The tension continues between stockholders of Spanish hotel firm NH Hotels and its majority owner, Chinese hotel firm HNA Tourism Group, as HNA issued a letter to stockholders demanding the reinstatement of its four board members and former CEO Federico González Tejera.
MADRID--15 September 2016--HNA Group ("HNA") today issued the following letter to NH Hotel Group (“NH Hotel”) (BME:NHH) shareholders:
Dear Fellow NH Hotel Shareholder,
As previously disclosed by NH Hotel, HNA has brought a lawsuit against the Company. In its simplest form, HNA is seeking an injunction that would suspend the resolutions of the 21 June 2016 General Shareholders Meeting and return the Company’s Board structure and management to the one that existed prior to such meeting. This includes, among other things:
1. Reinstating HNA’s four Board representatives and stablishing a Special Committee of the Board to monitor potential conflicts of interest that may result from HNA’s proposed acquisition of Carlson-Rezidor.
2. Recognizing the vote of the majority of NH Hotel shareholders by reinstating Mr. Federico González Tejera as CEO.
The disclosure of the litigation by the Company without any explanation has created a vacuum of information that is unfair to you, our fellow NH Hotel shareholders, who are not party to litigation that impacts you directly. As such, the reason I am writing to you today is inextricably linked with the foundational principles of good corporate governance and HNA’s commitment to those principles – as the company’s largest shareholder, we believe we have an obligation to our fellow NH Hotel shareholders to provide a complete explanation of the claim.
Jose Antonio Castro’s Illegal Abuse of Proxies to Effect a Nil-Premium Takeover of NH Hotel
It is common practice for shareholders who do not physically attend annual shareholder meetings to mail their votes by proxy. In Spain, many of those shareholders have the option to delegate their voting authority to the Chair of the meeting. According to the NH Hotel’s corporate regulations, the Chair of the meeting is obligated to vote these “blank delegated” shares in a manner consistent with the Board´s position.
Mr. Castro was the Chair of NH Hotel’s 2016 General Shareholder Meeting; accordingly, any shareholder who delegated their vote to him would have had the reasonable expectation that he would have responsibly exercised his proxy following the criteria set forth by the Board. Mr. Castro did not do so.
Instead, Mr. Castro willfully misappropriated the votes of the "blank delegated" shares and voted them in accordance with his own interests and those of his ally, Oceanwood Capital, and in direct conflict with the Board. Doing so allowed Mr. Castro and Oceanwood – “the Hesperia / Oceanwood Cabal” – to achieve four goals:
Declare a conflict of interest for HNA;
remove HNA’s duly elected director representatives;
install Oceanwood’s handpicked director nominees to stack the Board in their favor; and
circumvent the vote of the majority of NH shareholders by replacing Mr. Gonzalez Tejera as CEO with a leadership structure that made Mr. Castro de facto CEO.
To be clear, the combined share ownership of the Hesperia / Oceanwood Cabal and their supporters did not constitute a voting majority. Instead, Mr. Castro abused the power and privilege of his position to create a false majority and, in so doing, made those NH Hotel shareholders represented by him unwitting accomplices to the Hesperia/Oceanwood nil-premium takeover.
We believe that this action constitutes a clear breach of both the law and corporate governance standards, as well as a fundamental betrayal of NH Hotel shareholders.
Mr. Castro’s and Oceanwood’s Relationship of Convenience
Both Mr. Castro and Oceanwood have acute economic reasons to collude to take control of NH Hotel.
It is well document that Mr. Castro has shifted his positions to advance his own interests:
On 5 May, Mr. Castro was among the majority of NH Hotel directors who confirmed that HNA did not have a conflict of interest vis à vis its proposed acquisition of Carlson-Rezidor.
On 31 May, shortly after the Provincial High Court of Barcelona passed judgment ordering various entities controlled by him to pay €31 million back to insolvent Bankpyme, Mr. Castro suddenly changed his position with regard to the alleged conflict of interest.
Mr. Castro subsequently advocated for shareholders to vote in favor of Oceanwood’s proposals to remove HNA´s representatives and, as Chair, made sure with the proxies he had been given that these proposals were passed.
For Mr. Castro, taking illicit steps to ensure that HNA’s directors were replaced by Oceanwood’s representatives removed an obstacle to extracting the funds needed to meet his massive debt. This can now be accomplished in two ways, both of which had been repeatedly determined by the previous Board to be detrimental to NH Hotel, its shareholders and employees:
1. By increasing the prospect that the Hesperia / Oceanwood-controlled Board would renegotiate Hesperia’s management contract with NH Hotel for a price that is far higher than the current market standards, and;
2. By selling assets (such as the Jolly Madison Hotel in New York) to generate cash to fulfill the court-ordered repayment of €31 million.
For Oceanwood’s part, the asset stripping process would enable the hedge fund to financially engineer a return on the approximately €200 million it has invested in NH on behalf of its institutional investors and pension fund Limited Partners.
While we will leave it for the Courts to decide the outcome, we believe that our suit is right on its merits and that our claims are supported by indisputable fact.
Charles Bromwell Mobus, Jr.
Former Co-Chairman and Chairman of the Board
NH Hotel Group
About HNA Group
HNA Group Co., Ltd. is a global conglomerate engaged in airport services, transportation, real estate, financial services, leasing, tourism, hotels, and logistics. It is the parent company of Hainan Airlines, which was founded in 1993. It is based in China in Haikou, Hainan Province and in Beijing. HNA Group is known for its commitment to corporate social responsibility.
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