Stay had accelerated the deal as Tarsadia has appointed three directors to its board of directors and believes that more value can be created on its own.
“Perhaps this disappointing transaction is the result of the incumbent board’s attempt to evade responsibility for the company’s long-standing underperformance just before a proxy competition began,” said the company in the letter, copy of which was received from Bloomberg. “Regardless, one thing is clear: with a clear view of better results and a bright future, selling at a poor price is not the best outcome for shareholders.”
Tarsadia is not alone in his views.
Another top ten owner, Hawk Ridge Capital Management, which holds around 2% of the shares in Extended Stay, is also planning to vote against the deal. Hawk Ridge founder David Brown said he was disappointed with what he called a “tiny premium” as he believed the company was well positioned to capitalize on the turnaround in the industry. He said he believed management was on the right track.
“I understand why buyers want to buy it,” Brown said in an interview. “It’s a big question mark as to why the board chose this path.”
Tarsadia nominees included former CEO of Choice Hotels Stephen Joyce, Ross Bierkan, former CEO of RLJ Lodging Trust, and Michael Leven, former president of Las Vegas Sands.
Representatives for Blackstone, Starwood and Extended Stay were not immediately available for comment.
Blackstone and Starwood agreed last week to purchase Extended Stay for $ 19.50 per share. This corresponds to a premium of 15% compared to the time at which the shares were previously closed. This would be the biggest deal in the hotel industry since the Covid-19 pandemic that decimated the travel business. The merger documents indicate that Blackstone signed a confidential agreement on February 10, just five weeks before the contract was announced, while Starwood signed its own agreement a month later, five days before the contract was announced on March 15.
Tarsadia argues that the purchase price is a significant discount to the average trade multiplier of its competitors and is the lowest transaction multiplier in US accommodations in more than five years.
“In our view, there is no reason to sell now and no reason to sell at this price,” it said.
The company said longer stays will benefit from a boom in travel, similar to the years following the recessions in 2001 and 2009. The average three-year total return for housing stocks after the year-long anniversary of the bottom of those recessions was 124% and 59%, respectively.
Extended Stay also has numerous levers that it can use to add value to shareholders, including selling a significant portion of its multi-family and affordable home remodeling portfolio at a premium to what Blackstone and Starwood offer, Tarsadia said. Extended Stay could also grow faster through more aggressive franchising efforts, and the underfunded balance sheet provides yet another avenue to return capital.
“In short, selling now, before the cyclical recovery and before these operational, asset sales, balance sheet optimization and return on investment opportunities are realized, is a massive mistake unless the buyer pays a substantial premium to consider these inherent opportunities.” the company said.
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