NEW YORK, April 9, 2013 /PRNewswire/ -- Morgans Hotel Group Co. (NASDAQ: MHGC) ("Morgans" or the "Company"), the New York-based hospitality management company, today announced that it has voluntarily rescheduled the $100 million pro-rata rights offering that it announced on April 1, 2013. As a result, the subscription period for the rights offering will close after the record date for the Company's 2013 annual meeting. The postponement ensures that any potential changes to the shareholder base as a result of the pro-rata rights offering will have no bearing on the outcome of voting at the Company's 2013 annual meeting. The new timeline underscores the sole purpose of the rights offering – to enhance our ability to create long-term value for all shareholders.
On April 1, 2013, the Company announced that it entered into a transformative transaction with The Yucaipa Companies (" Yucaipa") that reduces the Company's debt and preferred stock by $230 million, which includes the elimination of $113 million of debt maturing in 2014, and cancels warrants to acquire 12.5 million shares of common stock at $6 per share in exchange for the Company's ownership interest in Delano South Beach and The Light Group. The rights offering was announced as an integral part of the transaction to pay off debt, reduce near-term maturities and provide funding for growth.
"The asset exchange with Yucaipa and rights offering we announced last week accelerate the growth of our business, significantly reduce our risk profile and enhance our ability to create long-term value for all our shareholders," said Michael Gross, CEO of Morgans. "We entered into this transaction solely because we believe it is in the best interests of our shareholders. This transaction was the culmination of a thorough 15-month review process by a special committee of the Board consisting of independent and disinterested directors, which retained its own independent financial and legal advisors."
OTK Associates, LLP ("OTK") has launched a proxy contest to attempt to take complete control of the Company without paying a premium or any consideration to shareholders. OTK subsequently filed a lawsuit alleging that the purpose of the Company's rights offering is to place a large block of shares with Yucaipa in advance of the annual meeting record date. This allegation is not and was never true, and by extending the closing of the rights offering, this assertion is entirely moot.Mr. Gross continued, "OTK Associates has repeatedly misstated the Board's motivation for the rights offering and has filed a meritless lawsuit against Morgans and some of our directors. Given its Board representation, OTK knows full well this transaction was not in any way a response to OTK's proxy contest and had been under consideration long before its proxy contest was announced. While our original intention in changing the shareholder meeting date was to ensure that shareholders who participate in the pro-rata rights offering with knowledge of the Yucaipa transaction would have an opportunity to vote at the meeting, we have voluntarily rescheduled the closing of the rights offering to remove any question about the Board's motivations." Mr. Gross noted, "OTK was fully aware of the transaction for over a year through its Board representation, and on numerous occasions it had the opportunity to propose an alternative source of financing or other transaction. It never did and now OTK wants to take control of the company without paying a premium to shareholders."