Ex-Berggruen honchos to move court as LTHL deal closes in

Former executives of Berggruen Hotels are planning to take legal recourse to claim their share from the sale proceeds of Rs 605 crore that Lemon Tree Hotels Ltd (LTHL) will pay to buy out 100% shareholding in the mid-market hotel chain.

Promoted by New York-based billionaire Nicolas Berggruen, the hospitality firm owns and manages a chain of hotels in India under the Keys Hotels banner.

Three former executives -- Arif Khan, Alex Joshi and Partha Chatterjee, who were part of the founding management team, were allotted stakes when Berggruen Hotels was launched over a decade ago. 

While Khan and Joshi own under 1% stake in the company, Chatterjee owns as much as 2%. The stakes are being held in demat and/or tax-saving form as there was no visibility on payouts for a long time.

Former chief finance officer Vikas Chadha, not part of the founding team, is the fourth Berggruen Hotels executive with ‘carried interest’ of around 1%, which is similar to ESOPs (employee stock options) and gives him a certain percentage in the company’s valuation. In fact, all their shareholding is documented in the Registrar of Companies (RoC) filings by Berggruen Hotels.

DNA Money has seen the copy of the RoC document that mentions the stakes being held by the four former executives. 

While the former executives have written to the management of Berggruen Hotels staking their claim, Kabir Kewalramani, managing director, Berggruen Holdings India (the investment arm of Nicolas Berggruen), has continued to deny their share. “The company doesn’t owe anything to any former employee(s),” he told DNA Money.

When contacted, the former executives did not comment beyond the fact that they hold a stake in the hotel company. DNA Money has also learnt that a legal notice has been already served by the former executives to Berggruen Hotels, Nicolas Berggruen and Lemon Tree Hotels over the dispute. In fact, if required, these executives also plan to take up the issue with regulatory authorities, including the Company Law Board (CLB).

Industry sources aware of the shareholding of former executives in Berggruen Hotels said Kewalramani’s behaviour is outlandish. “Looks like he (Kewalramani) is trying to wash his hands off and find ways not make the payouts. There is no denying the fact that the former executives, most have been with the company since its inception, hold minority stakes in Berggruen Hotels. Now that Lemon Tree has arrived at a valuation of Rs 605 crore for buying out Berggruen Hotels, these former executives are well within their rights to seek their share from the sale proceeds,” said a source. 

Shares held by the former executives are Class B shares, and there is a hurdle rate -- a specific milestone to be achieved by the company -- for these shares to become eligible for a payout. “The said hurdle rate/ milestone was already achieved by Berggruen Hotels in 2009-10. So there is no question of denying the former executives their share now that Lemon Tree is set to buy out the company,” said another source privy to the development.

Very recently, Lemon Tree Hotels said its subsidiary Fleur Hotels will acquire 100% shareholding in Berggruen Hotels Pvt Ltd (BHPL) for a cash consideration of Rs 605 crore, including any adjustments and or debt. LTHL, the global private equity major Warburg Pincus-backed BSE-listed hotel firm, is planning to make Berggruen Hotels its wholly-owned subsidiary post the completion of this transaction.

As for Lemon Tree’s role in this matter, the source added that since it was acquiring 100% Class A shares with voting rights in Berggruen Hotels, it has no say in this issue. “The payout for the former executives is the responsibility of Berggruen Hotels. They will have to settle it mutually with the four executives the way they bought out former managing director and chief executive officer Sanjay Sethi’s stake two years ago,” said the source.

In another development, a group of current employees from Berggruen Hotels’ (Keys Hotels India) corporate office in Mumbai have alleged corporate misconduct/ mismanagement by the top company executives. A whistleblower, in his email to Nicolas Berggruen and Lemon Tree Hotels -- this writer was marked CC, has alleged that Kewalramani misused company funds for personal overseas trips.

“... Kewalramani has been claiming all his personal foreign trips from company account like travel to Phuket, Thailand, Bangkok, Bali, Japan, Indonesia and to meet his family in London,” the whistleblower said.

That’s not all, the whistleblower also alleged that no clarity was given by the management on their employment in the company and the way forward post conclusion of the acquisition by Lemon Tree Hotels.

“However, the company’s chief executive officer, Anshu Sarin, has been offered a sweet deal in the form of a one-year severance pay (DNA Money has seen a copy of this communication) by Berggruen Holdings India Management. We are equally concerned and worried about our future and hence decided to write to you. Many of us have given a significant amount of time of our career span to Keys Hotels and all of sudden we find ourselves at a crossroads,” the employee group said, urging that same promise should be extended to all of them.

The letter outlining the change in Sarin’s terms of employment, the whistleblower claimed, is very recent and done intentionally after the deal which is against corporate governance. “These payments which CEO is taking has not been approved by the Board or informed to owners in the US or is being misrepresented as existing arrangements by Sarin falsely in collaboration with Kewalramani,” alleged the whistleblower.

Defending the move, Kewalramani said, “All the allegations are false. Everything has been done as per company policy and process. As for Anshu’s severance pay is concerned, she is a crucial part of this entire buyout deal and will be required to lead, post completion of the acquisition. The severance offered to her is a standard corporate practice in situations of mergers and acquisitions,” he said.

Extended severance pay, according to industry experts, is offered to top-level executives depending on the role they are expected to play in case the company is getting merged or acquired by another company. However, such change in terms are required to be approved by the directors of the company and documented accordingly.

Rituparna Chakraborty, co-founder and executive vice president, Team Lease Services Ltd, said, “Whether everyone else should get the same severance or not will also depend on the terms of their employment. As long as the employer is abiding by the rules and employment contract, there is nothing illegal. Now, whether it’s a fair or unfair treatment is something that’s debatable,” Chakraborty said.

When contacted, Patanjali Keswani, chairman and managing director, Lemon Tree Hotels Ltd, said that he was familiar with Berggruen Hotels’ decision to change their CEO’s terms of severance pay. “While the normal severance is three months, they have said that if Lemon Tree fires the CEO on taking over Berggruen Hotels, then Lemon Tree will pay whatever they are supposed to pay as per their policy. The balance will be paid by Berggruen Hotels. So it’s their prerogative to reward the CEO after they have sold the company. It’s not Lemon Tree’s liability,” said Keswani.

On the employee retention part, Keswani said Lemon Tree will retain as many employees as possible in the Berggruen Hotels' operations and management team including the CEO. “I would like to retain 98-99% of the employees. I don’t know who will I part with because I haven’t reached that stage yet. They are all a talented bunch of people and I have no intentions to start hiring afresh. There would be 2,000-odd employees in Berggruen Hotels and I will welcome them in Lemon Tree. To me, talent is more important than anything else,” said Keswani.