Responding to criticism of their initial all-stock proposal, Ashford Hospitality Trust officials are back at the negotiating table with FelCor Lodging Trust and are changing their offer to include cash. Recent SEC filings shed light on the back-and-forth between those companies.
DALLAS—A proxy statement recently filed with the U.S. Securities and Exchange Commission reveals details about Ashford Hospitality Trust’s latest offer to acquire FelCor Lodging Trust, including the fact that Ashford is now willing to include roughly $213 million in cash in what was previously an all-stock deal.
The filing states the cash component makes up 21% of the restructured offer based on closing share prices on 26 March. Under the proposal, each share of FelCor would yield 0.93 shares of Ashford Trust, 0.003 shares of Ashford Inc., 0.001 warrants to purchase additional Ashford Inc. shares and $1.53 in cash.
Ashford Trust’s first publicly announced proposal would pay FelCor shareholders a per share price of 1.192 Ashford Trust shares, 0.003 shares of Ashford Inc. and 0.001 in warrants to purchase more. At the same time Ashford Trust officials announced that offer, they also announced plans to run a slate of seven candidates for the FelCor Board of Directors who would be more willing to consider the deal than current members of the board.
In the filing, Ashford officials indicate the company’s CEO and President Douglas Kessler has been in regular contact with FelCor CEO Steven Goldman.
Ashford Trust officials declined to comment on the negotiations Tuesday, and Felcor did not respond to a request for comment.
Timeline of a possible deal
The companies first discussed a possible acquisition in October 2016, according to Kessler, but Ashford officials went public with their intention to purchase FelCor in February.
The decision to announce the offer to shareholders led to a public back-and-forth between the companies. A timeline given in the proxy statement provides greater detail of the two companies’ interactions beginning with the first contact between Ashford Trust chairman Monty Bennett and FelCor chairman Tom Corcoran in October.
To preface a solicitation for proxy voting power, according to the filing, FelCor officials told Ashford Trust they weren’t interested in pursuing the deal in December. But the timeline shows that Ashford Trust officials remained undeterred and offered FelCor $9.31 per share in Ashford Trust stock shortly after.
The two companies signed a nondisclosure agreement in early January that would expire on 7 February, but later that month, Ashford Trust officials contend, “representatives from FelCor stated that they would not provide customary diligence information, including historical property level information, to Ashford Trust because of legal concerns with providing such information.” FelCor officials disagreed with that contention.
In late January and early February, the two companies continued to communicate, with FelCor officials stating their conclusion that the Ashford proposal was not in shareholders’ best interests while Ashford Trust officials took the opposite position, claiming shareholders would benefit “due to the enhanced size, scale and diversity of the combined company and its assets and immediate value accretion due to the implementation of efficient asset management.”
Shortly following the 10 February announcement that Goldman had been appointed CEO, Ashford Trust and FelCor met again. This time, according to the filing, Goldman specifically asked Ashford Trust officials to refrain from taking their proposal public and offered to extend the deadline for board nominations. In exchange for not publicly sharing details of Ashford Trust’s proposal, Kessler asked FelCor to confirm “that it was prepared to engage in good faith discussions … and make a joint public statement that the share currency, external management structure and value offered by Ashford Trust could serve as a basis for such discussions.”
Goldman would not commit to those conditions, according to Ashford Trust’s timeline, and Ashford officials publicly shared details of their offer on 21 February. This led to a week of publicly released letters between Goldman and Kessler, in which Kessler indicated any deal would require cash and Goldman lauding his own willingness to negotiate.
The timeline indicates officials with the two companies spent the period from 28 February to 25 March “engaged in a series of discussions regarding a potential transaction, including discussions regarding a possible exchange ratio and mix of consideration, due diligence matters and the terms of an agreement, among other topics.”
Ashford Trust officials shared the revised proposal with FelCor officials on 26 March, and Kessler and Goldman had a meeting on 6 April, during which both sides agreed to continue to allow their financial advisors to engage each other.
Reaction to the updated proposal
In a note reacting to Ashford Trust’s SEC filing, Mike Bellisario, VP and equity research senior analyst at Robert W. Baird & Company, said he believes any possible deal could still take a considerable amount of time before it comes to fruition.
“Despite the inclusion of a cash component in the revised proposal, we continue to expect that any transaction with FelCor will take several months and several iterations to resolve,” he wrote.
Bellisario noted that even with the inclusion of cash in the deal, the overall value has not increased, which might be out of necessity.
“Overall, we believe the unchanged total valuation of Ashford Trust’s revised proposal signals management’s view that its offer continues to represent full and fair valuation, and we expect it may be difficult for Ashford Trust to materially raise its bid without bringing in an equity partner, selling additional select-service/non-core assets, or proposing a more structured transaction,” he wrote.
As part of its quest to acquire FelCor, Ashford Trust took a 4.5% ownership stake in the former company in late 2016.