NEW YORK, NEW YORK--(Marketwire - March 26, 2012) - Somerset Capital Management ("Somerset") has released a follow up to comments it made on the Red Lion Hotel fourth quarter conference call. Somerset sent a letter to members of the company's Board of Directors on March 8, 2012. In the letter, we voiced our belief that, by refusing to enter into a formal process for the sale or liquidation of the company, the board was acting contrary to the best interests of their shareholders.
Somerset subsequently had the opportunity to discuss its concerns, as well as any plans the company had to address them, with senior management. Management was unable to give Somerset a satisfactory explanation that would justify, in our opinion, the board's continued intransigence. As a result, we are releasing a copy of our letter to management because we remain deeply concerned about the ultimate cost to shareholders of the board refusing to explore an official process to sell or liquidate the company.
We want to make the following recommendations public:
| 1) | The three members we consider to be "insiders" should immediately resign from the Board of Directors. If they do not do so, we believe it is incumbent on the rest of the board to take whatever steps are necessary to remove them. The reasons for removing them are listed below: |
| Jon Eliasson, primarily responsible for the company's capital allocation process, strategic planning, and day-to-day operations, has met with little, if any, recognizable success in our opinion. | |
| Richard L. Barbieri and Donald K. Barbieri appear to let their historic ties to the company trump taking action in what we believe to be the best interest of outside shareholders. If they are unable to diligently perform their fiduciary duties, we believe they should resign. | |
| Columbia Pacific and other outside shareholders should be able to nominate a slate of candidates to fill the seats vacated by the above resignations. | |
| 2) | The Board of Directors should immediately hire an investment bank in order to explore the sale or liquidation of the company. This hiring should be made public. |
| 3) | Whatever the best deal (as measured primarily by the price per share to be received by current shareholders) should be presented for shareholder vote. |
Should the above individuals fail to act on the above, we would call on Columbia Pacific to form a coalition with the required votes to call a special meeting at which shareholders could remove any or all of the aforementioned individuals, or commence a fair and formal tender offer for the company. Should shareholders choose the latter course, we would request any tender offer include a "Go shop" provision, along with a pledge to support any clearly superior offer the company's investment banker may be able to develop.
The time for game playing on the part of the Board of Directors and Columbia Pacific has passed. Columbia Pacific has indicated to shareholders that there are buyers for the company and/or its assets at prices that we would likely deem acceptable. It is time for management to let the company's shareholders decide.
Our letter to the directors of Red Lion Hotels on March 8, 2012 read as follows:
| Somerset Capital Management has been an investor in Red Lion Hotels (RLH) since 2009, and currently holds 2.5% of the company's outstanding shares. We are writing to express our extreme dissatisfaction with the management and board response to a request by your largest shareholder, Columbia Pacific, for the company to enter into a formal sale or liquidation process. | ||
| A core belief of Somerset Capital is that a company belongs to its shareholders - not to its management, board of directors, or some amorphous group of "future" shareholders - and it is the fiduciary responsibility of the board to work in the best interest of those shareholders. There are times when what is in the best interests of shareholders may be open to debate; I would submit this is not one of them. RLH shares are not only trading at a meaningful discount to their intrinsic value, management has been unable, or unwilling, to articulate any concrete strategy for closing the valuation gap. Your largest shareholder, however, does have a plan, and it is our belief the proposed plan should be publically adopted and pursued to its natural end. We are confident the majority of your shareholders share our support for this initiative. | ||
| There's an old parable that says when one is being chased by a mob, you have only two choices: try to outrun them or grab a stick and act like you are leading them. It is time for management and the board to stop running away from your shareholders and, instead, start acting as the leaders we voted you in to be…before your shareholders take that ability away from you. | ||
| Sincerely, | ||
| P. Ross Taylor III |
About Somerset
Somerset Capital Management is a New York-based money manager founded in 1999. It is a registered investment advisor and its flagship fund is Somerset Capital Partners, LP. Its principals have over 80 years combined investment experience.
Contact Information:
Ross Taylor
212-931-6588