Blackstone, Starwood Deal for Extended Stay Opposed by ISS


A group of investors opposed to a $6 billion takeover of hotel company Extended Stay America Inc. got a boost Friday with two prominent shareholder advisory firms coming out against the deal.

Institutional Shareholder Services Inc. and Glass Lewis & Co. urged investors to oppose the acquisition by Blackstone Group Inc. and Starwood Capital Group because they agreed there were issues with the process and that the terms undervalue the company at a time when the lodging industry is starting to recover from the pandemic.

“While the company raises some valid issues about execution risk, the timing of the deal and the lack of a robust sales process do not provide sufficient confidence to shareholders that the proposed consideration appropriately incorporates the potential upside company-specific catalysts and the industry-wide recovery,” ISS said in its report.

Blackstone and Starwood agreed to acquire Extended Stay in March for $19.50 a share, a 15% premium to where the shares previously closed. Six investors, collectively owning more than 14% of the company’s shares, have separately come forward to voice their concerns about the deal and its terms.

The shares were little changed on Friday, closing at $19.71 in New York.

“Extended Stay is disappointed with the ISS and Glass Lewis recommendations and strongly disagrees with their analysis and conclusions,” a representative for the company said in a statement.

ISS said that the analysis by Extended Stay’s own advisers determined the premium was at the lower end, if not below, what shareholders might expect, and that two of company’s directors also voiced their unease about the terms. The firm said shareholders may want to consider a deal at a premium more in line with other transactions in the sector.

“Given the potential upside from the sector-wide recovery and company-specific catalysts, the current deal terms do not appear to offer a sufficiently compelling value relative to the standalone scenario,” ISS said. “A host of issues related to the timing of the deal and the sales process also seem to validate, rather than mitigate, investor skepticism regarding the adequacy of the consideration.”

Glass Lewis, in a separate report on Friday, also said it had concerns about the price and timing of the proposed deal.

“We find that the proposed transaction follows a closed sale process that did not include outreach to any potential alternative bidders,” the report said. “We are concerned that the board has not taken sufficient steps to conduct a check of the market or to assure shareholders that the proposed transaction likely represents the most favorable offer available.”

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