Tuesday, October 7, 2008

The Orient Express

Yes, the hotel management company, Orient-Express Hotels Ltd., is the company that operates the famous tourist train, the Venice Simplon Orient Express.

More germane to my concerns in this blog, though, the company has an annual meeting scheduled for Friday, Oct. 10.

Two hedge fund shareholders, DE Shaw and CR Intrinsic Investors, have offered a proposal that would dismantle the dual-class structure of the company.

RiskMetrics, known until recently as ISS, has supported that proposal. Its report on this particular dispute reads in relevant part: "Irrespective of whether the current structure would be deemed legal or not, the proponents have made a strong case with regards to how the elimination of Class B shares would benefit the company in terms of good governance, which may in turn have a positive effect on the firm's value. The company, on the other hand, has not sufficiently justified how the current share structure benefits Class A shareholders."

Glass Lewis, on the other hand, supports management. Its report: "We suspect that most shareholders both understand and accept the nature and extent of Orient-Express Holdings 1 Ltd's control over the Company and the composition of its Board, particularly since this structure has been in place for a considerable period of time."

The company trades on the NYSE with the ticker symbol OEH. Its value is now at only one-third what it was a year ago.

Yes, everybody has had a bad year. But not that bad. The Dow Jones Industrial Average, for example, is at about 75% of where it was a year ago.

Yet the tourist industry is notoriously fickle, since it represents the first item many families cut when they start worrying about jobs, security, etc.

The question for shareholders asked to choose sides is: does the corporate governance issue that the activists have raised spill into performance, and thus into stock price? If not, why should I care about the abstract rightness of a dual stock structure?

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