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Red Lion Hotels (RLH) has been a target of activist shareholder Columbia Pacific (NYSE:CP) since 2008 when they submitted an offer to purchase the company for $9.50/share. CP was rebuffed at the time with a poison-pill (which has since been cancelled) and has continued to add to their position. CP currently owns ~28% of the shares outstanding.

On March 28th, the company announced that it will concede to CP and finally put the company up for sale. After 5 months, on September 11th, the company announced that after reaching out to more than 75 parties they were unable to find a buyer.

Ross Taylor of Somerset Capital in response to the failed sale said: "We are disappointed but not surprised by the company's announcement of last night, as we had developed serious concerns about the veracity and integrity of the strategic review process. We believe that the assets of Red Lion Hotels are worth a significant premium to the enterprise value of the company at yesterday's close, and are of the opinion that the failure of the process to develop a bid or a liquidation strategy for the company is a reflection on how the process was handled, rather than on the underlying value of the company's assets.

To this end while we are pleased to see Donald and Richard Barbieri resigning from the board, it is our belief they should leave immediately and be replaced by individuals nominated by Columbia Pacific and other substantial shareholders. Additionally, and importantly, the Special Committee should be repopulated with truly outside directors and re-charged with developing the best possible offer or liquidation plan to present to shareholders in order to allow us, not the investment banker or special committee to determine whether it is adequate."

Since the failed sale, the company has continued its attempt at selling non-core hotel assets (such as closing the sale of the Denver Southeast property for $13m) and add franchisees.

Sometime over the next few months, we should expect to hear that the sale process has relaunched or CP has decided to make another offer for the company. This announcement I believe can happen as soon as the upcoming earnings on Nov. 8th.

The company also has ~$30m of debt coming due in March 2013 which will need to be refinanced as well as high yielding trust preferreds (9.5%) which should also be called by the company when they have the available cash to do so.

RLH is currently trading near the mid-point of its 52 week trading range similar to comps such as Hyatt (NYSE:H), Starwood (NYSE:HOT), and Marriott (NASDAQ:MAR).

Expect RLH to recover to the $9.50 area again as the Barbieris resign from the board, a refinancing occurs, and the chances of a sale increase.

(As with all investing, there are risks involved with stock investing in stocks with low liquidity especially the likelihood of increased volatility. Do your own research and don't solely rely on articles like this one.)

Disclosure: I am long RLH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Red Lion Hotels: Near-Term Catalyst On The Horizon