Sonesta International Hotels
(NDAQ:SNSTA) received some advice from Mercury Partners today in a
letter to the company's board. The advice comes after the company
decided to hire Goldman Sachs to explore strategic alternatives, which
could include a potential sale of the company.
Mercury Partners
announced their support of this decision to explore strategic
alternatives, arguing that a company with only $115 million in equity
is simply too small to be a public company due to the costs of
Sarbanes-Oxley compliance. The hedge fund went on to say that the
modest net debt associated with the well-located 400 room Royal Sonesta
Hotel Boston and the significant value embedded in the unique Key
Biscayne property (with land conservatively valued at $160mm) equate to
a significantly higher value than reflected in the company's shares.
Mix that with a strong M&A market for hotel real estate (see recent
WSJ article "Hotel Buying Frenzy Intensifies") and it's easy to see why
a sale right now makes sense.
A sale does not necessarily mean a
good value for shareholders, especially in a company that is controlled
by one family. Knowing this, Sonesta issued three recommendations to
the company to help ensure a fair sale process with a healthy premium
for shareholders. First, they asked the controlling family to consider
taking the company private. Secondly, they asked any proposals received
to be put past non-family shareholders to evaluate. And finally, they
asked for the company to resist any breakup fees or other measures that
may inhibit future bidding. Combined, these efforts would lead to a
fair sale of the company with a potentially very healthy premium. This
makes SNSTA a stock
worth watching!
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