Charles B. Mobus, Chairman of the Board of Directors of NH Hotel Group (“NH Hotel” or the “Company”) (BME:NHH), Co-Chairman of the Company, and a representative of HNA Group (“HNA”), today issued a letter to NH Hotel shareholders highlighting the following:
- HNA is a long-term strategic investor in NH Hotel and remains committed to supporting the Company’s growth and fostering good corporate governance for the benefit of all shareholders.
- Oceanwood Capital and Hesperia have colluded to disenfranchise NH Hotel’s duly elected independent directors in order to advance a self-serving agenda, putting the value of NH Hotel shareholders’ investment at significant risk.
- Oceanwood Capital is a hedge fund with interests that are not aligned with the rest of NH Hotel’s shareholders.
- Jose Antonio Castro is a controversial businessman with a significant conflict of interest and is attempting to advance his own agenda, to the detriment of the Company and its shareholders.
HNA urges shareholders to reject Oceanwood’s cynical attempt to seize control of NH Hotel by voting AGAINST all of Oceanwood’s proposals at the upcoming General Shareholders Meeting, or by giving their proxy to one of NH Hotel’s four independent directors. If shareholders have already voted in favor of Oceanwood’s proposals, they are still able to change their vote and vote AGAINST the proposals.
The full text of the letter follows:
16 June 2016
Dear Fellow Shareholder,
Your Board of Directors has come under attack from within.
As Chairman of the Board of Directors of NH Hotel, Co-Chairman of the Company, and a representative of HNA, I have worked to empower the independent directors as we set out a common vision of good governance for the benefit of NH Hotel’s shareholders, employees, and customers. One of our primary objectives has been to prevent the specific interests of a single shareholder from impeding the Board’s ability to serve as a trusted fiduciary for all NH Hotel shareholders.
Representatives of Oceanwood Capital and Hesperia, on the other hand, have colluded to disenfranchise and marginalize your duly elected independent directors in order to advance a self-serving agenda. In so doing, they have created an egregious and disturbing fiduciary conflict that has put the value of your investment at risk.
You, the NH Hotel shareholders, are now faced with a critical choice: Support directors representing HNA – NH Hotel’s largest long-term strategic shareholder with a proven track record of creating value for NH Hotel and the communities in which it operates – or elect a slate of dissident directors nominated by a hedge fund employing “greenmail” tactics that will undermine NH Hotel’s success, today and in the future.
We urge you to reject Oceanwood’s cynical attempt to seize control of NH Hotel by voting AGAINST all of Oceanwood’s proposals at the upcoming General Shareholders Meeting, or by giving your proxy to one of NH Hotel’s four independent directors. If you have already voted in favour of Oceanwood’s proposals, you are still able to change your vote and vote AGAINST the proposals.
OCEANWOOD CAPITAL AND JOSE ANTONIO CASTRO ARE PUTTING YOUR INVESTMENT AT RISK
Oceanwood Capital’s Julian Garcia Woods has formed an alliance with Jose Antonio Castro, a controversial businessman who has twice attempted a hostile takeover of NH Hotel and whose group of companies have been ordered by the Audiencia Provincial de Barcelona to repay unlawfully obtained loans in the amount of €22.5 million to the estate of the former Banco de la Pequeña y Mediana Empresa. This alliance threatens to tear NH Hotel apart to the detriment of its broader shareholder base, its approximately 12,000 employees, and the communities in which the Company hosts thousands of guests each year.
Oceanwood is a hedge fund with short-term interests
that are not aligned with the rest of NH Hotel shareholders
Here are the facts:
- Mr. Garcia Woods’s primary fiduciary duty is to his limited partners, not NH Hotel shareholders. Oceanwood has invested approximately €200 million in NH Hotel’s high yield debt, convertible bonds, and common shares and derivative products. This capital belongs to U.S.-based pension funds Pennsylvania Public School Employees’ Retirement System and the School Employees Retirement System of Ohio.
- Mr. Garcia Woods’s investors are clear-eyed about his investment strategy, and you should be too. According to an internal investment memorandum from a portfolio manager at the Pennsylvania Public School Employees’ Retirement System to members of its Finance Committee, Oceanwood was described a purely event-driven hedge fund, with a focus on distressed credit as well as equity. This is a clear statement of intent for Mr. Garcia Woods’s strategy and short-term time horizon with respect to his NH Hotel investment.
- Mr. Garcia Woods cares as much, or more, about NH Hotel’s debt than he does the common equity. NH Hotel’s convertible debt comes due in 2018 and the high yield bond in 2019. Faced with these fast approaching maturity dates, Mr. Garcia Woods is seeking to exploit an unusual provision of the convertible that reprices the convertible from €4.95 per share down to €4.32 per share if anyone makes a tender offer for NH Hotel shares, even if the tender offer is not completed. This dilution benefits Oceanwood but comes at the expense of the other NH Hotel shareholders.
- Mr. Garcia Woods’s desire for a tender offer – a desire stated to the independent directors by Alfredo Fernandez, Oceanwood’s representative on the Board – would deny NH Hotel shareholders the realization of future upside.We believe that either the continued execution of NH Hotel’s strategic plan, or the exploration of other strategic alternatives such as a potential merger transaction that would keep NH Hotel as a public company, can create value for NH Hotel shareholders far greater than a tender offer would today.
