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HNA Sends Open Letter to NH Hotel Group Shareholders

Three years ago, HNA Group rescued NH Hotel Group from the brink of insolvency by providing a necessary capital infusion. HNA remains NH Hotel’s largest single shareholder, with 29.5% of the outstanding share capital. In June 2016, a minority investor group led by hedge fund Oceanwood Capital seized control of NH Hotel with the explicit support of Hesperia.

NH Hoteles

HNA Group today issued the following letter to NH Hotel Group (BME:NHH) shareholders:

Dear Fellow Shareholder,

Three years ago, HNA Group rescued NH Hotel Group from the brink of insolvency by providing a necessary capital infusion. HNA remains NH Hotel’s largest single shareholder, with 29.5% of the outstanding share capital.

In June 2016, a minority investor group led by hedge fund Oceanwood Capital seized control of NH Hotel with the explicit support of Hesperia. Within hours of taking control of your Company, the Oceanwood and Hesperia led Board fired the highly respected CEO, Federico Gonzalez Tejera.

HNA calls on the NH Hotel Board to immediately announce that it is initiating a formal search for a qualified and independent CEO

It has been four months since the new leadership of the NH Hotel Board of Directors fired Mr. Gonzalez and it has not yet initiated a process to find a new CEO. Instead of doing so, the Oceanwood and Hesperia proprietary directors have sought to deceive the entire NH Hotel shareholder base by creating an “Office of the [Chairman]” constituted by the COO, the CFO, and the communications director. This “office” reports directly into an executive committee of the Board (the Delegated Commission) which is co-chaired by Oceanwood proprietary director and non-executive chairman of the Board Alfredo Fernandez and Hesperia proprietary director Jose Antonio Castro.

This structure is a Trojan Horse, allowing Oceanwood and Hesperia to retain effective control of the day-to-day operations of NH Hotel without a clear mandate from the Company’s Board or shareholders. As NH Hotel’s largest shareholder, we believe the NH Hotel Board has an obligation to immediately retain an independent executive search firm and commence an objective effort to recruit a truly independent and qualified CEO.

Mr. Fernandez is making a clear attempt to consolidate executive power without NH Hotel Board or Shareholder Approval

Mr. Fernandez has dictated to the Board and executive management team that he be the only individual to “represent” NH Hotel with the press and investors, including HNA. This is demonstrated by three recent events:

1. Mr. Fernandez’s role as primary interlocutor with the investment community, as evidenced by his role on the Company’s 1H16 earnings call on 28 July.

2. Mr. Fernandez’s profile interview published in Expansiòn on 24 October in which his comments indicate his direct executive oversight of NH Hotel’s strategy, operations, and finances.

3. On 21 October, I offered to meet with any or all members of the NH Hotel Board. Subsequent to this offer, the Board was instructed that only Mr. Fernandez would be permitted to meet with me to hear the perspectives of NH Hotel’s largest shareholder, despite HNA’s pending acquisition of Carlson Hotels and the recent public announcement of its investment in Hilton.

To be clear, Mr. Fernandez has not been vetted by the Board as a prospective CEO, nor has the Board had the opportunity to consider other candidates. The Board has not voted to support Mr. Fernandez as the chief executive of the company, nor has it approved the terms of an appropriate employment contract. Mr. Fernandez also does not have a viable working relationship with the largest shareholder of the company, HNA.

NH Hotel shareholders should question whether Mr. Fernandez would not be appointed CEO of NH Hotel in an open and proper executive search. Given that Mr. Fernandez does not have any relevant executive or operating experience in any industry, much less the hospitality industry, we believe the case is strong that he would not be on the list of potential CEO’s proposed by an independent executive search firm for consideration by the Board.

Mr. Fernandez’s ability to attain, and retain, executive power is based solely on the support of Hesperia

As we have expressed in prior communications, Oceanwood and Hesperia are each using their positions on the NH Hotel Board to fulfill self-serving agendas that are not aligned with the broader interests of NH Hotel’s shareholders.

For his part, Hesperia’s Mr. Castro needs Mr. Fernandez and Oceanwood’s support to renew the management contract between Hesperia and NH Hotel. Mr. Castro is seeking terms more advantageous than that those deemed appropriate by the prior CEO and the current independent members of the Board. The contrast between Mr. Gonzalez and Mr. Fernandez on this matter is stark:

  • Mr. Gonzalez sought to stage sizeable payments to Hesperia over three years and to demand and ensure that the cash paid to Hesperia be used for needed remedial capital expenditures in the hotels owned by Hesperia and managed by NH Hotel.
  • Mr. Fernandez is supporting and advocating a sizeable up-front payment that could be used by Mr. Castro for any purpose, including servicing his crippling debt, rather than investing in capital improvements that would benefit NH Hotel and its shareholders.

There is no doubt that Mr. Gonzalez paid the price for holding an appropriate line for the terms of the contract, whereas Mr. Fernandez has traded acquiescence to Mr. Castro’s demands for support to entrench himself as effective CEO and of NH Hotel.

HNA is committed to protecting its significant investment in NH Hotel

The Board serves all shareholders, including HNA. If the Board does not protect the interests of all NH Hotel shareholders by (i) promptly initiating a search for a qualified and independent CEO, and (ii) opposing an inappropriate contract with Hesperia, HNA will consider calling for a shareholder meeting and proposing a new independent slate of directors and a new independent CEO.

Sincerely,

Charles Bromwell Mobus, Jr.
Former Chair of the Board
NH Hotel Group

About HNA Group

HNA Group Co., Ltd. is a global conglomerate engaged in airport services, transportation, real estate, financial services, leasing, tourism, hotels, and logistics. It is the parent company of Hainan Airlines, which was founded in 1993. It is based in China in Haikou, Hainan Province and in Beijing. HNA Group is known for its commitment to corporate social responsibility.



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