I offered two entries to this blog in October that discussed a dispute among shareholders of Orient Express Hotels Ltd.
I mentioned of course that the company operates the railroad for which it is named. What I didn't say at the time (because I wasn't aware of it) was that it also operates rail service to Machu Picchu, the great Peruvian/Andean archeological site and tourist attraction.
Now the government of Peru has indicated that it wants to withdraw the company's concession for that trip -- or, at least, withdraw the monopoly right, and stimulate competition in order to bring down fares and encourage more tourism.
Meanwhile, the Swiss finance firm Reyl & Cie, which owns around 8% of the equity of Orient Express, expressed great confidence in the firm's long-term profitability, despiute a recent stock price slide.
Reuters is quoting Francois Reyl, chief executive of Reyl & Cie, thus: "We are long time players. There is great value embedded in this company."
Reyl said nothing about the Peru situation specifically. He said, though: "The stock has been penalized by fighting between shareholders over the legal structure of the company. We are confident that, over time, these types of squabbles will recede."
Those types of squabbles are of course what first caught my attention this autumn.
Showing posts with label dual share structures. Show all posts
Showing posts with label dual share structures. Show all posts
Tuesday, December 30, 2008
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.
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.
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?
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?
Sunday, September 28, 2008
Dillard's
Barington Capital Group LP and Clinton Group Inc. have joined forces to urge a change in the share structure of Dillard's Inc., a mall-based retailing company.
The two activist investors filed a letter with the SEC last week asking the board of Dillard's to remove its dual share structure, which as things stand keeps in the hands of class B shareholders the right to elect two thirs of the board.
The existing management group owns W.D. Co., which in turn owns about 99.4% of class B shares.
My first thought when hearing of such a situation is that there is something to be said for the principle of "caveat emptor" in the ownership of shares of stock,, though. Anyone who bought any shares in Dillard's should have done the research in advance necessary to understand that the management maintains this sort of lock on control. If they have done that homework, then one would expect the price of class A stock would sell at a discount that reflects the limited significance of the vote that comes with it.
But the first thought is not always the best thought. One might also consider that operationally, same store sales have fallen over the past year. Maybe the management is doing itself as shareholders a service by locking things up so tightly. Maybe a shake-up in control could have effects on the sales numbers.
Anyway, the two hedge funds togerther own 5.67% of that class A stock. Their letter asks for a committee of independent directors to be formed to consider their proposal.
The two activist investors filed a letter with the SEC last week asking the board of Dillard's to remove its dual share structure, which as things stand keeps in the hands of class B shareholders the right to elect two thirs of the board.
The existing management group owns W.D. Co., which in turn owns about 99.4% of class B shares.
My first thought when hearing of such a situation is that there is something to be said for the principle of "caveat emptor" in the ownership of shares of stock,, though. Anyone who bought any shares in Dillard's should have done the research in advance necessary to understand that the management maintains this sort of lock on control. If they have done that homework, then one would expect the price of class A stock would sell at a discount that reflects the limited significance of the vote that comes with it.
But the first thought is not always the best thought. One might also consider that operationally, same store sales have fallen over the past year. Maybe the management is doing itself as shareholders a service by locking things up so tightly. Maybe a shake-up in control could have effects on the sales numbers.
Anyway, the two hedge funds togerther own 5.67% of that class A stock. Their letter asks for a committee of independent directors to be formed to consider their proposal.
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