A Michigan pension fund shareholder of Extended Stay America has filed a lawsuit against the hotel company in connection with its acquisition by Blackstone Real Estate Partners and Starwood Capital Group.
In a suit filed June 10 in the Chancery Court of Delaware, the City of Warren General Employees' Retirement System requested an inspection of ESA's books and records "in order to determine whether wrongdoing or mismanagement has taken place" in connection with the deal. The plaintiff also "seeks to investigate the independence and disinterestedness" of ESA's directors and officers with respect to the acquisition and to the value of the plaintiff's shares.
In addition, the pension fund filed a motion for expedited proceedings. On June 11, 65 percent of the available votes from ESA, the company, and 85 percent of the available votes from ESA's paired real estate investment trust, ESH Hospitality, approved the sale. The companies completed the $6 billion deal on June 16.
The case includes a copy of a detailed demand by the plaintiff delivered May 26 to the ESA board of directors for the inspection of books and records. Attorneys for ESA responded on June 4 indicating that the company would produce "many of the documents" requested, subject to a "suitable confidentiality agreement." It also details comments and objections to the request.
According to the filing, ESA did not produce any of the requested documents after more than five business days, resulting in the lawsuit.
The suit details much of the information made available in ESA's preliminary proxy statement filed April 13 with the U.S. Securities and Exchange Commission, which showed ESA had been in and out of conversations with Blackstone and Starwood regarding a purchase of the company for about four years. It also alleges that the offer price is too low and alleges that ESA CEO Bruce Haase and the board quickly pushed the deal through after Tarsadia Capital said that it was "planning to run a competing slate of directors at the company's next stockholder meeting."
The deal initially had been opposed by other shareholders, including Tarsadia and Hawk Ridge Capital Management, along with two ESA board members. Tarsadia filed a preliminary proxy against the deal and continued to oppose it even after Blackstone and Starwood sweetened the offer by $1 per share to $20.50. The two board members changed their intended vote with the new offer, according to ESA.
It is unclear whether there is further action the plaintiff can take. Neither the attorney for the City of Warren General Employees' Retirement System nor ESA responded to requests for comment.
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