Billionaire investor Ron Burkle accused OTK Associates LLC in a lawsuit of seizing control of Morgans Hotel Group Co. by misleading shareholders in proxy materials.
Burkle, founder of Yucaipa Cos., is seeking a new shareholder meeting and director elections, according to a complaint filed yesterday in federal court in Manhattan.
Morgans Hotel Group investors voted to fill the board of the company with all seven directors proposed by OTK, rejecting six incumbent members, including Burkle, he alleged.
“Without an injunction from this court, Morgans will be controlled by elected directors who were elected by means of an improper proxy solicitation,” Burkle said in the complaint.
OTK, the hotel company’s largest shareholder, and Burkle’s Yucaipa, also a substantial stakeholder, have been embroiled in disputes over control of the hotel firm. Morgans operates luxury hotels under brands including Hudson, Delano and Mondrian.
Burkle alleged the election process was “tainted” because OTK provided proxy solicitations that materially misrepresented the conclusions of advisory firms regarding the vote.
Dan Gagnier, an OTK spokesman with Sard Verbinnen & Co., didn’t immediately return a call yesterday seeking comment on the lawsuit.
Burkle’s Yucaipa last week filed a separate suit against the Morgans Hotel Group in New York state Supreme Court related to its ongoing disputes with OTK. The suit alleges breach of contract over agreements to sell Morgans’ interests in a Florida hotel and a food and beverage company that serves the hotel.
The deal was blocked in May by Delaware Chancery Court Judge Travis Laster, who found that the arrangement, calling for Burkle to swap $230 million in debt and preferred shares for the businesses, was not properly approved by the board.
Yucaipa said in the complaint that it believes that Morgans isn’t interested in continuing to pursue a transaction. The investment firm is seeking a $9 million termination fee and indemnification for other costs.
Yucaipa “must take action to protect its interests,” the company said in a statement last week.
The case is Ronald W. Burkle v. OTK Associates LLC, 13-cv-04557, U.S. District Court, Southern District of New York (Manhattan).