The chief executive of the US-based Morgans Hotel Group has urged shareholders to reelect the existing board of directors, and reject a bid by two families to place their children at the helm of the company. He has also said that, if reelected, the board will consider strategic alternatives for the company, including its sale.
Michael Gross said Michael Olshan, Andrea Olshan and Jason Taubman Kalisman do not have the relevant business, industry or public company experience to qualify them to serve as directors.
A proxy contest by majority shareholder OTK Associates – jointly-owned by the Olshan and Taubman families – has proposed an overhaul of the hoteliers’ board, in an effort to return the company to profitability. OTK has also criticised plans to consider a sale of the hotel chain, saying it was a desperate attempt by the current board to secure their jobs.
Gross’s letter to shareholders, dated 3 June, marks the latest swipe in the fight between two American property giants for control of the boutique hotel chain, founded by Ian Schrager and Steve Rubell – the developers behind famous nightclub Studio 54. The group’s portfolio includes hotels in New York, Miami, London and Marrakech.
Last month, a Delaware judge ruled in favour of an OTK request to prohibit Morgans’ board from consummating a transaction with The Yucaipa Companies – controlled by board director Ron Burkle.
The proposed transaction included a $100 million (€76.5 million) rights offering backstopped by Yucaipa, granting Burkle’s company the exclusive right to purchase up to 32% of outstanding shares with scaled board representation. OTK described it as an attempt to offer a below-market exclusive deal to an interested party at the expense of shareholders.
The Olshans are the son and daughter of Morton Olshan, the founder of commercial real estate firm MPI, while Kalisman is the grandson of Alfred Taubman – who made his fortune founding upmarket retail developer Taubman, which is still run by the family today.
The two families reportedly have a business and investment relationship that goes back several generations, beginning with their joint investment in Fair Oaks Mall in Virginia, which opened in 1980.
Gross said Morgans had offered OTK two board seats but the Olshans and Taubmans rejected this and instead launched a proxy contest in March to fill seven seats with three family members, one family employee and three family friends. Gross said the move was driven by revenge after Kalisman was told he wouldn’t be handed the Morgans’ board chairmanship on the basis of his family’s influence alone.
The board, Gross explained, did not believe turning full control of the board over to a 13.9% owner was in the hotel group’s best interests.
However, in a letter to shareholders dated 22 May, OTK said its move was an attempt to return the company to profitability. Since it bought its 13.9% share in 2008, OTK said the company’s five-year stock performance was in the bottom fifth of companies in the NASDAQ composite index. It said Morgans’ share price dropped 63% compared with the S&P 500 Hotels, Resorts & Cruise Lines Index, which generated total returns over 41%.
The letter continued: “Had Morgans simply performed in-line with its peers, its equity market capitalisation would be nearly four times what it is today; instead, the company’s board and management have overseen the destruction of nearly $300 million of stockholder equity value.”
Gross responded by saying that OTK was running an “opportunistic campaign” as the company was at its inflection point and pointed to this year’s first quarter as evidence that the board’s strategy, implemented in 2011, was yielding significant results.
“They now conveniently seek to take full and complete control of Morgans at the very point in time when the strategic investments undertaken by the current management team are beginning to drive significant improvements in financial performance and growth of our pipeline of new hotel agreements.”
Proxy votes are being sought ahead of the group’s annual meeting, to be held 14 June.