MS Morgan Stanley

Hospitality company SBE Entertainment Group has agreed to acquire Morgans Hotel Group Co., according to people familiar with the matter, ending a long saga in which the two companies have held on-and-off-again merger talks.

SBE is paying $2.25 a share in cash for the outstanding shares of Morgans, which were recently trading on the Nasdaq market at around $2.00, though the shares were trading as low as $1.33 last week before jumping on speculation of a takeover.

The deal puts an equity value on the company of about $82 million, these people said. The total enterprise value of the combined company, including assumption of debt, would be about $800 million, say people familiar with these companies' thinking.

Private-equity investor Ronald Burkle's Yucaipa Cos.,which holds $75 million of preferred-equity shares in Morgans and warrants for common shares, will receive 25% of common equity in SBE, according to people close to the deal.

SBE Chief Executive Sam Nazarian, who founded the company in 2002, will become CEO of the combined company and retain majority control. The Los Angeles-based company is acquiring all the Morgans brands and ownership of the Hudson and the Delano properties.

Morgans owns or operates 13 boutique hotels, including New York's Hudson, the Mondrian in Los Angeles and the Delano in Miami Beach. The combined company will own or operate 20 hotels, including properties under the flagship SLS brand.

SBE and Morgans held extensive merger discussions last year but those talks collapsed in November after Mr. Burkle and Jason Kalisman, a Morgans board member whose investment firm represents the largest shareholding, clashed over terms of the deal.

Merger and acquisition activity in the lodging sector heated up last year after a long dormant period. Hotel executives increasingly view scale as crucial in the digital age, whether it is for competing with online travel agents for bookings or attracting guests to their loyalty programs. In 2015, hotel deals had a total value of $61.8 billion globally, the most since 2007, according to data provider Dealogic.

Founded by nightclub impresario Ian Schrager in 1984, Morgans helped pioneer the boutique-hotel craze that focuses on high design and social public spaces. But as more hotel companies launched competing boutique properties, including the big lodging chains, Morgans has had a difficult time keeping its edge.

SBE has been expanding its hotel footprint with four properties scheduled to open this year, including one in New York City. But it also has had some recent struggles, including losing management of the SLS Las Vegas after its poor start. The SLS Lux hotel in the Bahamas has stalled as the troubled Baha Mar project looks for a new owner before opening.

Morgan Stanley advised Morgans Hotel Group on the transaction, and Houlihan Lokey Capital Inc. advised SBE.

Write to Craig Karmin at craig.karmin@wsj.com

(END) Dow Jones Newswires

May 09, 2016 16:25 ET (20:25 GMT)

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