2 Five Star shareholders urge peers to reject tender offer

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Two Five Star Quality Care shareholders on Monday urged their fellow shareholders to reject a $3-per-share tender offer set to expire at midnight Friday, saying it is “grossly undervalued, fraught with deep conflicts of interest, and fails to provide full and fair value to Five Star shareholders.”

William F. Thomas and Robert D. Thomas, who own approximately 6.8% of outstanding shares in Five Star, said they wrote their public letter because they have “deep concerns” about the offer made by Barry M. Portnoy, a managing director of Five Star, and his son, Adam, via a subsidiary to their ABP Trust called ABP Acquisition. The Portnoys are seeking up to 18 million shares of Five Star common stock.

“With fairness as the only natural guiding principle, any reasonable person would question why Five Star's purported ‘independent directors' have unilaterally elected to provide one of their managing directors the exclusive rights to a bid process not open to others,” the letter said. “In fact, these ‘independent directors' have intentionally precluded us from proceeding with a competing offer that would provide shareholders a 15% cash premium to the Portnoy tender offer.”

Five Star's directors, the Thomases maintain, have too many conflicting interests to act in the best interests of shareholders. ABP, for instance, is affiliated with Barry Portnoy, a managing director of Five Star, and with the controlling shareholders of The RMR Group Inc. and its subsidiary, The RMR Group LLC, which is Five Star's business manager.

The Thomases have put forth David Ford as a candidate for Five Star's board, to be considered at the company's 2017 annual meeting. “Mr. Ford not only has significant experience in the senior housing industry but he would bring the much needed fresh perspective and objectivity to the board,” the Thomases wrote. “Importantly, Mr. Ford has no ties to the Portnoys or the Thomas Group.”

Last month, the Thomases, founders of Tulsa, OK-based Senior Star Management Co., asked Five Star to grant them the same conditional waiver as had been granted to ABP, so that it could make a $3.45-per-share tender offer for 18 million shares. Katherine E. Potter, the Newton, MA-based Five Star's senior vice president, general counsel and assistant secretary, however, told them that their request could not be considered until after ABP's waiver expires, among other points.

Five Star executives held the company's third-quarter earnings call on Thursday, but they said they would not be commenting on the tender offer or board nomination.

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