An investment group with ownership interest in Spokane-based Red Lion Hotels Corp. is taking a wait-and-see approach before pressing a demand that three company board members be removed, following Red Lion's announcement that it's willing to pursue a potential sale.

Red Lion's board of directors recently authorized Bank of America Merrill Lynch to explore ways to "maximize shareholder value," including possibly through a sale of the company or a strategic combination with a third party, the company says in a March 28 release.

Two days prior, New York-based Somerset Capital Management, an investor group that holds a 2.5 percent ownership interest in Red Lion, released a letter it sent to board members on March 8, stating a concern that the board was acting contrary to the best interest of shareholders. The letter asked for the resignation of three board members the group referred to as "insiders"—President and CEO Jon Eliassen, Chairman Don Barbieri, and his brother, Richard Barbieri, one of the directors—or that steps be taken to remove them.

In its letter, Somerset Capital asserts among its reasons for the request that Eliassen, in his role as Red Lion's top executive, "has met with little, if any, recognizable success." Regarding the Barbieri brothers, Somerset's letter says the two "appear to let their historic ties to the company trump taking action in what we believe to be the best interest of outside shareholders."

Contacted this week, Somerset Capital's chief investment officer, Ross Taylor, says he sees the company's decision to explore options as "apparent progress."

Referring to Red Lion's stated intent, Taylor says, "Our decision is going to be based on the successful conclusion of the process. If they're able to successfully complete it, then I think our concerns have been addressed. If they're not able to successfully conclude it, then our concerns would still stand per the composition of the board."

Another Red Lion investment group that owns almost 29 percent of the company's common stock, Columbia Pacific Opportunity Fund, says in a letter filed Feb. 28 with the U.S. Securities and Exchange Commission that it thought Red Lion's directors should consider selling off more hotels or the entire company so that investors can earn better returns. Seattle-based Columbia Pacific is managed by Columbia Pacific Advisors LLC.

Columbia Pacific said in its letter that several financial and strategic parties had notified Columbia about their interest in evaluating purchasing either assets of Red Lion or the entire company if a sale or liquidation were considered. Columbia Pacific said it had previously communicated that with Red Lion's board.

"We have publicly filed two formal communications with the board, one on Jan. 19, 2011, and one on November 15, 2011, outlining our views and requesting that the board hire an adviser to run a full and transparent process to sell Red Lion in whole or in parts," the letter said.

Asked for comment about the two shareholder groups' requests, Pam Scott, Red Lion's director of communications, says, "In terms of the strategic alternative, our press release is as it stands. We don't have any further comment on the process. We will not comment on the process until or unless something actually happens."

Red Lion's press release says the board formed a strategic alternatives committee consisting of three Red Lion board members who aren't involved in day-to-day operations—Ryland P. "Skip" Davis, Melvin L. Keating, and Ronald Taylor—to work with Bank of America Merrill Lynch in its review.

"We have been working with Bank of America Merrill Lynch since mid-February, and authorizing the exploration of strategic alternatives, including a potential sale of the company, demonstrates our commitment to achieving this important objective," Eliassen says in the press release.

He adds, "Our board and management team are open-minded about the process and intend to evaluate all options thoughtfully and carefully."

Eliassen also says in the statement that Red Lion Hotels will pursue transactions for assets currently held for sale. He cites as progress the completion of the sale of Red Lion Hotel on Fifth Avenue, in downtown Seattle, for $71 million, which allowed the company to acquire 10 previously leased hotels and strengthen its balance sheet by retiring more than $28 million in debt.

The buyer of the Seattle Fifth Avenue hotel is an affiliate of national real estate investment firm Lowe Enterprises, which entered into a franchise agreement with Red Lion Hotels Franchising Inc. and will continue to operate the hotel under the Red Lion brand.

During the first quarter of this year, Red Lion listed for sale its hotels in Medford, Ore., and Missoula, Mont., which it says are two non-core assets in which the company doesn't expect to maintain significant continuing involvement. It also has been trying to sell hotels in Denver and Helena, Mont.

Early this month, Red Lion reported a first-quarter net loss of $7.2 million, or 37 cents a diluted share, compared with a loss of $4.8 million, or 25 cents a share, in the year-earlier period. In that report, Eliassen says, "We are continuing to focus on improving profitability and successfully executing our three-pronged strategy to reduce debt, expand our franchise programs, and improve the competitive position of our hotels."

Red Lion Hotels Corp. is a hospitality and leisure company involved in owning, operating and franchising midscale hotels under its Red Lion brand. As of March, its network included 48 hotels located in nine states and one Canadian province. It also owns TicketsWest, an entertainment and event ticket distribution business.

The company was founded here in 1978 by the Barbieri family, of Spokane, and early on operated hotels under the Cavanaugh's brand. In 1999, it acquired Seattle-based WestCoast Hotels Inc., and adopted the WestCoast name.

In 2001, it acquired Red Lion Hotels Inc. and four years later, after having rebranded most of its WestCoast hotels to the Red Lion brand, it changed its name to Red Lion Hotels Corp. Now all of its hotels operate under the Red Lion flag.

In its 2011 annual report, Red Lion said it has a total of about 2,225 employees, which includes 2,083 directly related to hotel operations.