NEWTON, Massachusetts—Despite the potential for litigation surrounding fiduciary responsibility and questions involving conflict of interest, executives at Hospitality Properties Trust are “hopeful” a deal to acquire two Sonesta properties and the Sonesta brand will close in the first quarter of 2012.
HPT announced plans on 3 November to acquire the entities that own the Royal Sonesta Hotel in Cambridge, Massachusetts, and the leasehold interest in the Royal Sonesta Hotel in New Orleans for approximately US$150 million. The acquisition of the two hotels is “part of a larger transaction in which an affiliate of our manager will acquire Sonesta,” John Murray, president and COO of HPT, said during the company’s third-quarter earnings call.
Tim Bonang, VP of investor relations, explained to HotelNewsNow.com the total transaction price, including assumed debt, was US$174 million. The remainder of that US$174 million after the US$150 million paid for the two assets, he said, was funded by Sonesta Acquisition Corporation for the Sonesta brand.
Sonesta Acquisition Corporation is an affiliate of Reit Management & Research, which is the manager of HPT. Murray is also assistant secretary and executive VP of RMR.
“As a (real-estate investment trust), HPT can’t own the operations,” Bonang said. “So Sonesta Acquisition Corporation will get everything else but the two hotels.”
During the question-and-answer portion of HPT’s earnings call, Murray was asked to clarify how—because RMR is the entity sponsoring SAC—the deal isn’t considered a conflict of interest.
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“Because there was an affiliate involved,” Murray said. “We engaged third-party valuation experts that provided our independent trustees with information on where they thought values were up in hotels and the transaction was reviewed by the independent trustees.”
Completion of the transaction is subject to approval of Sonesta’s common stockholders. According to an 8-K filed with the Securities and Exchange Commission on Tuesday, Sonesta’s board of directors has recommended Sonesta’s stockholders adopt the acquisition agreement and shareholders owning approximately 55% of Sonesta’s outstanding shares have already agreed to tender their shares.
Lawyers get involved
Meanwhile, at least two law firms are soliciting Sonesta shareholders who feel they are getting the short end of the stick.
The law office of Brodsky & Smith LLC, in a news release cited “possible breaches of fiduciary duty and other violations of state law by the board of directors of Sonesta for not acting in the Sonesta shareholders' best interests in connection with the sale process to HPT.”
“The transaction may undervalue Sonesta as a result of failing to adequately shop the company,” the release reads. “Litigation may be the only way to increase shareholder compensation.”
Faruqi & Faruqi LLP, a U.S. law firm that represents investors and individuals in class action litigation, issued a news release that said the company is investigating whether Sonesta’s board of directors breached its fiduciary duties to the company’s stockholders “by failing to conduct an adequate and fair sales process prior to agreeing to this proposed transaction, whether the proposed transaction undervalues Sonesta’s shares and by how much this proposed transaction undervalues the company to the detriment of Sonesta’s shareholders.”
Both law firms are asking shareholders to contact them. Neither responded to requests for comment Wednesday.
Bonang, addressing the lawsuits, said he is “hopeful” the deal will close.
“Research the different firms and see if this is what they do,” he said. “I’ve been in investor relations for a quite a while, and I’ve seen this happen before.”