SBE Entertainment Concludes Morgans Hotel Acquisition
December 01 2016 - 1:10PM
Dow Jones News
SBE Entertainment Group completed its acquisition of Morgans
Hotel Group Co. on Wednesday, bringing together two boutique hotel
operators in a deal with an enterprise value of $805 million.
The combined company will operate 22 hotels with nearly 7,000
rooms and five brands, including Morgans' Delano and Mondrian
brands, according to SBE. It will operate food and nightlife
divisions, such as the Katsuya Japanese restaurants and Hyde
nightclubs. The new company will also own Morgans' Delano Hotel in
Miami Beach and New York City's Hudson Hotel.
As part of the acquisition, Ron Burkle's private-equity firm
Yucaipa Companies converted preferred shares in Morgans into a 25%
equity interest in SBE, and Mr. Burkle will have a board seat.
Real-estate investment firm Cain Hoy Enterprises also has a 25%
equity stake in SBE and a board seat.
Sam Nazarian, founder and chief executive of the Los
Angeles-based company, holds the other 50% stake.
Yucaipa and Cain Hoy together also own $150 million of newly
issued preferred shares in SBE.
SBE's takeover of Morgans concludes a nearly two-year pursuit of
the New York-based hotel operator. Initial talks to merge the
companies collapsed last year. Mr. Nazarian initially wanted to
take his company public through the acquisition of Morgans, which
traded on the Nasdaq Market.
Under the deal just concluded, SBE is taking Morgans private.
From a financial perspective, it was worth the wait for Mr.
Nazarian. He paid about a third the price of the price for Morgans
compared with where the shares were trading in 2015 when the merger
talks began. SBE is paying Morgans stockholders $2.25 a share.
The deal also marks the end of Morgans as an independent
company. Founded in the 1980s by nightclub impresarios Ian Schrager
and Steve Rubell, Morgans helped usher in the boutique hotel craze
with their bustling public spaces, stylish interiors and
fashionable crowds.
But the company has suffered through hard times in recent years,
hurt by frequent turnover in the top executive ranks and feuding
among board members. As major hotel brands began to offer their own
boutique properties, and more lifestyle or boutique brands sprang
up, Morgans' business suffered.
SBE said it is planning to open a Redbury brand hotel in New
York in the coming months, and an SLS brand hotel in Miami.
Additional hotels are slated to open in Qatar, Seattle and South
Florida next year.
Morgan Stanley advised Morgans and Houlihan Lokey Inc. advised
SBE on the transaction.
Write to Craig Karmin at craig.karmin@wsj.com
(END) Dow Jones Newswires
December 01, 2016 12:55 ET (17:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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