Deal is the richest in county's history

Extended Stay America, the hotel chain founded by Spartanburg native George Dean Johnson and a cornerstone of the city's downtown redevelopment, will be sold to The Blackstone Group for $3.1 billion.

It is the richest deal in Spartanburg County history, and one of the largest ever -- if not the largest -- in South Carolina.

Extended Stay's headquarters will remain on Dunbar Street, Johnson said. Homestead Studio Suites, a Blackstone subsidiary, will take over Extended Stay's operations.

Johnson said he will continue to live in Spartanburg and will look for new opportunities.

"I'm an entrepreneur, not a professional manager," Johnson said Friday after the deal was completed. "I'm not a caretaker, nor do I want to be. My role in this company has ended."

Extended Stay will go from a publicly traded company to a private enterprise.

The New York-based Blackstone Group is paying $19.625 per share to acquire Extended Stay. Shares of Extended Stay closed at $15.81 Friday. The deal includes $2 billion in cash and $1.1 billion in debt.

Johnson said Blackstone officials assured him the Extended Stay employees would keep their jobs.

"The severance costs would be very substantial if they didn't," Johnson said. "That was built in (to the deal) because these people have helped us build this company."

Johnson said Jonathan Gray, Blackstone's senior managing director, contacted him in January. He said they finally arrived at a price that was agreeable this past Monday.

The deal hit a minor snag at about 4 p.m. Friday. It was worked out within 45 minutes, and Johnson made the announcement.

"It was something we should have included," Johnson said. "It wasn't a deal breaker, but it was something we wanted to disclose to them."

Johnson said the sale could prove beneficial to Spartanburg.

"Two billion in cash for a company that started eight years ago is a good thing," he said. "It's good for shareholders, employees and directors, who own 27 percent of the company. That money is coming into Spartanburg."

Corry Oakes, Extended Stay's president and chief operating officer, said he had mixed emotions about the sale. Oakes, former president Bob Brannon, Todd Turner and Loy Jeffords have been with the company since its founding.

"We've come a long way from five guys riding in a car arguing over the $20,000 purchase price of a piece of property," Oakes said.

Johnson and Oakes told employees about the sale late Friday afternoon.

"They're very excited about showing how talented they are on a large platform," Oakes said.

ESA operates 475 hotels in 42 states under the Extended Stay, Studio Plus and Crossland Brands. Homestead Suites, based in Atlanta, currently operates 132 properties in 28 states.

The new owners will continue to operate all four brands, Johnson said.

Extended Stay's earnings declined in 2003, coming in at $40.4 million, or 42 cents a share. Net income was $57.1 million, or 59 cents a share, in 2002.

Net income for the fourth quarter, which ended Dec. 31, was $3.7 million, half of the $7.4 million the company earned in the same period in 2002.

Johnson said the decline in revenue had nothing to do with the sale.

"Our product in 2000 made a 59 percent margin before overhead," he said. "This year it made a 44 percent margin. We had $160 million in cash this year after taxes."

Johnson, Extended Stay's CEO, founded the company in 1995 in Ft. Lauderdale, Fla. He announced in May 2001 that he would move the company's headquarters to Spartanburg.

Ground was broken on ESA's $13.3 million, 117,000-square-foot building in March 2002. The 235 employees moved into the new building last May.

Johnson also moved the headquarters of Advance America, another business he founded, to downtown Spartanburg. That building is across the street from the Extended Stay headquarters.

ESA's board of directors unanimously approved the sale Friday. The deal must get shareholder and government approval. That should take 90 to 120 days, Johnson said.

Will Folks, a spokesman for Gov. Mark Sanford, said the sale is good news, but said the push for reforms such as income tax relief needs to continue to improve the underlying business climate in South Carolina.

State Sen. Glenn Reese, D-Spartanburg, called the sale "another success story for Spartanburg."

"This is great for George Dean and great for the city as long as they keep the headquarters here," Reese said. "I want to congratulate George Dean on his good fortune. He did a lot of hard work to make it happen, and he is to be admired for what he's done."

Robert W. Dalton can be reached at 562-7274 or bob.dalton@shj.com.

Click for larger image

TIM KIMZEY
George Dean Johnson, right, CEO of Extended Stay America, and Corry Oakes, president and chief operating officer, discuss The Blackstone Group's acquisition Friday afternoon.

Related articles

More Headlines