- Mr. Garcia Woods’s large investment is trapped and suffers a reduced potential internal rate of return (the only metric he cares about) if there isn’t an exit soon. If Mr. Garcia Woods cannot force HNA to make a tender offer, which he cannot, his other alternative strategy is to start liquidating NH Hotel’s assets, such as its important hotel in New York, and use the proceeds to pay down his own debt.
Jose Antonio Castro has his own significant conflict and is focused on advancing his own interests
Here are the facts:
- Mr. Castro has a significant conflict of interest. 21 of his hotels are managed by NH Hotel, and the renewal of this management contract has been the subject of contentious negotiations for over a year. Mr. Castro recently extended the deadline to July, when he expects to benefit from a new control group led by himself and Mr. Garcia Woods.
- Mr. Castro wants to fire the CEO of NH Hotel against the wishes of the Board’s independent directors. Federico Gonzalez Tejera has broad support among NH shareholders and employees, and is in the middle of implementing a Board-endorsed Five-Year-Plan.
- Mr. Castro wants to use cash that belongs to NH Hotel and its shareholders to cover his own indebtedness. Mr. Castro has no plan for NH Hotel other than to gut its corporate offices and the necessary services they provide to the Company’s regional operations and pay dividends to Hesperia so that he can fulfill the court-ordered repayment of €22.5 million in debt plus €9 million of interest and enforcement related charges.
HNA IS COMMITTED TO SERVING ALL SHAREHOLDERS
AND TO FOSTERING NH HOTEL’S LONG-TERM SUCCESS
In contrast to the schemes employed by Oceanwood and Hesperia, HNA has spent its time on the NH Hotel Board working in partnership with the independent and executive directors in the service of all shareholders.
Together with the four independent directors on the Board, HNA has focused on fostering a Boardroom dynamic that will enable us to do our best work for the Company and all shareholders. Together, we have encouraged transparent, robust debate, and we have sought to create appropriate checks and balances between independent, executive, and proprietary directors. We have translated these principles into action, including:
- Ensuring that the four independent directors have a strong voice on the Board, and taking steps to add to that number in order to ensure that the Board benefits from the fresh perspectives of qualified directors.
- Maintaining a robust committee structure in which both the Audit & Control Committee and Governance, Remuneration & Nominating Committee are exclusively chaired by independent directors.
In fact, HNA’s directors’ votes have never been in conflict with those of the independent directors. On any matter where HNA might have been conflicted – e.g., matters pertaining to the China joint venture, the formation of a Special Committee to monitor conflicts, etc. – the HNA directors voluntarily recused themselves out of best practice.
HNA is a long-term strategic investor in NH Hotel Group and is committed to its success
HNA has not wavered in its support of NH Hotel’s growth and success. This is consistent with our track record of fostering economic growth across the Eurozone where companies owned by HNA boast a local workforce of 25,000 employees. Oceanwood, on the other hand, leverages the hard-earned retirement funds of its pension fund investors to generate enormous cash payments that create wealth only for a handful of Oceanwood employees.
HNA and the independent directors have worked closely with NH Hotel’s management team to successfully execute against a five-year growth plan. This plan is producing results, particularly the NH Collection brand position and renovation strategy. The Company remains on track to reach its 2016 revenue targets, and has expanded gross operating profit margins by more than 200 basis points since the first quarter of 2014. The Company expects these efforts to result in a decrease of net debt to EBITDA from 5.6x in 2015 to 4x by the end of 2016, already achieving the upper limit of its 2020 net debt/EBITDA goal.
The repositioning of NH Hotel’s capital structure has to be carefully balanced with the business’s need to increase scale in order for it to remain competitive in an increasingly crowded global hotel market. The Company is now at an important inflection point in its five-year plan as it turns from implementing its new business model and repositioning its balance sheet to drive growth.
As a source of patient capital with proven operational expertise, HNA is the ideal partner to support NH Hotel’s efforts to reduce its cost base while also investing in refurbishments and potential acquisitions that will enable profitable growth. Strategically, NH Hotel needs increased scale, which is why the Company’s management team engaged in a process to see if there are advantages to a potential merger with Carlson-Rezidor.
We remain active supporters of NH Hotel’s five-year plan, and will continue to stress test against other value enhancing strategic alternatives along with our colleagues on the Board, so long as we are directors of the Company.
HNA supports the mission of the independent Special Committee
HNA has long advocated for the formation of an independent Special Committee that follows established models of good governance as we continue to navigate the proposed acquisition of Carlson-Rezidor. We are in full support of the Committee’s mission and will adhere to its findings. In contrast, representatives of Oceanwood and Hesperia have made every attempt to co-opt the Special Committee as a means to marginalize the independent directors. Specifically:
- Alfredo Fernandez has stated that he was opposed to the formation of an independent Special Committee, despite this committee being an established method of monitoring the very conflicts about which Oceanwood has raised concerns.
- Mr. Castro demanded a Special Committee be controlled by Hesperia and Oceanwood directors, with the independents being a minority, a composition that would wholly defeat the intended purpose of independent, objective oversight.
- After the independent directors rejected Mr. Castro’s idea and preferred instead a committee comprised of independent directors only, consistent with best corporate governance practice, Mr. Castro and Mr. Fernandez chose to neither attend the June 8 Board meeting nor vote on the Special Committee. This boycott goes directly against Mr. Castro’s purported commitment to responsible and transparent corporate governance which was expressed in a letter sent to two major shareholders, Henderson Global Investors and Taube Hodson Stonex, in order to attract their support.
- Mr. Castro subsequently presented to the Board, and made public, a highly misleading and erroneous report of the sequence of events leading up to the June 8 Board meeting.