NEW YORK (The Deal) -- Luxury hotelier Morgans Hotel Group (MHGC - Get Report) could receive as much as $341 million if the company elects to sell itself, according to one activist investor looking to elect a new slate of directors at the company's annual meeting.
In an April 22 proxy filing, Sahm Adrangi of New York hedge fund Kerrisdale Capital Management LLC noted that a sale to a larger strategic hotel operator could net shareholders as much as $341 million, or $10.10 per share, well above the current net asset value of about $6.38 per share.
"A sale process will yield a far higher value on a net present value basis because it realizes value faster, and cost synergies are more certain," Adrangi wrote in a 44-page presentation to shareholders Tuesday.
Kerrisdale, which owns a 3% stake in Morgans, has been at odds with the New York-based hotelier since OTK Associates LLC, a hedge fund headed by current interim CEO and director Jason Kalisman, overthrew the former board, which was headed by billionaire Ron Burkle. Kerrisdale has nominated a slate of seven board candidates for an election to be held at Morgans' May 14 annual meeting.
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While OTK has been steadfast in its belief that Morgans needs to execute a turnaround and switch to an asset-light strategy by selling real estate before being sold itself, Kerrisdale wants Morgans sold now.
"OTK might argue that by selling now, shareholders will not receive credit for future growth," Adrangi wrote. "[Morgans'] entire growth pipeline, which entails enormous execution risk, is basically equivalent to the cost cuts a strategic acquirer can achieve today.
"Strategic acquirers can eliminate almost all of [Morgans'] corporate SG&A: public company costs, audit, website & IT, consulting, legal, executive, etc.," the fund manager added.
In addition to detailing the benefits of a sale of Morgans, Kerrisdale also announced Tuesday that it had retained Andrew Zobler, CEO and founder of New York-based hotel consultancy firm Sydell Group, to help it evaluate strategic options for Morgans.