DALLAS—While a surprise bid of $1.5 billion for its assets might prove too strong a temptation to pass, industry analysts don’t expect real estate investment trust Ashford Hospitality Prime will take up The Weisman Group on its offer.
“I think it’s pretty hard for this to happen,” said Ryan Meliker, managing director and senior real estate investment trust and lodging analyst at Canaccord Genuity.
Ashford Prime announced 8 June in a news release it received the unsolicited bid from The Weisman Group, an investment firm based in the suburbs of Los Angeles that holds shares of Ashford Prime.
“Consistent with its fiduciary responsibilities, Ashford Prime’s board of directors, in consultation with its independent financial and legal advisors, will carefully review and evaluate The Weisman Group’s proposal to determine the course of action that the board of directors believes serves the best interest of the company and its stockholders,” the news release states.
A U.S. Securities and Exchange Commission filing includes the bid letter from Lyle Weisman, a manager for The Weisman Group, to Ashford Prime CEO and Chairman Monty Bennett. In the letter, the Weisman Group offers to acquire 100% of Ashford Prime’s assets for a total of approximately $1.5 billion, which includes the refinancing of all existing Ashford Prime debt. Shareholders would receive the cash amount equal to $20.25 per share of common stock and about $25 per share of Series B Preferred stock.
As part of the acquisition, The Weisman Group offered a termination fee capped at $70 million of the cash to separate Ashford Prime from parent company Ashford. The investment firm also required the sale of the Courtyard Seattle Downtown and the Courtyard San Francisco Downtown.
Ashford officials declined to comment beyond their statement in the news release.
Ashford Prime is part of the Ashford group of companies, which also includes Ashford Inc., Ashford Hospitality Trust and Ashford Investment Management. Ashford Hospitality Trust and Ashford Hospitality Prime, in particular, share a senior management team.
The company has 11 luxury hotels in resort and gateway markets.
Doubts abound
Analysts said two of the main problems with The Weisman Group’s proposal are the purchase per share price and the termination fee offer. Weisman offered $20.25 per share of common stock, which Meliker said was a discount of asset value.
The termination fee is also too low, he said. Meliker questioned why a board member of Ashford would sell a company worth about $240 million for $70 million and what shareholders would think of a board that sells that company for less than 25% of its value?
“I’m going to get sued,” Meliker said of that hypothetical. “I should get sued.”
In a note about the offer, Robert W. Baird & Company analysts David Loeb, Michael Bellisario and Amanda Frankwick wrote that the proposal is appealing, but there are too many hurdles and contingencies that could block the sale.
Along with the lower termination fee offer, The Weisman Group seeks to acquire the Courtyard San Francisco Downtown, a property worth about $400,000 per key, the analysts wrote. The property isn’t one that Ashford management has listed for sale.
Weisman’s proposal is to acquire the assets, not the entity, they wrote, which could result in significant liabilities, such as capital gains taxes, transaction costs, the full termination fee payable to Ashford and debt repayment-related fees. Those issues could lower the value of the proposal in the eyes of shareholders, they noted.
“We believe the proposal appears to be an effort by the Weisman Group to encourage investors to vote for Ashford Prime's director nominees at the annual shareholder meeting, which is scheduled for June 10; the Weisman Group had previously publicly supported management’s value-creation efforts and viewed Sessa’s proxy contest as disruptive to management’s efforts to close the valuation discount,” the analysts concluded.
Shareholder Sessa Capital sued Ashford Prime earlier this year because of a large termination fee that is triggered if shareholders elect a majority of the board of directors who did not receive approval from the incumbent directors. The 5th U.S. Circuit Court of Appeals last week denied Sessa’s motion to postpone Ashford Prime’s annual shareholder meeting on 10 June. The denied motion means Sessa’s candidates for Ashford Prime’s board remain invalid. Sessa officials also are barred from submitting candidates or soliciting proxy votes for them as Sessa works to appeal a lower court ruling.
The path ahead
The Ashford Prime board will take its time, Meliker said. The current board has been under a lot of scrutiny and pressure from activist shareholders, so he believes it will be careful, methodical and deliberate with any bids for acquisition.
“No offer, no matter how much it doesn’t make sense, will be ignored,” he said. “I don’t think it will be accepted. I’m not sure any offer would be.”
The board recently came out with a strategic plan that will make some structural changes to maximize value to its shareholders. While he’s not certain the plan will work, Meliker said the board isn’t ready to sell at a discount without at least executing their plan.
The question now will be whether Weisman comes back with an offer that warrants more consideration, he said.