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SBE to acquire Morgans Hotel for $2.25 per share

Morgans Hotel GroupCo. entered into a definitive agreement to be acquired by hospitality company SBE for $2.25 per share incash.

Including the exchange of Morgans' series A preferred securities,the assumption of debt and transfer of capitalized leases, the transaction representsa total enterprise value of approximately $794 million.

The per-share price represents a 69% premium over Morgans' unaffectedclosing price May 5, and a 54% premium to Morgans' volume-weighted average pricefor the 30 days up to and including May 5, according to a release.

SBE will acquire Morgans' portfolio of 13 owned, operated orlicensed hotel properties in London, Los Angeles, New York, Miami, San Francisco,Las Vegas and Istanbul, including its Hudson New York and Delano South Beach hotels.SBE is working with lenders to assume the $422 million in mortgages on the Hudson and Delano properties and expectsthis to occur at closing.

In November 2015, talks between SBE and Morgans reportedly after months of negotiations.

Those talks followed an offer from Rambleside Holdings, whichproposed acquiring theHudson New York and Delano South Beach for $507 million and possibly taking overthe entire company. In January, Rambleside published a letter in which it asked Morgans to engage a new set of financialand legal advisers, re-engage with potential strategic partners and provide an updateon a strategic plan it launched in the wake of the SBE deal collapse.

As part of the transaction, affiliates of The Yucaipa Cos. willexchange $75 million in series A preferred securities, accrued preferred dividendsand warrants for $75 million in preferred shares and an interest in the common equityin the acquirer, and following the closing, the leasehold interests in three restaurantsin Las Vegas currently held by Morgans.

The transaction was approved by the Morgans' board of directorsand is expected to close in the third or fourth quarter. Closing of the deal issubject to regulatory approvals, the assumption or refinancing of Morgans' mortgageloan agreements, and customary closing conditions, including shareholder approval.Morgans shareholders representing approximately 29% of the company's outstandingstock have signed voting agreements in support of the transaction, including OTKAssociates, Pine River Capital Management and Vector Group Ltd. Yucaipa affiliateshave also signed a voting agreement for their series A preferred securities andwarrants.

SBE has obtained commitments to finance the transaction througha combination of proceeds from the sale of new preferred equity in a newly formedcompany to a third-party investor, liquidity from the refinancing of its existingterm loans and a new revolver.

Morgan Stanley & Co. LLC served as Morgans' financial adviser,and Fried Frank Harris Shriver & Jacobson LLP served as its legal advisers.