Morgans Surges After Disclosure of Spurned Takeover Offer

Morgans Hotel Group Co. (MHGC) said it received a $7.50-a-share takeover offer from a “large international hotel company” late last year that it rejected as too low. The stock rose to the highest in a year and half.

Yucaipa Cos., which has a stake in Morgans through preferred shares and stock warrants, said in a regulatory filing earlier today the New York-based hotelier should disclose an offer it received. Morgans, in a statement after the filing, said the $7.50 bid was turned down because the “price was not sufficiently attractive.” Lex Suvanto, a spokesman for Morgans at Abernathy MacGregor Group, wouldn’t name the company that made the offer.

The Morgans board “responded that it was not interested at the proposed price, but that it might entertain a proposal at a significantly higher price,” the company said in its statement. “A similar proposal was received by the company from the same party at the same price in February 2013 and the company’s position on the proposal was unchanged.”

Morgans Hotel shares rose 13 percent to $6.97 at the close in New York. It was the stock’s biggest gain and highest price since October 2011.

A Delaware Chancery Court judge ruled on May 14 that Morgans can’t sell two of its businesses to billionaire Ron Burkle’s Yucaipa and begin a $100 million recapitalization plan because directors didn’t properly approve the actions.

Jason Taubman Kalisman, a company director and founding member of its largest common-stock holder, OTK Associates LLC, sued his fellow board members last month over their decision to back the Yucaipa deal.

Proxy Fight

OTK opened a proxy fight this year, saying it’s seeking to overhaul Morgans’s board and return the company to profitability. The chain, which includes 13 boutique hotels, has lost money in every quarter since 2007, according to data compiled by Bloomberg.

Kalisman and OTK officials contend Morgans executives sought to ram through a deal with Burkle calling for the billionaire to swap his $230 million investment in the chain’s notes and preferred shares for Morgans’s Delano South Beach Hotel in Miami and a restaurant company. Burkle also would retire warrants and assume an $18 million promissory note as part of the deal.

Burkle also agreed to backstop the $100 million rights offering without charging a fee as part of the acquisition. Burkle, who serves on the the Morgans board, could end up with 32 percent of the company’s shares should no other investors participate in the offering.

Deal Barred

Three days ago, Judge Travis Laster barred the deal and the recapitalization from proceeding because Morgans’s directors didn’t properly approve them. Company officials said directors will reconsider the transactions. The board also faces a proxy vote at the company’s June 14 meeting.

During a hearing on Kalisman’s challenge to the deals, the dissident director’s lawyers cited the board’s rejection of the $7.50-a-share bid as evidence it improperly favored Burkle’s acquisition offer for the hotel and food-and-beverage company.

In its filing today, Yucaipa said it would honor the agreement to buy the businesses, and urged Morgans to invite OTK officials to help backstop the rights offering. Yucaipa also said it wouldn’t object should Morgans cut the recapitalization to $75 million.

The Morgans chain features boutique hotels such as the Mondrian SoHo in New York, the Clift Hotel in San Francisco and the Delano Marrakech in Morocco.

The case is Kalisman v. Friedman, 8447, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Prashant Gopal in Boston at pgopal2@bloomberg.net; Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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