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Red Lion Hotels Corporation (NYSE:RLH) announced on September 13 that it has agreed to acquire Vantage Hospitality Group Inc. for at least $28 million. The two franchisors signed a definitive agreement for Vantage to be bought at an initial price of $23 million in cash and 690,000 shares of Red Lion's common stock, which closed yesterday at $7.79 a share or a total of $5.4 million for those shares. The deal is expected to be finalized in the fourth quarter of 2016.
The buying price could go as high as $41 million, with $7 million more in cash and 690,000 additional common shares, if certain performance metrics are met by Vantage on the first and second anniversary of the buyout.
Established in 1959, regional franchisor Red Lion, albeit publicly traded, is the kitty cat that ate the ostrich. The Spokane, Washington-based franchisor and operator of 113 affiliated hotels has gobbled up the tenth largest hotel chain in the world by property count.
Greg Mount, president and chief executive officer of Red Lion, said the buyout of Vantage catapults Red Lion into being one of the largest hotel franchisors and transforms it into a national brand with meaningful scale. The acquisition adds approximately 1,000 licensed hotel properties to franchisor Red Lion's 113 properties. "We look forward to harnessing our collective strengths to drive growth for our franchisees, superior service for our guests and accretion for our shareholders," said Mount.
Both companies stress that the combination will offer licensees more brands to expand into and considerable management talent for support.
Red Lion's CEO added, "Vantage has built a distinctive and highly successful platform over the last 16 years owing to a strong culture that emanates from its leaders. As such, Vantage's current leadership and staff in Coral Springs will become the hub for all RLHC (Red Lion) select service brand operations."
That is an understatement.
Vantage's bottom-up, democratic system is highly unusual among its peers of top-down hotel chain kingdoms. Under the Vantage flag, franchisees of Lexington Suites, Americas Best Value Inn and others exercise their franchise to direct their brands based on a governance model that combines a representative republic and a direct democracy. Besides having an advisory council, where representatives are elected by franchisees and pay their own way to attend council meetings so as to minimize control over them by the franchisor, Vantage also gives hotel owner-operators the ability to bind the brand on major operational and marketing initiatives by general franchisee vote. In yet another innovation, its system has developed a bill of rights for its hotel owners, such as guaranteeing a positive return on their franchise investment, or allowing a reasonable time to cure a breach of an operating standard.
President and chief executive officer of Vantage, Roger Bloss, who founded the fast-growing chain in 1999, said he was excited about Vantage being bought. "Joining RLHC's platform will provide our members with additional resources to grow their businesses and our guests with a broad array of brands to enjoy," said Bloss. "Vantage's COO Bernie Moyle and I are proud that we will be contributing to RLHC's strategic growth plan and are excited about leading the select service brands initiative."
Hospitality veteran, award-winning historian, author and hotel consultant Stanley Turkel commented, "If Red Lion is smart enough to adopt and promote Vantage’s franchisee-friendly mode of operation, they will be successful."