UPDATE 2-Red Lion Hotels explores possible sale, shares rise

Wed Mar 28, 2012 6:40pm EDT

* Board forms strategic alternatives committee

* Co has authorized Bank of America Merrill Lynch to explore strategic alternatives

* Shares up 13 pct in after-market trade

By Meenakshi Iyer

March 28 (Reuters) - Red Lion Hotels Corp on Wednesday said it is looking at its strategic alternatives, including a sale of the company or a strategic combination with a third party, sending its shares up 13 percent in after-market trading.

The hotel operator's largest shareholder Columbia Pacific Opportunity Fund has been pushing for a sale, writing to the board in February urging the directors to sell the company in its entirety or in parts.

Red Lion, which had outstanding debt of $101.3 million at the end of last year, has been selling assets to reduce debt and looking to improve its owned and leased hotels. Last June, the company sold the Red Lion Hotel in Seattle, Washington for $71 million.

Seattle-based Columbia Pacific, which holds a near 29 percent share in the company, said last November that it may be a potential buyer for Red Lion.

The fund, which is managed by investment firm Columbia Pacific Advisers LLC, in mid-2008 made an unsolicited bid of $9.50 per share for Red Lion but later withdrew the offer, blaming difficult markets during the financial crisis.

However, Keefe, Bruyette & Woods analyst Smedes Rose, who has covered Red Lion for the past six years, reckons Columbia Pacific may not be interested this time around.

"It does not sound like Columbia Pacific is necessarily interested in buying the company now ... If Columbia were interested, they would have just made an offer."

Red Lion's board has hired Bank of America Merrill Lynch to help the company with the strategic alternatives.

The Spokane, Washington-based company, which was founded in 1937 under the name Goodale & Barbieri Cos, owns and runs about 48 hotels spread across nine states in the United States and in British Columbia under its Red Lion brand.

Red Lion shares have gained about 15 percent of their value since the beginning of this year. They were trading up at $9.19 in after-market trade and closed at $8.07 on Wednesday on the Nasdaq.