Morgans Hotel Group and SBE Entertainment in possible merger

Two months ago Hotel Management pondered whether or not the Morgans Hotel Group was preparing to be sold, citing statements made by executives dating as far back as 2013. Today the future of the company is more certain, with The Wall Street Journal reporting a merger is in the works between Morgans and Sam Nazarian's SBE Entertainment Group.

Nazarian is founder and CEO of SBE, and is expected to take over as CEO of the combined company, sources told The Wall Street Journal. This company will manage 19 hotels in cities such as Los Angeles, New York, Miami and London and would include the SLS, Delano and Mondrian hotel brands. No financial terms are known as of yet.

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This deal is between two flashy companies that are known for their big moves and their recent complications when it comes to business. Last year, SBE rescinded control of its 1,600-room SLS Las Vegas hotel and casino due to complications as a result of Nazarian's personal life. 

According to The Los Angeles Times, investigators traced over $3 million in payments from Nazarian to a felon with convictions for drug possession and money laundering, though Nazarian claimed the payments were rooted in extortion. 

The Times also reported Nazarian being named in a lawsuit accusing him of cheating investors out of $8 million intended to upgrade and operate a Miami hotel. