Barring the Door at the Four Seasons

The hotel chain's CEO wants to take the company private, with help from Bill Gates and a Saudi prince. And he's unwilling to consider competing offers

by Sonja Ryst

It was an unusual statement by any chief executive, let alone one who is trying to persuade shareholders to accept his bid to buy full control of the company. Yet on Nov. 6, Isadore Sharp, chairman and chief executive of the Four Seasons (FS) hotel chain, told investors and analysts that he was not willing to consider any offer for the company other than the one he had helped put on the table. "This proposal achieves all my objectives for Four Seasons and my family, and is the only one that I am prepared to pursue," he said.

His bid has already benefited shareholders. After the hotel and resort chain publicly announced Sharp's offer, shares in Four Seasons soared 29%, to $82.50. Sharp and his family holding company, Triples Holdings, are making the bid with Kingdom Hotels International, a company backed by the Saudi Arabian Prince Alwaleed Bin Talal and Cascade Investment, an investment firm owned by Microsoft (MSFT) founder Bill Gates. The price offered for Four Seasons' stock is $82 in cash per share.

But shareholder activists are already raising questions about the propriety of a chief executive who is unwilling to consider alternative bids, even if they might bring his shareholders more cash. "In most cases, the best way to facilitate [a deal like this] is to open up the bidding process to multiple parties," says Todd Fernandez, senior research analyst at the research firm Glass, Lewis & Co. "We look unfavorably on single party bidding."

Management Conflicts

Of particular interest is the fact that Sharp stands to benefit handsomely if the deal is completed. He would remain as CEO, and he'd receive about $288 million related to a long-term incentive agreement that was put in place in 1989.

The issue of management conflicts is top of mind these days, as the private equity boom reaches ever loftier heights. In recent days, Vivendi, the French media and telecom giant, disclosed that it had been approached by Kohlberg Kravis Roberts about a $50 billion buyout, although the talks stalled. And on Nov. 6, OSI Restaurant (OSI), the owner of the Outback Steakhouse chain, said that it had agreed to be acquired by two private equity firms and the company's founders, including OSI Chairman Chris Sullivan.

Global mergers and acquisitions by private equity groups hit a record $570 billion during the first nine months of the year, according to researcher Dealogic. That's up 51% from the prior record set in the first nine months of 2005 (see BusinessWeek.com, 10/9/06, "Private Equity Keeps Booming"). How private equity players are quickly extracting fees from the companies that they're acquiring has become a subject of some controversy (see BusinessWeek.com, 10/30/06, "Gluttons at the Gate").

Dissatisfied Shareholders

One key issue is whether top management participates in a buyout bid and, if so, under what circumstances. Back in May, Richard Kinder, the chairman and chief executive of pipeline operator Kinder Morgan (KMI), teamed up with private equity players to offer more than $13 billion to take the company private. Yet some shareholders filed suit to stop the deal, which they called inadequate, and the bid had to be raised to $15 billion (see BusinessWeek.com, 8/29/06, "A Gusher of Energy Deals").

At the Four Seasons, Sharp is no ordinary bidder. Like Richard Kinder, he founded the company that he's trying to take private.