May 15, 2012 in News
Investor allowing Red Lion fix time
Hiring of adviser seen as step to better value
A New York investor in Red Lion Hotels Corp. says it will give executives of the publicly traded hospitality company time to demonstrate progress before pushing efforts to replace three of the Spokane firm’s directors.
Somerset Capital Management, based in New York City, issued a public letter in early March urging the resignation of three Red Lion board members and suggesting it sell some or all of its assets. Somerset Capital owns a bit more than 2.5 percent of the company’s shares.
A month earlier another investor, Seattle-based Columbia Pacific Opportunity Fund, also issued a letter to the board, arguing Red Lion needs to sell all or part of its 30 hotels to improve the bottom line. Columbia Pacific owns 29 percent of the shares.
Since those two investor directives, Red Lion officials have hired Bank of America Merrill Lynch to review its options and suggest strategic choices to improve investors’ returns. The company is also trying to sell non-core properties and reduce debt.
Red Lion owns or franchises 48 hotels in nine states and in British Columbia.
Red Lion’s hiring of BofA gives Somerset’s managers reasons to give the company more time, said chief investment officer Ross Taylor.
“We’ll judge on the success or failure of the process they’re taking,” Taylor said. “If it succeeds, we don’t feel the need to do anything.”
Somerset’s letter pointedly said that it wants three directors to leave the board, saying they are “insiders” and are not effectively managing the company. It named those three as CEO and President Jon Eliasson and board members Richard and Donald Barbieri.
Taylor would not disclose Somerset’s deadline for changes from Red Lion. “I will say it is our hope that the company will be able to quickly develop what it and its adviser believes to be the option which best maximizes shareholder value, and that they then present that for a shareholder vote in the reasonably near future,” he wrote in a follow-up email.
Like Columbia Pacific, Somerset regards Red Lion as failing to show higher returns. “We feel the pieces of the company’s puzzle are worth well more than the current stock price,” Taylor said.
Despite some improved numbers, Red Lion’s recent first quarter earnings showed a net loss of $6.6 million, or 34 cents per share, compared to a net loss of $4.5 million and a loss of 24 cents per share in the first quarter of 2011.