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Pritzker Family Preparing to Decrease Ownership of Hyatt Hotel Chain
to Less than 50% While Not Relinquishing Control

Family Members Would Maintain a 73% Voting Power

By Julie Wernau, Chicago TribuneMcClatchy-Tribune Regional News

April 20, 2011--The billionaire Pritzker family is preparing to decrease its ownership of the Hyatt hotel chain to less than 50 percent while not relinquishing control.

Six family members, through their trusts, issued a shelf registration in February with the Securities and Exchange Commission that allows them to sell 19 million shares of Hyatt stock at any time.

When the shares are sold, the Pritzkers' ownership would decline to less than half of Hyatt's outstanding common stock for the first time since the company went public in November 2009. But family members would continue to control 73 percent of the voting power thanks to a dual-stock structure that gives the Pritzkers 10 times the voting power of other shareholders.

"Having somebody enjoy control -- which is what happens with this arrangement -- but not have the majority of the economic exposure; it's a misalignment," said Beth Young, a senior research fellow at The Corporate Library who teaches a course in shareholder activism at Harvard University.

In a statement, Hyatt Hotels Corp. said it operates its business "for the benefit of all our shareholders and in a manner intended to create long-term value." The company added that a potential sale of stock by individuals or a group would not alter its strategy or structure.

"They might sell and they might not," David Loeb, a senior research analyst at Baird who covers the hotel industry, said of the Pritzkers. He predicts the stock will react positively if more shares are offered publicly.

Several analysts predict Hyatt's stock to trade at more than $50 a share by year-end, a doubling in price since the initial offering when the hotel chain sold 38 million Class A common shares at $25 apiece.

The potential to offload shares in Hyatt is part of an agreement among the 11 heirs of Hyatt founder Jay Pritzker to divest and divide the family's assets by the end of 2011. The deal was inked in 2001 following disagreements about how the family's assets should be divided. As a result, the Pritzkers have been selling assets and stakes in various family-controlled companies.

Among those divestitures, in August 2010, the Pritzker family sold its majority stake in TransUnion, the Chicago-based credit reporting company, for an undisclosed amount to Chicago-based private-equity firm Madison Dearborn Partners LLC. In March 2008, the family sold a majority stake in the Marmon Group to Berkshire Hathaway Inc. for $4.5 billion, and in 2006, the family sold Conwood, a smokeless tobacco company, for $3.5 billion to cigarette company Reynolds American Inc.

According to company filings, family members and other Class B shareholders (who control about 20 percent of the Class B shares) are permitted to sell 30 million of their more than 130 million shares by Nov. 4. An additional 7 million shares can be sold at any time, and another 6 million can be sold anytime after May 13. Filings lay out a schedule that would allow the Pritzkers and other Class B shareholders (Madrone Capital LLC and Goldman Sachs Group Inc.) to divest of their holdings by the end of 2015.

Even before the public stock sale, some Pritzkers have been selling stakes in the company among themselves.

In September, Linda Pritzker sold 7.3 million shares of Hyatt stock from her trusts to Thomas J. Pritzker's and Gigi Pritzker Pucker's trusts for $276 million, according to filings. Filings show that John Pritzker also no longer holds a stake in Hyatt after selling 8.6 million shares to those same family members for $325 million.

Those transactions mean that more control of Hyatt is being ceded to Tom Pritzker, executive chairman of the board of directors, who now owns more than 10 percent of the company's common stock -- more than any other family member.

Bryan Maher, senior lodging, gaming and leisure analyst at Citadel Securities, said the Pritzkers' tight control and the secrecy by which they operate the company is priced into Hyatt's stock.

Even today, Hyatt does not offer guidance to investors, and news media were not permitted to attend the company's first shareholders' meeting.

"Is there going to be a discount because of the supervoting share? Sure, that's realistic," Maher said. "But how big is that discount? A very small haircut." He estimates a 12-month price target for the shares at $47.

Investors assume the Pritzker family will continue to operate the chain with shareholder interests in mind, he said. Because of their supervoting power, the family could change the rules, but Maher said he doesn't expect that to happen.

Some companies have seemingly noble reasons for maintaining a dual- class structure, said Harvard's Young. For instance, several media companies demand the structure so shareholders are unable to exercise undue influence over news coverage.

But such power can lead to excessive executive compensation, questionable decision-making and other abuses.

Lou Thompson, a member of the Ketchum Corporate Governance Advisory Board and a fellow at the Governance & Accountability Institute in New York, said the days of supermajority shares may be numbered as a result of shareholder activism and the regulatory push for transparency.

"You still have boards of directors and you have CEOs who consider it's 'their' company, that those pesky shareholders get in the way from time to time. That kind of attitude doesn't go very well these days," he said.

jwernau@tribune.com

Twitter @littlewern

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Copyright (c) 2011, Chicago Tribune

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