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The Deal: Chatham Rejects BlueMountain Bid as 'Inadequate'

NEW YORK ( TheStreet) -- Hotel REIT Chatham Lodging Trust (CLDT - Get Report) on Wednesday rejected an unsolicited $565 million offer from BlueMountain Capital Management, concluding that the bid was "inadequate, opportunistically timed and contrary to the best interests" of its shareholders.

BlueMountain on Nov. 4 offered $21.50 per share for Chatham, a premium of 15% over the REIT's prior close, and pushed the company to try to find a higher offer. Shares of Palm Beach, Florida-based Chatham were falling 1.7% to $20.64 in mid-day trading.

Chatham argued that the company has posted a total shareholder return of 97% over the past two years and is poised for further growth.

"We thoroughly considered BlueMountain's proposal with our financial and legal advisors prior to rejecting it," Chatham lead independent trustee Miles Berger said in a statement. "Our board has significant hotel, real estate and financial experience, and we have complete confidence in Chatham's strategic plan and our management team's ability to successfully execute that plan."

Chatham chairman and CEO Jeffrey H. Fisher said the REIT met with BlueMountain and insisted that while the board is open to alternatives, "we are confident that now is not the right time to sell the company." The REIT also said it had temporarily revamped its board structure under which directors will be designated into three classes with three-year terms, a move Chatham said "is solely intended to protect value."

But Chatham, which owns interest in 76 hotels totaling 10,526 rooms, has been under pressure from a number of shareholders of late. In July, HG Vora Capital Management, owner of 9.8% at the time, switched from a passive to active holder and began aggregating for change at the company.

HG Vora sold half of its stake to BlueMountain last month.

A third investor, 6.7% holder V3 Capital Management LP, has also urged the REIT to pursue a sale. During Chatham's third quarter conference call last week V3 Capital's Charles Fitzgerald told management that "public markets have not been willing to pay fair value for your assets," adding that "we believe that running a full sales process now and maximizing value while investor interest is high is the best course for the company and shareholders."

Fitzgerald, however, did not back the offer on the table for Chatham, saying "we don't think BlueMountain's current bid reflects fair value either."

BarclaysandWachtell, Lipton, Rosen & KatzandVenable LLPare advising Chatham.

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