Morgans Hotel Group Co. was sued by a company director seeking to block a recapitalization tied to Yucaipa Cos.’ acquisition of one of Morgan’s properties.
Jason Kalisman, a Morgans director and a founding member of its largest shareholder, OTK Associates, sued the company today seeking to block the recapitalization until the case is heard before a Delaware judge. Yucaipa was also named in the lawsuit, which was sealed except for a cover sheet with a brief description of the claim filed in Delaware Chancery Court.
Kalisman’s suit also seeks to “invalidate decisions to approve” the recapitalization transaction and to “set a new annual meeting date,” according to the cover sheet.
Officials of New York-based Morgans said in a statement today they had agreed to swap the ownership of its Delano South Beach Hotel in Miami and a restaurant company for Yucaipa’s investments in Morgans’s convertible notes and preferred stock.
The hotel company’s executives also said they will make a $100 million rights offering available to shareholders, which Yucaipa, billionaire Ron Burkle’s investment firm, will backstop with no fees if the rights are not exercised in full.
Frank Quintero, a Yucaipa spokesman, didn’t immediately return calls and e-mails seeking comment on the court filing. Neil Maitland, an outside spokesman for Morgans at New York- based Abernathy MacGregor Group, declined to comment.
OTK, which said in a March 18 statement it owns about 14 percent of Morgans’s shares, is seeking to overhaul the board to return the company to profitability. The company has lost money in every quarter since 2007, according to data (MHGC:US) compiled by Bloomberg.
OTK has nominated seven board candidates to be considered by investors at the company’s May 15 annual meeting, according to the release. OTK officials contend the current board has engaged in “a number of self-serving transactions and questionable employment decisions,” according to the March 18 statement.
In his suit, Kalisman wants a judge to bar a bid by Morgans’s board to push the annual meeting back to July 10 and change the record date for determining which stockholders can vote from March 22 to May 29, according to court filings.
Kalisman declined to comment. Dan Gagnier, a spokesman for OTK at Sard Verbinnen & Co., couldn’t be reached for comment on the lawsuit.
The case is Kalisman v. Friedman, CA 8447, Delaware Chancery Court (Wilmington).
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