Best Western International is looking to convert from a
nonprofit membership organization to a for-profit corporation, according to an
SEC Form S-1 the company filed on Aug. 10.
The conversion is contingent upon approval by Best Western's
membership in a special ballot initiative. The deadline is Sept. 26 at 2 p.m. Pacific Standard Time.
According to the filing, if the initiative is approved and the transaction
completed, outstanding membership interests as of Nov. 30 held by current
members will be automatically converted into common stock on Dec. 1. Best
Western intends to offer 55 million shares of common stock "to be issued
upon and on a continuous basis following the conversion."
In a letter to members informing them of the ballot
initiative, also included in the filing, Best Western's board of directors said
the conversion to a for-profit "will help us to grow our scale and funding
primarily by adding and retaining more hotels, having greater flexibility in
raising capital, more closely aligning brand and hotel owner interests, more
effectively competing with other lodging companies and creating value in the
ownership interests of our members."
The decision by Best Western's board comes at a time when
more hotel companies are improving their products in the midscale and
upper-midscale space, where a significant portion of Best Western's inventory
sits. The company on Aug. 13 celebrated the opening of its first U.S. Vib-branded
hotel in Springfield, Mo. The
first Vib, an upper-midscale to upscale boutique brand, opened in Turkey in January 2017. The lag time between the brand introduction
in
2014 and when the first few properties opened their doors is significant
when weighed against competitors' brand concepts. Hilton in January 2016 announced
a midscale brand Tru by Hilton, which features similar open-concept, work-and-play
lobby spaces and grab-n-go food options. Hilton saw the first Tru by
Hilton property open in Oklahoma City in May 2017, just 18 months after the
brand's launch. InterContinental Hotels Group's midscale Avid brand launched
September 2017. Its first location opened this week, also in Oklahoma City,
with just 11 months lead time.
"In recent years, our Company has faced competitive
challenges to its business," the filing stated. "These challenges
have included the effect of the ever-growing online travel agency business,
large online portal and search engine websites and growth by our competitors
across a portfolio of lodging options, which allow them to increase market
penetration, achieve synergy and efficiencies and leverage their guest loyalty
programs." The board wrote that it needs to raise capital to invest in
increased advertising and marketing, as well as in technology, reservation and
loyalty rewards systems.
Loyalty programs have become key to competing in the hotel
space, and Best Western has joined the fray by beefing up its BW Rewards program
in
recent years. At the same time, however, the reserve the company has had to
maintain to cover loyalty program redemptions has limited Best Western's ability
to use its capital elsewhere.
"The non-contingency reserve funds on our
balance sheet are necessary to be maintained for Best Western Rewards
redemptions," the filing stated. "The BWR reserve is verified
annually by an independent third-party accounting firm to ensure we maintain
sufficient funds to cover future BWR redemptions. While we maintain a reserve,
there is limited capacity for business opportunities to grow our brands or for
additional investments in technology or with online travel agencies or internet
search engine websites to drive business and stop our competitors from aggressively
taking our market share."
The company expects to maintain its name
if the conversion is approved. The issuance of common stock in this case does
not constitute an IPO.