After merger talks collapsed six months ago due to disagreements among Morgans Hotel Group shareholders, on Monday the deal got done when the struggling company that Ian Schrager started in 1984 and many today call the inspiration for the lifestyle hotel movement was acquired by Sam Nazarian’s SBE in an all cash deal for US$2.25 per share (US$82 million equity value). SBE plans to take Morgans private, which reportedly will give the combined entity an enterprise value of close to US$800 million.
The deal, expected to close in the third or fourth quarter of 2016, gives SBE 13 additional global hotel management deals to increase its portfolio to 20 properties with 6,000 keys in nine markets to go along with another 90 entertainment and food & beverage offerings in its stable. SBE also takes ownership of the Morgans and Delano brands, as well as three individually owned assets – the Hudson New York, the Delano South Beach in Florida and the Clift Hotel in San Francisco.
SBE also said it already has 19 new hotels in development, comprising 4,500 keys, 3,800 of which are signed, under construction, or have an executed LOI, scheduled to open through 2019. SBE expects to open five hotels by the end of 2016, including the SLS Brickell in Miami, Townhouse Hotel in Miami Beach, SLS Park Avenue in New York City, Hyde Hallandale in Florida and the Mondrian Doha.
Nazarian will serve as chief executive and retain majority control of the newly combined company, while Morgans major equity investor Ron Burkle will obtain a 25% common equity interest in SBE.
As part of the transaction, SBE is receiving a significant investment from Cain Hoy Enterprises, a global real estate investment company headed by Jonathan Goldstein. Nazarian said it will give SBE significantly improved financial strength and more flexibility to pursue growth opportunities, adding that SBE intends to invest significant funds to revitalize the owned Delano, Hudson and Clift assets.
While the stock price has bounced some 14% since rumors of this deal resurfaced, Morgans has been struggling in the past year, having seen its stock price drop from a high of US$7.01 in May 2015 to 86 cents per share in February 2016. In Q1 2016, it reported a net loss of US$8.9 million with revenues declining 4.3% year-over-year.
Merger talks between SBE and Morgans collapsed in November after Burkle and former Morgans CEO Jason Kalisman – whose OTK Associates is Morgans’ largest shareholder – disagreed over terms of the deal.
Today, however, Nazarian proclaimed, “Our acquisition of Morgans will allow SBE to become a truly disruptive and value-add force across all platforms of hospitality, residential, entertainment, F&B and development.”