Just in time for the holiday season. Let's hope this turns out to be a miracle for all parties involved.
After what seemed like an ongoing ordeal that spanned two years, including a failed first attempt in 2015 and an unsolicited takeover bid that appeared this summer, SBE has finally completed its acquisition of Morgans Hotel Group.
The $82-million deal, which is valued at an estimated $805 million, was originally announced in May but had to overcome a variety of challenges related to financing and an unsolicited takeover bid. Most recently, SBE and its partners requested to extend the deadline for the agreement about a month to November 30.
Under the terms of the deal, SBE paid $2.25 per share in cash for outstanding shares of Morgans. Morgans’ stock closed yesterday at $2.15 a share.
With this deal, SBE now has 13 additional hotel management and franchise/licensing agreements, and SBE will take direct ownership of the Delano Hotel in South Beach, Miami, the Hudson Hotel in New York City, and the Clift Hotel in San Francisco.
For Morgans, the acquisition comes as welcome news. The hotel company that was originally founded by iconic boutique hotelier Ian Schrager, has had a difficult past few years both financially and leadership-wise, and had been seeking a buyer as far back as 2014. (Schrager sold the company in 2005.) The company has also been without a permanent CEO since 2013.
All of Morgans’ existing hotels will now operate under SBE, and they will eventually fall under SBE’s own loyalty program, THE CODE, which currently has more than 2 million members.
SBE said the deal will increase its total number of employees to 5,000 worldwide and the company will also be hiring “additional top executives to lead critical disciplines throughout the organization.” According to an SEC filing filed by Morgans on December 1, the following members of Morgans’ board of directors resigned: Howard M. Lorber, Andrew Broad, Kenneth E. Cruse, John Dougherty, Jason T. Kalisman, Bradford Nugent, Michael E. Olshan, Michelle S. Russo, and Adam Stein. SBE CEO Sam Nazarian is now the CEO, president, CFO, treasurer, and secretary of Morgans Hotel Group.
In order to finance this deal, SBE enlisted the help of its partners, Cain Hoy and Ron Burkle’s The Yucaipa Companies. Burkle, a friend of Nazarian’s, was also a preferred equity-holder in Morgans who clashed with Morgans former chairman and interim CEO, Jason Kalisman. The Yucaipa Companies’ other hospitality investments include Soho House, Sydell Group, and Discovery Land Company.
Under the terms of the merger, Nazarian will retain all day-to-day management responsibilities and half of the common stock interests in SBE. The remaining half of the common stock and $150 million of newly issued preferred equity will be shared equally between Cain Hoy and Yucaipa. Both Jonathan Goldstein of Cain Hoy and Ron Burkle will join Nazarian on SBE’s Board of Directors.
“I like to work with creative, strategic-thinking leaders, and Sam Nazarian is one of the best in the business,” Burkle said in a statement. “I’m excited to work with Sam and his exceptional team at SBE towards redefining the hospitality landscape.”
“My father Younes and my brother David have been a critical part of the development of SBE and I am thrilled to continue our work together and to collaborate on this next phase of the company with Jonathan Goldstein, Cain Hoy Enterprises and Ron Burkle, with Yucaipa’s growing portfolio of world-class hospitality assets in Soho House, Sydell Group, and Discovery Land Company. Cain Hoy and Yucaipa’s investment significantly improves SBE’s financial strength and provides us with the opportunity to invest funds to refresh the iconic Morgans-owned properties, Delano and Hudson,” Nazarian said in the same release. “Equally important, it gives us the flexibility to pursue growth opportunities.”
Will this deal work to the benefit of both SBE and Morgans? We’ll have to see.
Bjorn Hanson, a clinical professor at the NYU Tisch Center for Hospitality and Tourism, and a self-proclaimed “industry enthusiast,” for one, viewed the deal as a positive for both companies when it was first announced this May. “There’s probably a bias in my thinking but I think this is a great acquisition which will be at a favorable price,” Hanson told Skift.
Hanson said that the brand awareness of Morgans Hotels Group’s iconic brand portfolio is especially attractive for SBE. “Many people know the Mondrian name, and each of these Morgans hotels, in its own way, is its own brand. I don’t know what Sam Nazarian is planning to do — there could be cities where there could be a Hudson, a Delano and a Mondrian all in one city. But I think they all have a loyal enough following from both guests and what these brands represented, at times, in the earlier life of the company.”
He added he thinks it’s likely we’ll see more of Morgans’ hotel brands appearing in future hotel properties in years to come. “It’s just me speculating, but I think SBE, by buying these very valuable brand names, can seize on what they can generate in market presence and market performance.”
Photo credit: The Clift San Francisco. As part of SBE's acquisition of Morgans Hotel Group, SBE now has direct ownership of this boutique hotel property. Morgans Hotel Group