Los Angeles hotelier Sam Nazarian is in advanced talks to
combine his company with Morgans Hotel Group Co., a deal that would
bring together some of the industry's most stylish brands.
Mr. Nazarian, founder and chief executive officer of SBE
Entertainment Group, is expected to take over as CEO of the
combined company, according to people familiar with the
discussions.
Billionaire private equity investor Ronald Burkle, who is
Morgans' largest creditor and owns preferred equity in that
company, will have a board seat with the new firm and is weighing
additional investments in the combined company, say people familiar
with the talks.
The new company would manage 19 hotels in cities like Los
Angeles, New York, Miami and London and would include the hotel
brands SLS, Delano, and Mondrian. SBE also owns restaurant and
high-end nightclub brands such as Hyde.
A deal could be announced as early as this month, these people
said. Financial terms aren't known. Morgans' shares trade on the
Nasdaq Stock Market and the combined company also will be publicly
traded, according to a person briefed on the negotiations.
Morgans' share price rose 6.7% to $5.63 in 4 p.m. trading on
Thursday, bouncing off a 52-week low following disappointing
second-quarter results announced on Wednesday.
A merger would bring together two hospitality companies known
for their panache, but also ones that have suffered recent
setbacks.
Nightclub impresarios Ian Schrager and Steve Rubell founded
Morgans in the 1980s. They helped usher in a new concept: the
boutique hotel, which emphasized design and a thriving bar scene to
cater to a stylish, affluent crowd.
"Ian and Steve were brilliant, creative guys who set the trends
in this business to a large extent," said Richard Born, co-founder
of BD Hotels, a New York-based hotel owner and operator.
More recently, Morgans has suffered from financial loses,
infighting and turnover at the top executive ranks. The company
turned down a number of takeover offers over the years, including
ones from Middle Eastern investment funds and Hyatt Hotels Corp.,
said people familiar with the company.
Morgans has sold most of its properties over the years, and now
owns only two: the Hudson in New York City and the Delano in Miami
Beach. Those two hotels combined could be worth about $640 million,
hotel analysts said.
Morgan's share price was down about 30% over the past 12 months
before Thursday's trading activity, reflecting the company's
woes.
Mr. Nazarian also has been selling assets, including SLS hotels
in Beverly Hills and Miami Beach and two restaurant brands, as SBE
focuses on hotel, restaurant and nightclub management.
That hasn't always worked out. SBE's SLS Las Vegas hotel with
1,620 rooms has been losing money. Mr. Nazarian no longer is
personally involved with that hotel after Nevada gambling
regulators granted him a limited and temporary casino license.
During his testimony before regulators he spoke of his past drug
use.
Write to Craig Karmin at craig.karmin@wsj.com and Dana Mattioli
at dana.mattioli@wsj.com
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