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Uncertainty clouds financing behind multiple offers for Morgans Hotel Group

Morgans HotelGroup Co. elected to proceed with its Sept. 26 stockholders'meeting, at which investors were expected to vote on an of the company by SBE EntertainmentGroup LLC, despite continued uncertainty over the financing behind both the SBE bidand multiple rival proposals.

In a Sept. 23 call, mortgage lenders backing the SBE bidsaid it was uncertain whether they would reach an agreement to assume debt inconnection with the merger, Morgans said in a Sept. 26 filing. Moreover, SBEtold the company days earlier that if it reached an agreement with the lenders,the process of confirming an agreement would likely take another four to fiveweeks.

Once Morgans shareholders approve the merger agreement, thecompany will not be permitted to terminate the transaction in favor of asuperior proposal, even if SBE is not in a position to consummate the deal, thecompany said.

Beyond the uncertain status of the SBE financing, theMorgans filing detailed unresolved issues related to multiple other possiblebids for the company. A potential acquirer known in filings as "BidderV," which has proposedto acquire Morgans for $2.75 per share — as compared to the $2.25 per sharethat SBE is proposing — has apparently not secured financing for its offer,according to Morgans' account.

Morgans postponed its shareholder meeting Sept. 14, inresponse to Bidder V's latest offer, and an indication from a potentialfinancing source that it could provide up to $500 million in capital to backthe offer. Since then, however, the financing source has not entered into anondisclosure agreement with the company, and Bidder V has requested permissionto contact alternate sources of financing.

As of Sept. 25, the company said, it was unclear whetherBidder V had either a financing source or legal counsel. The company's boardconcluded that the bidder's latest proposal "is not credible oractionable," and did not merit further postponement of the meeting, thecompany said.

Another bidder, known as "Bidder Q," whichproposed to acquire the company's stock at $3.00 per share, provided noevidence that it had financing to complete a deal, the company said, addingthat Bidder Q "appears not to have the assistance of a financial advisor."

Finally, "a party that the company believes to be aLong Island, New York based real estate broker" contacted the company'srepresentatives Sept. 22 and 23 indicating its intent to make an offer to buythe Hudson and Delano hotels, the company said. No such proposal materialized,however, and the company said it is not permitted to solicit or encourage suchinquiries in response to oral communications.

As of Sept. 25, the Morgans board concluded that none of theproposals or communications from third parties gave it a basis to postpone theSept. 26 meeting.