Morgans HotelGroup Co. has been approached by an unidentified party interestedin exploring acquiring at least 50% of the company's assets or stock.
In a proxy amendment, Morgans said that an unnamed bidderapproached its legal adviser, Fried Frank Harris Shriver & Jacobson LLP, onJune 27, stating it was interested in executing a non-disclosure agreement. Thecompany is furnishing non-public information to the bidder and may engage infurther discussions with the bidder.
Should an offer materialize, it could jeopardize the company'sexisting agreement to be acquiredby SBE in a deal that represents a total enterprise value of roughly $794million. The company said in announcing the deal that it expected thetransaction to close in the third or fourth quarter.
Morgans also disclosed in the proxy amendment that threeclass-action lawsuits filed in Delaware seeking to block the SBE deal wereconsolidated into one action, and another class filed in New York over the dealwas discontinued.
The consolidated class action accuses the company's boardand other parties of breaching their fiduciary duties and alleges that investorRonald Burkle, a preferred equity holder in Morgans, pressured the company toaccept SBE's offer and frustrated its attempts to explore other strategicalternatives.
Also, the company said, on July 6, a judgment was entered inthe Supreme Court of New York in connection with litigation filed by AndrewSasson and Andy Masi over a dispute over interest potentially owed on $18.0million in convertible notes issued in connection with the company's November2011 acquisition of90% of The Light Group.
The company posted a $3.0 million bond in order to stay thejudgment pending appeal. However, it said, that payment and other expenses haveresulted in a deterioration of the company's liquidity to a level that mayprove insufficient to cover unforeseen expenses or a further downturn inoperating results.
Further complicating the company's liquidity situation, inMay, it was required to divert all cash flows from its Hudson and Delano hotelsinto accounts controlled by lenders due to the fact that the debt yield ratioon mortgages encumbering the hotels fell below 6.75%, according to the filing.