Monday, November 06, 2006

Commentary: At Four Seasons, a Deal or Self-Dealing?

On this morning's DealBook weblog (New York Times):
Management-led buyouts have always raised questions about conflicts of interest, because in such deals, the management that is supposed to represent shareholders is suddenly representing itself as well. That potential for conflict was especially evident this morning when Isadore Sharp, the chief executive and controlling shareholder of Four Seasons Hotels, made a $3.7 billion takeover bid for the company with the backing of Kingdom Hotels International, a company owned by a trust created by Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud; and Bill Gates’s Cascade Investment.
At first glance, the offer of $82 a share seems pretty decent; it represents a 28 percent premium to Four Season’s closing stock price on Friday. In early 2005, however, shareholders could have sold their stock for about that price on the open market.
And then there is the money Mr. Sharp will pocket in what essentially amounts to a sale to himself. According to a press release announcing the proposed buyout, Mr. Sharp stands to make $288 million as part of a 1989 incentive arrangement as a result of any deal. Now that’s an incentive!
Mr. Sharp also seems intent on preventing any rival offers, which raises questions about whether he is fulfilling his fiduciary duties to shareholders. In a statement, he said, “this transaction, with these investors, is the only one I am prepared to pursue.”
Management-led buyouts like this one play into the hands of critics who say they are rigged from the outset.

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