Mumbai, Sept. 13: Under pressure from activist hedge funds, luxury hotel operator Orient-Express Hotels has agreed to call a special shareholders’ meeting on October 10 to discuss two resolutions that seek to scrap super voting stock that the management has been using to muzzle other shareholders.

The meeting holds a great deal of significance for the Tata-owned Indian Hotels Company, which owns 11.5 per cent of the Class A shares of the Bermuda-registered company. These shares are listed on the New York Stock Exchange.

Last December, Orient-Express rudely rebuffed Tatas’ overtures for an alliance of their worldwide hotel properties. Orient-Express owns and manages 51 luxury hotels, restaurants, tourist trains, and river cruise operations in 25 countries. The requisition for the special shareholders’ session was made on August 4 by two large US hedge fund owners — David Shaw and Steven Cohen — who jointly own 14.2 per cent of the Class A stock.

The meeting will consider two resolutions: the first seeks to amend the bye-laws of Orient-Express Hotels so that the super voting shares are treated as “treasury shares” under Bermuda law, which means the management will lose its voting right on these shares. The second resolution goes a step further: it seeks to scrap the Class B stock altogether.

However, the Orient-Express management — which controls 81.2 per cent of the voting rights in the company through a combination of Class A and B shares — says it intends to frustrate the process by voting all its shares against the resolutions. This may seem cynical since the Orient-Express management plans to vote the very shares that the resolution seeks to scrap.

In a filing with the Securities and Exchange Commission of the US, Orient Express said the board of its holding company — Orient-Express Holdings 1 Ltd — had decided “to vote all of its shares against the proposed resolutions at any special meeting.”

It justified the action by arguing that “the company’s governance and share structure has been clearly described for the entire investment community since the company’s IPO in 2000.”

It described the move to requisition the special shareholders’ meeting as “an expensive and unproductive exercise”. The Orient-Express board said it decided to call the meeting even though it had “serious doubts about the validity of the requisition”.

The hedge funds had threatened to explore other options, including legal action to force the company to call the meeting. Shaw and Cohen had threatened to call a meeting of the shareholders on their own if the management didn’t make a relevant announcement within 21 days.

The company said it had decided to call the meeting “in order to avoid a potentially protracted and expensive dispute”. In a communication to shareholders, Orient-Express said any resolution passed at the special shareholders’ meeting would be “subject to further approval of the holders of the class B common shares, voting as a single class at a separate meeting to be held promptly following the conclusion of the special general meeting.”

The company said it would come out with its detailed views and recommendations on the issues raised by the hedge funds just before the special general meeting.

Protracted battle

Shaw and Cohen have led the shareholders’ battle for better corporate governance standards at Orient-Express after the Tatas first complained late last year about the management’s imperious attitude and dodgy corporate governance practices.

Back in February, the two hedge funds teamed up and demanded clarity on the class B shares — which carries 10 times the voting right of a Class A share. However, the hotel giant continued to fob them off. The latest round in the year-long battle began on July 24 when the two hedge funds wrote a letter to the management arguing that the circular ownership structure wasn’t legally sustainable under Bermuda law.

“The company is both the subsidiary and holding company of OEH Holdings, and OEH Holdings is both the subsidiary and holding company of the company, an ownership structure that is certainly not authorised by or compatible with the (Bermuda Companies ) Act,” the letter said.

They said the OEH board chose to “utilise this flawed structure to perpetuate their positions of authority at the expense of those with actual economic interests in the firm.”