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The fact that Morgans has been failing since before the economic crash doesn’t speak well to its leadership or legacy. A sale could give its well-designed properties a better chance to thrive.
Billionaire Ron Burkle, an investor in Morgans Hotel Group Co., demanded its board sell the boutique-lodging company after Chief Executive Officer Michael Gross resigned.
“Get Morgans on the market and sell it to an appropriate buyer,” Burkle, founder of Morgans shareholder Yucaipa Cos., wrote in a letter to Chairman Jason Kalisman, who took over as interim CEO after Gross’s departure. “It’s time to sell now for all stockholders’ benefit.”
Morgans announced the change in leadership yesterday after its largest shareholder, OTK Associates LLC, led an ouster of the board in June. OTK, founded by Kalisman, owns about 14 percent of the New York-based hotelier’s shares. The company, which operates properties including the Mondrian in Los Angeles and the Delano in Miami’s South Beach, has lost money each quarter since 2007, according to data compiled by Bloomberg.
“I believe you are in breach of your obligation to provide us with observation rights,” Burkle wrote in the letter, dated Aug. 30 and filed yesterday with the U.S. Securities and Exchange Commission. “The entire incident with Michael Gross is a great example of not keeping the board informed or board observers informed of what’s going on.”
Burkle, who said Yucaipa has more than $200 million of Morgans debt and warrants for about 30 percent of the company’s stock, demanded the right to be informed of discussions on “refinancings, new CEOs, terminated CEOs and like matters.”
OTK in April sued Morgans board members over a recapitalization deal with Yucaipa. OTK called a proposed swap for the Delano South Beach and a $100 million rights offering “insider dealings” that would benefit Yucaipa while Burkle was on the board.
Kalisman, 34, has been a director of Morgans since March 2011 and is also the founder and CEO of Talisman Group LLC, an investment company. He will receive $1 in annual compensation as interim CEO, according to a filing yesterday.
A telephone message left with Rebecca Tafuri, Kalisman’s assistant, wasn’t returned yesterday. Nathaniel Garnick, a Morgans spokesman with Sard Verbinnen & Co, declined to comment on Burkle’s letter.
Gross will be paid in part a lump sum of $500,000, a grant of 58,334 restricted stock units, and 25,000 additional shares that will vest a year from his departure date of Aug. 30.
Morgans shares rose 1.5 percent to $6.97 yesterday, and have gained 26 percent this year.
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