ESA faces shareholder lawsuit

Sara Kirsch Sara Kirsch Uploaded 09 July 2021

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US: Extended Stay America is facing a lawsuit from one of its shareholders, a Michigan pension fund, after its recent sale.

City of Warren General Employees' Retirement System, an ESA shareholder, filed a lawsuit in the Chancery Court of Delaware on June 10.

The suit requested a review of ESA’s records and books in connection with the acquisition "in order to determine whether wrongdoing or mismanagement has taken place". The pension fund also "seeks to investigate the independence and disinterestedness" of the ESA’s directors in the deal and the value of the pension fund’s shares. The pension fund also motioned for expedited proceedings in this case.

This lawsuit came at the same time that ESA was acquired for $6 billion by Blackstone Real Estate Partners and Starwood Capital Group. On June 11, 65 per cent of the votes from ESA and 85 per cent of the company’s real estate investment trust, ESH Hospitality, were in approval of the sale, leading to the acquisition being finalized on June 16.

Initially, the deal had been opposed by two ESA board members and shareholders, including Tarsadia Capital and Hawk Ridge Capital Management. Blackstone and Starwood met this opposition by increasing shares by $1 to $20.50. With this new change, the board members changed their votes, but Tarsadia still filed a preliminary proxy against the deal.

The lawsuit included a demand made to ESA’s board of directors by the plaintiff on May 26. The demand requested an inspection of ESA’s books, to which ESA responded on June 4 that it would provide “many of the documents” requested in line with a “suitable confidentiality agreement,” along with some objections to the request.

The lawsuit was filed after no documentation was provided after five business days.

The lawsuit also included other details of the acquisition. The case discussed information in ESA’s preliminary proxy statement, filed on April 13, with the Securities and Exchange Commission. The statement discussed that talks of the acquisition had been ongoing for four years.

The case also speculates that the offer price of the acquisition was too low and that the deal was hastily pushed through by the board and by CEO of ESA, Bruce Haase, after another shareholder, Tarsadia Capital, had expressed that it was "planning to run a competing slate of directors at the company's next stockholder meeting."

It is unclear what the future of the case will hold or what action the plaintiff can take.

 

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