Morgans Hotel May Put Itself Up for Sale

NEW YORK CITY-Morgans Hotel Group said Tuesday that if its board is re-elected at the company's annual meeting on June 14, the directors would begin to explore strategic alternatives including a possible sale of the company. Last week the board voted to eliminate a “poison pill” stockholder rights plan intended to discourage such a takeover.

In a release, Morgans said the announcement that it was considering a sale came in response to stockholder feedback as well as unsolicited interest from “five potential strategic buyers.” Morgans said in May that it had received an offer last November from “a large international hotel company” proposing a cash buyout for $7.50 per common share, but found the price “not sufficiently attractive.”

Bloomberg reported Tuesday that analyst Stephen Altebrando of Sidoti & Co. wrote in a research note that Morgans's Delano, Mondrian and Hudson flags would be “desirable brands for better-capitalized, larger hotel franchisors seeking to grow their room pipeline in the boutique segment. A combination would also eliminate the company's high debt costs and provide capital to expand the management pipeline.” Morgans has lost money in every quarter since 2007, according to Bloomberg.

As for a possible sale, Morgans said Tuesday that there are no guarantees that “this process of exploring strategic alternatives” will result in the boutique hotel operator changing its business plan. The board's slate of director nominees faces a competing slate put up by OTK Associates LLC, its largest shareholder.

The board's vote last Wednesday to terminate the company's stockholder rights plan “reflects our ongoing commitment to good corporate governance practices and responsiveness to our stockholders,” said Michael Gross, Morgans CEO, in a statement last week. The company has implemented a new policy that requires stockholder approval of any future stockholder rights plan either prior to its adoption, or within 12 months after it goes into effect.