PHOENIX—Best Western International Inc. has filed its intentions of offering 55 million shares of common stock following a conversion to a for-profit corporation, which will be effected by a merger with its wholly owned subsidiary, according to the SEC Form S-1 the hospitality company filed on Aug. 10. The common stock issued in connection with the conversion is expected to be issued on or about Dec. 18.
As far as why the company is proposing the conversion, Best Western noted the following in its filing: “In recent years, our company has faced competitive challenges to its business. 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.
“To combat each of these challenges, and to protect and grow our market share, our board of directors determined that capital investment is necessary to increase advertising and marketing for brand awareness, to provide increased investment in technology and support for our reservation and loyalty reward systems and to expand our number of hotels and brands,” the filing continued. “Our board of directors believes that the conversion 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.”
Also included in the document, the company acknowledged the limitations of operating as a nonprofit company: “Our funding model is not letting us compete in this fast changing and hyper-competitive environment. As a nonprofit company, we are losing scale and lack sufficient funds to actively invest in our future success. Our board of directors and management believes that a for-profit business model would enhance the brand’s organic growth potential and flexibility to adapt to our competitive environment and protect and grow our market share.”
Best Western also issued Special Ballot Initiative to its members, which presents three proposals: the conversion proposal, the membership termination bylaw proposal and the term limit bylaw proposal.
“Your board of directors unanimously supports (except that Director James J. Cosgrove recused himself from consideration of the term limit bylaw proposal) each of the proposals and recommends you vote ‘Yes’ to all proposals in the Special Ballot Initiative,” said Best Western’s board of directors in a letter to its members. “We are also proposing to adopt the membership termination bylaw proposal in order to preserve the relationship, and align more fully the interests, between the members who will own shares of common stock following the conversion and those owners of hotels who are committed to continuing the growth of our brands. We believe that the company’s opportunities for growth will be enhanced by asking our members to enter into the new franchise agreements described in this information statement/prospectus.”
Best Western explained why it’s lengthening the term of its franchise agreements to 12 years. “We need to lengthen the term of our agreements with our hotel owners because our current one-year term provides no protection against hotels leaving our brand, while our remaining members are left to deal with the consequences, including loss of scale and any funding shortfall,” the company said in its filing. “As we prepare for our future, we need stability and continuity to ensure our success. Therefore, the term of the new franchise agreement will be 12 years.” The new 12-year agreement is expected to protect low fees, and the rights and voice of Best Western’s shareholders for that duration.
Best Western declined to comment on the filing.
A copy of the filing can be found here.
