Minority Extended Stay America Investors Vote Against Blackstone, Starwood Takeover

Extended Stay America

A battle may be brewing among major shareholders of Extended Stay America over Blackstone Group and Starwood Capital Group's takeover offer.

Two of the hospitality brand's 10 biggest shareholders have sent letters indicating their intent to vote against Blackstone and Starwood's joint offer of $19.50 per share, Yahoo Finance reports. The offer, which represented a 15% premium over Extended Stay's trading price on the day it was made public, values the company at $6B.

The two letters indicating "no" votes came from Tarsadia Capital, a family wealth office, and private equity firm Hawk Ridge Capital Management, which respectively own around 3.9% and 2% of Extended Stay, Yahoo Finance reports. Tarsadia submitted three nominees to become new Extended Stay board members and considers the current board's acceptance of the offer an attempt to preclude a potential proxy battle.

Tarsadia and Hawk Ridge also expressed belief that the $6B price is a significant undervaluation due to the coronavirus pandemic conditions that devastated the hospitality industry over the past 12 months, although the extended-stay segment outperformed the sector on the whole over that time period, according to the company's quarterly reports.

As optimism for a near-term recovery for the travel and tourism industries is high, the shareholders behind the two "no" votes believe Blackstone and Starwood are attempting to buy low, Yahoo Finance reports. Adding to Extended Stay's potential to gain in value is a portfolio low on leverage and opportunities to add franchises in locations where other operators have already closed up shop, Tarsadia's letter said.

“In short, selling now, before the cyclical upturn and before these operating, asset sale, balance sheet optimization and capital return opportunities are realized, is a massive mistake unless the buyer is paying a significant premium to account for these inherent opportunities,” Tarsadia wrote in its open letter.

Blackstone and Starwood already own a combined 13.4% of Extended Stay after buying into the publicly traded REIT, the largest of its kind in the hospitality sector, last April.

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