Morgans Hotel Group Receives $75 Million Investment from Yucaipa to Fuel Future Growth
Announces Appointment of Marc Gordon as President
The company also announced that Marc Gordon, current Chief Investment Officer for MHG, has been promoted to President of MHG by the board of directors. In connection with the investment, Michael Gross has been appointed to the board of directors of MHG, and MHG directors Deepak Chopra and David Moore have resigned from their positions on the board. Mr. Gross has worked closely with Ronald Burkle since 2004 and has focused on consumer, real estate and lodging companies for 11 years.
Under the terms of the transaction, MHG has issued to Yucaipa $75 million of Preferred Securities. The Preferred Securities have an 8% dividend rate for the first five years; a 10% rate for years 6-7; and for any remaining balances, a 20% rate for years thereafter. MHG has the option to accrue any and all dividend payments. MHG also has the option to redeem the Preferred Securities at any time without any pre-payment penalty.
In addition, MHG issued to Yucaipa a warrant to purchase 12.5 million shares of the company’s common stock at an exercise price of $6.00, subject to certain anti-dilution adjustments, and exercisable utilizing a cashless exercise method only, resulting in a net share issuance. The exercise price reflects a 19% premium on the average closing price of MHG’s common stock for the last 60 trading days. As a part of the cashless exercise method, the number of shares issuable on exercise will depend on the price of the common stock at that time. Based on the shares of MHG’s common stock outstanding today, the maximum number of shares issuable under this warrant would never represent more than 29.99% of MHG’s outstanding shares. The warrant will expire in 7.5 years.
David Hamamoto, Chairman of the Board of Morgans Hotel Group, said, “We are pleased that Yucaipa and Ron Burkle, with their impressive track record of successful investments, have decided to make such a significant investment in Morgans. We view this investment, which was done after substantial due diligence, as a vote of confidence in both our business and our long-term growth prospects. The investment, along with the company’s other restructuring efforts, will further strengthen our balance sheet, allowing us to prudently capitalize on growth opportunities ahead.
”We wish to thank Deepak Chopra and David Moore for their valuable service to the Board,” Mr. Hamamoto added.
Ronald Burkle, Chairman of Yucaipa, said, “Morgans has some of the most exciting brands in the industry and a terrific platform for future growth. We are excited to partner with the company as it continues to expand its brand portfolio. We look forward to working with Morgans’ talented management team to drive long-term growth, profitability and value for all shareholders.”
MHG and Yucaipa also announced that they intend to raise a real estate opportunity fund to invest in new MHG hotel projects. Properties owned by the fund are to be managed by MHG under long-term management agreements. Yucaipa has agreed to commit capital towards the fund and raise the remaining money through a fund offering. In connection with the formation of the fund, Yucaipa will be entitled to receive additional warrant shares if the fund meets certain capital commitment and investment thresholds.
Fred Kleisner, Chief Executive Officer of MHG, said, “This transaction is consistent with our strategy of pursuing compelling growth opportunities that focus on high-margin management fees and I am confident that this partnership will benefit all of Morgans’ key stakeholders. I also want to congratulate Marc Gordon, on his promotion today to President of Morgans Hotel Group. Marc has been an instrumental member of the Morgans’ team for twelve years and I know our company will continue to strengthen and grow under our combined guidance and leadership.”
Marc Gordon, President of MHG, continued, “I am honored by the confidence that has been placed in me and look forward to working closely with David, Fred and the entire management team as we prudently capitalize on opportunities ahead. We appreciate the support of our new partner Yucaipa for providing us the flexibility to repay the capital as and when most beneficial for Morgans. These additional dollars and friendly terms should help us see the company through the remainder of the economic downturn and allow us to position Morgans to capitalize on the ultimate recovery.”
The transaction has been approved by MHG’s board of directors. In accordance with NASDAQ rules, the potential warrant issuance in excess of 19.99% of MHG’s shares is subject to stockholder approval.
About Morgans Hotel Group
Morgans Hotel Group Co. (NASDAQ: MHGC) operates and owns, or has an ownership interest in, Morgans, Royalton and Hudson in New York, Delano and Shore Club in South Beach, Mondrian in Los Angeles, Scottsdale and South Beach, Clift in San Francisco, and Sanderson and St Martins Lane in London. Morgans Hotel Group and an equity partner also own the Hard Rock Hotel & Casino in Las Vegas and related assets. Morgans Hotel Group has other property transactions in various stages of completion, including projects in SoHo, New York; Las Vegas, Nevada; Palm Springs, California; Boston, Massachusetts; and Dubai, UAE. For more information please visit .
The Yucaipa Companies is a premier investment firm that has established a record of fostering economic value through the growth and responsible development of companies. Since its founding in 1986, the firm has completed mergers and acquisitions valued at more than $30 billion. As an investor, Yucaipa works with management to strategically reposition businesses and implement operational improvements, resulting in value creation for investors.
Forward-Looking and Cautionary Statements
Statements contained in this press release which are not historical facts are forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of words such as "expects," "plans," "estimates," "projects," "intends," "believes," "guidance," and similar expressions that do not relate to historical matters. These forward-looking statements are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated, due to a number of factors which include, but are not limited to, downturns in economic and market conditions, particularly levels of spending in the business, travel and leisure industries; hostilities, including future terrorist attacks, or fear of hostilities that affect travel; risks related to natural disasters, such as earthquakes and hurricanes; risks associated with the acquisition, development and integration of new properties; the seasonal nature of the hospitality business; changes in the tastes of our customers; increases in real property tax rates; increases in interest rates and operating costs; the impact of any material litigation; the loss of key members of senior management; general volatility of the capital markets and our ability to access the capital markets; and changes in the competitive environment in our industry and the markets where we invest, and other risk factors discussed in Morgans Hotel Group's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and other documents filed by the Company with the Securities and Exchange Commission from time to time. All forward-looking statements in this press release are made as of today, based upon information known to management as of the date hereof, and the Company assumes no obligations to update or revise any of its forward-looking statements even if experience or future changes show that indicated results or events will not be realized.
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