Morgans Hotel Group Co. (MHGC) shareholder Kerrisdale Capital Management LLC said it plans to nominate a new slate of directors for the company, less than three months after a board ouster and two days after the resignation of Chief Executive Officer Michael Gross was announced.
Kerrisdale Capital, which owns about 4 percent of New York-based Morgans, said a new board is needed to sell the boutique-hotel operator, according to a letter to stakeholders, filed today with the U.S. Securities and Exchange Commission.
“The current directors of Morgans Hotel do not adequately represent the interests of the majority of shareholders,” New York-based Kerrisdale said in the letter.
The investment-management firm said it intends to nominate a separate set of directors in 2014. The proposal follows a demand by billionaire Ron Burkle’s Yucaipa Cos., also a Morgans investor, that the board put the hotelier on the market. Burkle called for a sale in a letter to Chairman Jason Kalisman that was filed with the SEC two days ago, after Gross’s resignation was announced. Kalisman is serving as interim CEO of Morgans.
OTK Associates LLC, founded by Kalisman and the owner of about 14 percent of Morgans shares, led an ouster of the board in June. Morgans, which operates properties including the Mondrian in Los Angeles and the Delano in Miami’s South Beach, has incurred losses each quarter since 2007, according to data compiled by Bloomberg.
“Maintaining Morgans as a standalone entity is highly undesirable because we doubt that any management team can add sufficient operational value relative to the value leakage incurred by delaying a sale,” Kerrisdale said in its letter.
Burkle said earlier this week Yucaipa has more than $200 million of Morgans debt and warrants for about 30 percent of the company’s stock. OTK in April sued Morgans board members over a recapitalization deal with Yucaipa. OTK called a proposed swap for the Delano South Beach and a $100 million rights offer “insider dealings” that would benefit Yucaipa while Burkle was on the board.
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