Morgans Hotel Group (MHGC) Receives Revised Takeover Offer at $2.75/Share

September 14, 2016 11:33 AM EDT

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Morgans Hotel Group Co. (Nasdaq: MHGC) announced that it has received a letter dated September 13, 2016, the redacted text of which is included in this press release, from the group identified in Morgans’ proxy materials as “Bidder V.” This letter reconfirms the interest of Bidder V in pursuing an acquisition of the common stock of Morgans for $2.75 per share. As part of its submission, Bidder V also furnished to Morgans a letter of intent from a new potential financing source which indicated that this financing source is prepared, subject to due diligence and definitive documentation, to provide up to $500 million in capital to support the transaction. Bidder V also provided to Morgans an executed non-disclosure agreement in the form previously requested by Morgans.

As disclosed in proxy materials previously filed by Morgans with the SEC, Bidder V had, on July 18, 2016, submitted an unsolicited, preliminary proposal for an acquisition of the common stock at $2.75 per share. Subsequent to July 18, 2016, members of management of Morgans, individual Board members and the Company’s legal and financial advisors had reached out on various occasions and had discussions with Bidder V and its representatives to encourage Bidder V to execute a non-disclosure agreement and to work towards a definitive proposal, and to do so in a timely fashion given the rapidly approaching date (September 14, 2016) for the stockholder vote on the SBE transaction. However, Bidder V had declined to sign a non-disclosure agreement in the form required by Morgans and had not made any further proposal to Morgans following its preliminary proposal. On September 8, 2016, Bidder V had contacted a member of the Board to indicate that Bidder V was continuing to work on a proposal, but no proposal was received until the evening of September 13, 2016.

At a meeting of the Board of Directors on the morning of September 14, 2016, the members of the Board present (who did not include Brad Nugent, who recused himself), concluded after receiving advice from Morgans’ legal advisors that, in light of the latest proposal from Bidder V, Morgans is required to adjourn the special meeting of stockholders scheduled for 2:00 p.m., Eastern time, on September 14, 2016, in order to allow stockholders additional time to consider supplemental disclosures regarding the latest proposal from Bidder V. This adjournment will also allow the Board and its advisors, consistent with the Board’s fiduciary obligations to evaluate any third party proposal that would reasonably be expected to lead to a superior proposal, to obtain, and provide to stockholders, additional information concerning the proposal by Bidder V. Accordingly, at today’s special meeting of stockholders, Morgans will adjourn the meeting until 2:00, p.m., Eastern Daylight Time, on September 26, 2016, at Hudson hotel, 358 West 58th Street, New York, NY 10019.

At today’s Board meeting, the Board noted that there are significant concerns with regard to the certainty and timing of any potential transaction with Bidder V, including concerns relating to the credibility and financial capacity of Bidder V and its financing source, and Bidder V’s ability to assume or refinance Morgans’ existing mortgage debt and otherwise to obtain the necessary financing to consummate a transaction. The Board noted that almost two months have passed since the initial proposal by Bidder V, Bidder V has not addressed these significant concerns during that time period and Bidder V’s proposed financing source differs from Bidder V’s initial proposal. The Board directed its legal and financial advisers to assist the Board in discussions with Bidder V, its financing source and representatives in order to obtain additional relevant information and to make an appropriate recommendation to the stockholders of Morgans. Morgans and its advisers intend to engage promptly in these discussions, and to keep stockholders informed of material developments in this regard. However, there can be no assurance that Bidder V will deliver, or be able to deliver, a definitive proposal at a price of $2.75 per share, nor as to what action the Board may take with respect to any such proposal. As of the date hereof, the Board of Directors of Morgans has not made, nor does it currently propose to make, any change in its recommendation in favor of the proposed merger with SBEEG Holdings, LLC.

A redacted form of the September 13 letter from Bidder V follows.

September 13, 2016 Howard M. LorberChairman of the Board of DirectorsMorgans Hotel Group Co.475 Tenth AvenueNew York, NY 10018

Dear Mr. Lorber:

Following our letter of July 18 (the “July 18 Letter”), [REDACTED] and our affiliate [REDACTED] have continued to work with potential financing sources in order to complete the work necessary to formulate a definitive bid to acquire Morgans Hotel Group Co. (“MHGC”). We are writing to reaffirm our proposal to acquire 100% of MHGC’s common stock at an all cash price of $2.75 per share. We recognize that you have scheduled a stockholder meeting for tomorrow, but we believe that your stockholders will find our proposal more attractive than the transaction with SBE to be considered at that meeting.

We are now working with [REDACTED] and are pleased to present this proposal. [REDACTED] has committed to provide the full amount necessary to complete the transaction pursuant to the attached letter. As I’m sure you are aware, [REDACTED].

As mentioned in the July 18 Letter, we anticipate redeeming in full MHGC’s outstanding Series A Preferred Securities, including the liquidation preference plus any accrued distributions and anticipate assuming or refinancing MHGC’s outstanding mortgage debt. In addition, concurrently with entering into definitive documentation, we would be willing to pay the termination fee payable by MHGC under the merger agreement with SBE.

Given the work we have done to date and our knowledge of MHGC and the industry, our remaining due diligence requirements are confirmatory only and, with your cooperation, can be completed in very short order. We have attached an executed version of the confidentiality agreement that was negotiated with your counsel and are prepared to move expeditiously to reach agreement on transaction terms as soon as possible. We anticipate we will be in a position to promptly execute definitive documentation on substantially similar terms to those contained in the merger agreement with SBE, subject to any necessary changes to reflect our transaction and obviously with at least the level of deal certainty that you have with SBE.

This letter does not create any binding obligation on the part of either us or MHGC. No such obligation will exist until a mutually acceptable definitive agreement is executed and delivered. We would ask that you keep the terms and existence of this letter confidential.

We are eager to start moving forward on this mutually beneficial transaction, and to that end look forward to your response by September 14, 2016.



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