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Will a new Pritzker family feud derail the Hyatt IPO?

The Pritzker family first announced its intention to take Hyatt hotels public in August. However, some amendments to the IPO filing made last week have provoked debate about the control the family wields over the business, writes Katie Barker

One specific amendment, which has attracted much publicity, lists family disagreements as a potential risk to those considering buying shares in Hyatt.

"Disputes among Pritzker family members and among Pritzker family members and the trustees of the Pritzker family trusts may result in significant distractions to our management, disrupt our business, have a negative effect on the trading price of our Class A common stock and/or generate negative publicity about Hyatt and the Pritzker family," the filing said.
Speaking to, Tom Davidow, founder and principal of Thomas D Davidow & Associates, a consultancy committed to working with family-controlled enterprises, agrees that the overall performance of the company could be affected. However, he believes another family fallout during the IPO process is unlikely. "At this point, given the fact that this IPO is an attempt to settle, it would be silly for any family member to do anything because the people who would be at risk of the consequences would be the family members themselves," he says.

"I would say that there is very little risk of the family causing a problem right now and investors ought not to be worried. There is no such thing as absolute but I would say there is a very low risk," he says.
The Pritzkers have had their share of public disagreements since family patriarch Jay Pritzker, who founded the Hyatt empire with his brother Robert and father AN Pritzker, died in 1999. He left a clear succession plan in place concentrating power in three family members: his son Tom, nephew Nicholas and niece Penny. Jay also requested his family keep their fortune together and trust his three chosen successors to preserve and grow the family wealth.
However, by 2001 those family members not directly involved with any of the family companies felt disconnected from the business and cut out of important decisions. The tension that arose from these feelings eventually lead to a private family agreement to split their wealth between 11 third-generation cousins and carve up the business empire. The division has not always gone smoothly, creating two inter family lawsuits over the eight years since the agreement was first reached.
In that time the family has sold 13.6% of Hyatt to Madrone Capital and a 60% stake in Marmon Holdings, the family's conglomerate of over 125 companies, to Warren Buffet's Berkshire Hathway. The Hyatt IPO is the latest in the division of family wealth, which is due to be concluded by 2011.
The likelihood of family tensions resurfacing in the future is also smaller with the Pritzkers because they have already been through a very public fall out, Davidow explains. "I think the completion of the deal will settle the family down. And I say that from years of experience of working with families. When they are at odds with one another, then figure out a deal, it is not just the deal but the experience of having cut a deal that settles things down.
"Families do not want to be burdened with arguments, they are so awful, so distracting and draining that no-one enjoys this and I would suspect everyone is going to be really happy that it's over with," he says.
Another bone of contention for potential Hyatt investors is the amount of control the family retains over the company. Investors are being offered Class A shares in the IPO, while the family retains control of 80% of Class B shares. Holders of Class B shares are entitled to ten votes per share, as opposed to holders of Class A, who are entitled to just one per share.
"Because of our dual class ownership structure, Pritzker family business interests will continue to exert a significant degree of influence or actual control over matters requiring stockholder approval, even if they own less than 50% of the outstanding shares of our common stock. This concentrated control will limit your ability to influence corporate matters, and the interests of Pritzker family business interests may not coincide with our interests or your interests. As a result, we may take actions that you do not believe to be in our interests or your interests and that could depress our stock price," states the IPO filing.
A pre-requisite of listing a company on the NYSE is that is has a majority of independent directors. The Hyatt board is made up of 12 directors, two of which are family, and eight of which are considered independent. However, one of those listed as independent is Penny Pritzker, another controversial issue with potential shareholders as she also works in other Pritzker family businesses, which do direct business with Hyatt hotels.
Hyatt had 2008 revenues of $3.8 billion and could be considered a good buy with share prices to be listed between $23-26 each. However, it remains to be seen if the family influence and control will deter potential investors. Davidow concludes: "It will put some people off but at the end of the day I think it is a good investment."

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