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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