SBE’s Morgans Hotel Acquisition May Not Happen After All — Again

Will Morgans Hotel Group ever get bought? At this point, who knows?

According to an SEC filing filed by Morgans Hotel Group today, SBE will not be able to close its acquisition of Morgans Hotel Group for $82 million by the deal’s original deadline.

On November 8, both SBE and Morgans entered into an agreement to extend the deadline to close the deal to November 30. According to the terms of the original merger agreement, the deal was supposed to close by November 9.

According to the filing, “The parties are continuing to work towards closing the merger as promptly as practicable. SBE and its partners, Yucaipa Hospitality Investments, LLC and Cain Hoy Enterprises, L.P, and the Company have finalized the terms of an assumption of the guarantee relating to the Hudson/Delano mortgage debt, and the mortgage guarantee assumption has been submitted to the rating agencies for approval. Based on market practice, we anticipate that the rating agency confirmation process will take between two and four weeks and that the merger would close promptly thereafter assuming all other conditions have been met or waived.”

Should the deal not be completed by November 30 and SBE cannot get the financing necessary to close it, SBE would owe Morgans a $6.5 million termination fee.

Since the SBE acquisition was first announced in May, it’s been wrought with a number of challenges, the latest of which involved an unsolicited takeover bid of $100.22 million from an organization known only as “Bidder V.” This also isn’t the first time SBE has attempted to purchase or merge with Morgans.

Morgans’ Tough Third Quarter

Morgans itself has also struggled financially, and the company is low on cash and needs to secure a buyer sooner rather than later.

Today, the company also filed its earnings for the third quarter with the SEC, noting an 8.9 percent decrease in total hotel revenues compared to the same period last year. For the third quarter of 2016 it saw revenues of $45.6 million compared to $50 million last year. Room revenue also decreased 5.3 percent to $28.7 million, compared to last year’s third quarter.

Interestingly, although Morgans did not issue a press release about its earnings or hold an investors call, its quarterly report did shed some light as to why the company had a tougher third quarter this year than in the previous year.

Specifically, Morgans cited “the rising popularity of alternative lodging companies, such as privately owned residential properties, including homes and condominiums that can be rented on a nightly, weekly or monthly [basis], have had an impact on our business and operations, as travelers have opted to stay at these privately placed accommodations rather than at our hotels, especially in larger cities, such as New York City, where we have a high concentration of hotel rooms. We believe that this trend will continue throughout 2016 and may have a more meaningful impact in other domestic and international markets in which we are located.”

The company also noted that Zika in Miami “negatively impacted demand at Miami Beach hotels, including Delano South Beach.”