DALLAS -- Patriot American Hospitality Inc.'s shares fell 15 percent yesterday, the day after the company agreed to sell a 30 percent stake to an investor group, on concerns that the transaction is too expensive and bad for shareholders.
Shares of the Dallas-based real estate investment trust, one of the biggest U.S. hotel companies and owner of the Wyndham hotel chain, fell $1.1875, to $6.75.
Patriot American is scheduled to buy the $134 million Wyndham Inner Harbor East Hotel being developed by H&S; Bakery Inc. co-owner John Paterakis Sr. and a pair of Atlanta companies. Construction recently began on the 750-room hotel and is scheduled for completion in late 2000.
The plan calls for Patriot American to sell as much as $1 billion of convertible preferred stock to a group led by financiers Leon Black and Thomas Lee, giving it cash to help repay $1.7 billion of maturing debt and avoiding a possible bankruptcy. Yesterday, analysts cut their earnings estimates for 1999, with Lehman Brothers lowering its estimate to $1.85 a share from $2.53.
"If you had many competing bids and this is the best one, people are concerned about what that says about the underlying value of the company," said Salomon Smith Barney analyst Michael Rietbrock.
The company has had difficulty repaying short-term debt incurred in the acquisition of seven hotel companies over the past year, and Patriot American's stock has fallen 77 percent this year. The company owns, manages or franchises 486 properties, more than 400 of which were acquired during the past year.
The agreement gives the investor group an option to convert the preferred stock into common shares at the lesser of $10 or 122.5 percent of Patriot's average closing price for the 20 trading days ending 10 days before a shareholder vote on whether to approve the investment.
During a conference call yesterday with Patriot American's management, some investors and analysts expressed dismay with the terms, saying it "caps" the stock price at $10 a share.
Others asked, with the company's estimated net asset value of about $17 a share, why it didn't sell the company. Company officials said that, while they aren't ruling out a sale of the company, low stock valuations for hotel companies make a sale improbable.
Pub Date: 12/18/98