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Soho House & Co Inc (SHCO) is a global membership platform that provides physical and digital spaces for its members to work, socialize, and connect. The company operates a network of 45 Soho House private members’ clubs, as well as Soho Works co-working spaces, and has an attractive recurring revenue model.
In December, Soho House announced an offer from a new third-party consortium to acquire the company for approximately $9 per share, conditioned on certain significant shareholders rolling over their equity interests. The offer was supported by Soho House’s executive chairman Ron Burkle and Yucaipa Companies, who would likely end up controlling the private entity.
However, activist investor Third Point, which owns 9.89% of Soho House’s Class A stock, has expressed concerns about the process and has urged the company to launch a more rigorous sales process that maximizes value for all shareholders. Third Point’s founder, Dan Loeb, has a history of shareholder activism and has generated impressive returns in credit, venture, and growth strategies.
Loeb believes that an independent and rigorous sales process would yield several interested and qualified parties with significant investing experience in the hospitality sector, and has warned that the board’s conduct could expose them to liability for failing to discharge their fiduciary duties.
The situation has sparked concerns about poor corporate governance, with Loeb accusing the board of engaging in an opaque process that resulted in a “sweetheart deal” with Soho House’s chairman. The board has smart lawyers and advisors who will inform the directors of their reputational and potential financial liability, and it is expected that Burkle and the board will ultimately do the right thing and make a fair offer to acquire the company if they really want it.
The outcome of the situation is uncertain, but it is possible that Burkle will increase his offer to a value closer to the IPO price, someone else will come in and offer more for the company, or Third Point will commence a lawsuit against Soho House and the directors.