Shareholder letter may lead to Morgans Hotel Group proxy fight

Rambleside's Greg Cohen cites "serious concerns" about beleaguered company's direction

TRD New York /
Feb.February 01, 2016 03:45 PM

Activist shareholder Gregory Cohen of Rambleside Holdings is looking to shake things up at Morgans Hotel Group, having sent a letter to the Morgans board this weekend expressing “serious concerns about the strategic direction of the company” and suggesting steps to reform the beleaguered hotel operator’s governance.

Cohen’s letter, addressed to Morgans chair Howard Lorber and others on the company’s board of directors, says the company “is now facing a crisis” that has seen its share price drop to $1.69 at the close of trading last week. The letter could kick off a proxy fight for control of Morgans — with Cohen, who owns just under 5 percent of the company’s common stock, backed by former Morgans CEO Fred Kleisner.

The correspondence mentions how Rambleside, the real estate investment firm helmed by Cohen, offered last year to buy two hotels owned by Morgans – including the Hudson New York in Midtown – for $507 million, only for the offer to be “never meaningfully engaged with” by the company’s board of directors.

“It seems as if the board’s strategy is to let the business float along – without a plan – with no regard for shareholder value,” Cohen said in the letter.

The letter goes on to suggest the Morgans board host an investor conference call to update shareholders on its strategic plan and “explain why it has been unable to reach agreement with any industry partners” over a potential sale of the company.

One such deal, a merger with Sam Nazarian’s SBE Entertainment, broke down in November after a disagreement among Morgans board members Ron Burkle, a preferred equity holder in the company, and former interim CEO Jason Kalisman.

Morgans has been without a CEO since Kalisman’s departure last May, and the company has been plagued by shareholder infighting that has interfered with efforts to bring an entity-level sale or merger to fruition.

Cohen’s letter also suggests that Morgans “hire new independent financial and legal advisors” to help with finding “potential strategic partners,” and floats Kleisner — a former Starwood Hotels & Resorts executive who served as Morgans CEO from 2007 to 2011 — for the role of interim CEO.

Lorber declined to comment on the shareholder letter when reached for comment.

Morgans fought a high-profile battle last year with the Sapir Organization over management control of the Mondrian Soho hotel, which Sapir acquired at a foreclosure auction for $200 million last January.

Cohen, meanwhile, has played the role of activist shareholder before. A former shareholder in real estate investment trust New York REIT, he penned a letter to that company’s board last summer expressing concerns about New York REIT’s direction.


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