Determining what constitutes maximum shareholder value in M&A remains one of the biggest challenges facing public companies.
On September 6, LaSalle Hotel Properties is scheduled to put to a vote a deal it thinks offers shareholders both maximum value and certainty. Blackstone has offered to buy the real estate investment trust for $4.8 billion, or $33.50 per share.
Needing 66.7% of its outstanding stock to approve the offer, LaSalle already has a high hurdle to overcome. The task is made more difficult by a competing bid from Pebblebrook Hotel Trust, valued at approximately $36.27 per share, and the demands of two hedge funds, Mudrick Capital Management and HG Vora, that LaSalle engage with its peer.
Although both are impressive premiums, the choice is far from straightforward. LaSalle points out that Pebblebrook's offer is mostly in stock, compared to Blackstone’s all-cash bid. Even though Pebblebrook increased the cash element of its offer to 30% this week, LaSalle maintains Pebblebrook’s stock is overvalued relative to its peers and has been volatile over the past year, disqualifying it.
Never mind that LaSalle’s stock has seen even bigger gaps between its 52-week low and current price, that Pebblebrook’s premium has been relatively longstanding, or that shareholders have bid LaSalle’s current price above the Blackstone deal, leading Pebblebrook to dub that bid a take-under.
The Pebblebrook proposal is not up for a vote next month, although it is soliciting against the Blackstone deal. As a result, shareholders will have to be confident that it will maintain its offer at least at the current level if Blackstone’s is voted down. LaSalle has hinted that it could continue as a standalone company following a strategic review.
On Wednesday, HG Vora said it would vote its stake (9.1% at the record date, 8.2% as of the latest Schedule 13D), against the Blackstone deal, adding that it was not endorsing a standalone plan but wanted LaSalle to engage with Pebblebrook. A shareholder since about a month before Pebblebrook’s first public unsolicited bid in March, HG Vora hasn’t said much about why it likes the deal or whether it would be a long-term investor in a combined LaSalle-Pebblebrook. A spokesperson for the fund referred all my questions to a five-sentence regulatory filing.
What will happen between now and September 6 is hard to guess. LaSalle has yet to issue a recommendation on the latest offer from Pebblebrook and could yet decide that it represents a superior proposal.
The number of shares needed to swing the vote below the two-thirds approval threshold is not all that great, and a recommendation from Glass Lewis against the Blackstone deal late last night could be the final nail in its coffin. If the board sticks with Blackstone, Pebblebrook, HG Vora, and Mudrick control nearly 20% of the votes, while another 4% of shares weren’t voted at the last annual meeting.
Quote of the week comes from a Tesla shareholder, ARK Investment Management, who thinks the stock could either double or be a 12-bagger within five years, and is imploring Elon Musk to shelve privatization plans. Perhaps surprisingly, the sentiments expressed by ARK’s Catherine Wood could also come from a short seller.
“You will be surprised and gratified at investor reaction once they realize and understand the scope and ramifications of your long-term vision and strategies,” she wrote this week. “With time, I believe that truth always wins out in the public markets.”