LaSalle Hotel Properties yesterday confirmed that its Board of Trustees unanimously rejected an unsolicited proposal received from Pebblebrook Hotel Trust to acquire all outstanding shares of LaSalle in an all-stock transaction with consideration of 0.8655 common shares of Pebblebrook per common share of LaSalle.
According to the firm, the proposal was unsolicited and in consultation with its financial and legal advisors, the Board concluded that the proposal was “insufficient in both price and mix of consideration and is not in the best interests of the company’s shareholders.”
According to a prepared statement, Stuart L. Scott, Chairman of the Board, said that “Consistent with our fiduciary duties, the Board has taken the time to carefully evaluate the proposal and the future potential of a combined company, and we have concluded that the proposal is grossly inadequate and is, therefore, not in the best interests of our shareholders. The Board is focused on the continued execution of our strategic plan, prudent capital allocation, and our superior hotel portfolio, which will deliver greater value, sooner to our shareholders than Pebblebrook’s low-premium proposal.”
Scott continued, “With our outstanding assets, solid balance sheet and strong cash flow, we are well-positioned to execute strategically on near-term and long-term opportunities, which will enable us to drive growth and return capital to shareholders through dividends and share repurchases. Of course, the Board continues to be open-minded and will consider any alternatives that enhance long-term shareholder value; however, this proposal does not achieve that objective.”
In reaching its conclusion, the Board considered a number of factors, including:
Proposal Significantly Undervalues LaSalle’s High Quality Hotel Portfolio and Prospects for Future Value Creation. The company has strategically assembled an irreplaceable portfolio of trophy assets with significant upside in prime, high-barrier-to-entry urban and resort markets. In addition, the LaSalle portfolio has 38 out of 41 hotels with terminable at will contracts, which provides ongoing optionality and translates to higher value at sale. Pebblebrook’s proposal reflects neither the value inherent in the company’s high-quality portfolio, nor its potential for future value creation.
LaSalle’s RevPAR performance has been superior to Pebblebrook’s for the past two years, the release noted, and “the company was able to better contain expenses over the same period. As such, given Pebblebrook’s track record of missing its targets, the LaSalle Board does not believe that Pebblebrook’s current all-stock proposal is in the best interest of LaSalle shareholders.”
The release also pointed out that LaSalle was “surprised that Pebblebrook has not waived ‘change in control’ payments to Pebblebrook executives in connection with this proposed transaction. Under the terms of the Pebblebrook proposal, existing Pebblebrook shareholders would own less than 50% of the combined entity, which would constitute a change in control under Pebblebrook’s equity incentive plan, share award agreements and change in control severance agreements. As a result, the transaction would trigger immediate vesting of outstanding equity awards held by Pebblebrook’s executives and the payment of cash stay bonuses to Pebblebrook’s executives on the first anniversary of the transaction, with aggregate values of approximately $29 million and $4.5 million, respectively, according to Pebblebrook’s definitive proxy statement filed on April 28, 2017. Moreover, in lieu of such cash stay bonuses, Pebblebrook’s executives could be entitled to the payment of cash severance payments in an aggregate amount of approximately $21.6 million (including tax gross ups) in the event of termination without cause or resignation for good reason within a year following the transaction.”
As The REIT Wire reported yesterday, analysts were quick to say a potential deal “made sense” with one firm noting that it was logical due in part to the fact that the CEO of Pebblebrook founded LHO and “knows the assets well.” The analyst also said that it was logical due to the fact that other employees of PEB have also worked at LHO and that the portfolios were very comparable with hotels in many of the same cities with a large mix of independent hotels.