DEFA14A: Braemar Hotels & Resorts Reaches Cooperation Agreement with Blackwells Capital, Averting Proxy Fight

Braemar Hotels & Resorts and Blackwells Capital have entered into a cooperation agreement, leading to the withdrawal of Blackwells' proxy solicitation and a commitment to vote in favor of Braemar's nominees and proposals.

Summary

• Braemar Hotels & Resorts Inc. has reached a cooperation agreement with Blackwells Capital LLC, resolving a proxy contest.
• Blackwells will withdraw its director nominations and proxy solicitation for the 2024 Annual Meeting of Stockholders.
• Blackwells will vote in favor of all Braemar's director nominees and proposals at the Annual Meeting.
• Braemar will add an additional independent director to its Board of Directors, considering input from Blackwells.
• Blackwells has committed to purchase 3.5 million shares of Braemar's stock in the open market, partially financed by Braemar.
• The agreement includes a multi-year standstill with voting commitments from Blackwells.
• Both parties have agreed to release all legal claims arising prior to the settlement and dismiss their respective actions.
• Braemar will reimburse Blackwells Capital LLC for reasonable attorneys fees and expenses incurred in connection with the Consolidated Litigation and related matters.
• The loan provided by Braemar to BW Coinvest I, LLC will be used to reimburse 70% of the amount expended by Borrower to purchase on the open market a total of 3,500,000 shares of the Company's common stock within six months of the date of Loan Agreement, at a price per Purchased Share not to exceed $10.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. The agreement resolves a potential conflict and brings in a significant shareholder. However, the loan to Blackwells and reimbursement of legal fees temper the overall positive outlook.

Positives

• The agreement resolves a potential distraction and allows management to focus on business operations.
• Braemar gains a significant shareholder in Blackwells.
• The addition of an independent director could enhance corporate governance.
• Blackwells' commitment to purchase shares could provide support for the stock price.
• The standstill agreement provides stability and prevents further activist actions for a decade.

Negatives

• Braemar is providing a loan to Blackwells to facilitate the share purchase, which could be seen as using company funds to benefit an activist investor.
• The standstill agreement requires Blackwells to vote in accordance with the board's recommendations, potentially limiting their ability to advocate for change.
• The company is reimbursing Blackwells for legal expenses, representing a cost to shareholders.

Risks

• The forward-looking statements in the document are subject to various risks and uncertainties, including the ability to complete the shareholder value creation plan and potential risks related to actions or proposals from activist stockholders.
• Braemar's ability to repay, refinance, or restructure its debt is a risk factor.
• General volatility of the capital markets and the market price of Braemar's stock could impact the company.
• Changes in interest rates or the general economy could affect Braemar's performance.

Future Outlook

Braemar expresses excitement for its future and looks forward to working with Blackwells as a significant shareholder, focusing on managing assets, enhancing capital structure, and maximizing shareholder value.

Management Comments

• Richard J. Stockton, President and Chief Executive Officer of Braemar, stated: 'We are pleased to have reached this outcome, which we believe is in the best interests of all our shareholders. We can now return our full focus to optimally managing our unique portfolio of world-class assets, enhancing our capital structure and financial flexibility, and maximizing shareholder value. We are extremely excited for Braemar’s future, and look forward to working with Blackwells as a significant shareholder.'
• Jason Aintabi, Chief Investment Officer of Blackwells, said, 'We look forward to supporting Braemar’s Board and leadership team, and to becoming one of Braemar’s largest shareholders. We believe Braemar will execute their strategy to maximize the value of the Company’s high-quality assets, and we look forward to continuing to build a constructive relationship with the Company moving forward.'

Industry Context

Activist investors often target REITs to unlock value through strategic changes, asset sales, or improved governance; this agreement reflects a negotiated settlement to avoid a potentially disruptive proxy fight, which is a common outcome in such situations.

Comparison to Industry Standards

• Standstill agreements are common in activist investing situations, with terms varying based on the specific circumstances.
• The length of the standstill period (until 2034) is relatively long, suggesting a significant commitment from Blackwells to a long-term investment.
• The provision for board representation is also typical, allowing the activist investor to have a voice in corporate governance.
• Similar situations can be seen with other hotel REITs facing activist pressure, such as those involving Chatham Lodging Trust or Pebblebrook Hotel Trust, where settlements often include board representation and strategic reviews.

Corporate Governance

Legal Proceedings

• The agreement provides for the voluntary dismissal, with prejudice, of the consolidated action pending in the U.S. District Court for the Northern District of Texas.

Related Party Transactions

• Braemar is providing an unsecured loan to BW Coinvest I, LLC, an entity affiliated with Blackwells, to finance the purchase of Braemar's stock.
• Braemar is reimbursing Blackwells Capital LLC for reasonable attorneys fees and expenses incurred in connection with the Consolidated Litigation and related matters.
• Ashford Hospitality Trust, Inc. (AHT) and Ashford Inc. (AINC) are also parties to the Cooperation Agreement, Share Ownership Agreement, indicating related party involvement due to their advisory role with Braemar.

Stakeholder Impact

• Shareholders: Positive impact due to resolution of proxy fight and potential for increased shareholder value.
• Management: Allows management to focus on business operations without the distraction of a proxy contest.
• Employees: No immediate impact, but long-term stability could be beneficial.
• Customers: No direct impact.
• Suppliers: No direct impact.
• Creditors: No immediate impact, but financial stability is important for debt repayment.

Next Steps

• Braemar will file the Cooperation Agreement with the SEC.
• Blackwells will purchase 3.5 million shares of Braemar's stock.
• Braemar will identify and appoint an additional independent director to its board.
• The parties will dismiss the pending litigation.

Key Dates

Keywords

Cooperation Agreement, Blackwells Capital, Braemar Hotels & Resorts, Proxy Solicitation, Independent Director, Share Purchase, Standstill Agreement, Litigation, Loan Agreement, Share Ownership Agreement