Wednesday, October 15, 2008

Orient Express and its shareholders

I reported last week in this place that two hedge fund shareholders in Orient-Express Hotels Ltd. had offered a proposal to dismantle the dual-class shareholding system in play there.

OEH held its shareholder meeting Friday. Based on the preliminary results reported by the independent inspector, 70% of shareholders supported that proposal.

But of course the vote is of psychological rather than managerial experience. A scheme devised to effectively disenfranchise class A shareholders can't be effectively dismantled by the vote of the class A shareholders!

In a statement yesterday, the principals of the two hedge funds demanded a meeting with the OEH board. They also said: "We continue to believe that the Company’s circular ownership and voting structure – in which an entrenched Board controls 80% of the shareholder vote and remains accountable only to itself – is unlawful."

The company's response is that the board and its management "consider the matter addressed by the Special General Meeting to be closed, and [they] will continue to focus on delivering shareholder returns and managing the business in the best interests of all [their] shareholders."

Nothing very revealing has happened in terms of the stock chart in the two business days since the meeting. The price of a share of OEH gained some ground Monday and lost that ground again Tuesday.

I wouldn't want to get on a goo-goo high horse here, and I've offered the usual caveats in some of my earlier posts. But OEH's structure does seem uniquely unresponsive, and I wonder how long the market will support that. Presumably, the recourse of class A shareholders unhappy with the situation is to sell. If OEH wants to support its stock price, it should concern itself with the archaic nature of this arrangement.

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