NH Hotels’ activist shareholder, British fund investor Oceanwood Capital, has taken control of the NH board, removing three representatives appointed by its largest investor HNA Group, as well as NH CEO Federico Gonzalez Tejera, claiming HNA’s pending acquisition of Carlson Hospitality Group presents a conflict of interest as the newly acquired business competes with NH in markets such as Germany and Belgium.
Almost 60% of NH’s shareholders approved a motion at its annual meeting in Madrid to force out the HNA-appointed board members, including NH Co-Chairman and U.S. banker Charles Mobus. The new board also decided to sell of the New York Jolly Madison Towers hotel, cut capital expenditures to generate more significant cash flow and start paying a dividend in 2017.
In response, HNA, which has a 29.5% stake in NH, has issued an open letter to shareholders warning that Oceanwood is focused purely on short-term profit. The company said it remains a committed long-term investor, but will not be drawn into making a full offer for NH stock.
That being said, analysts have suggested the next step could, in fact, be a full takeover bid from HNA or new talks on how to split control of NH’s European and oversees hotels so that HNA could escape the conflict of interest.
“Make no mistake, a group of hedge funds that acquired shares in NH Hotel after HNA made its initial investment are seeking to realize short-term profits by trying to force HNA to make a tender offer to acquire the 71.5% of NH Hotel’s outstanding shares that it doesn’t already own,” the HNA statement read. “As NH Hotel’s largest strategic shareholder, HNA has no imminent plans to change the profile of its investment. We will continue to be an active, vigilant shareholder. HNA will not be coerced into launching a tender offer to meet the short-term return needs of an ‘event driven’ hedge fund at the expense of NH Hotel, its employees, and other shareholders.”
At the annual meeting four new board members were nominated, including Alfredo Fernández Agras as chairman of the board of directors and vice chairman of the Delegated Commission, as well as co-chairman of the company alongside José Antonio Castro, chairman of the Delegated Commission and vice chairman of the board.
The board also nominated Beatriz Puente, Ramón Aragonés and Rufino Peréz as executive managing directors of the group, reporting to the Delegated Commission.
“To further align management and shareholder interests, the Board will work to implement a long-term incentive plan that will be linked to free cash flow, cost efficiency, deleverage and absolute share price performance,” NH said in a statement.
It further stated that the board is willing to work with HNA to resolve the conflict of interest created by the Carlson transaction and, if appropriate, will look for the mechanism to welcome them back to the board. “We will explore any opportunities that are in the best interest of all shareholders. The current focus is to make NH Hotel Group stand robust as an independent entity while achieving best in class corporate governance practices,” a statement read.
HNA’s statement called into question the removal of Federico Gonzalez, who was re-affirmed by the independent directors a few hours before his dismissal, adding the move will “destabilize the company at an important strategic inflection point and destroy shareholder value.”
HNA also said the actions of Oceanwood will turn NH Hotel “into the equivalent of a liquidating trust.” It added, “They have no plan other than to sell off strategic assets, reduce costs by a magnitude dangerously in excess of the board approved five-year plan, gut the capital expenditures program, and pay dividends out of proceeds from asset sales instead of from sustainable earnings.”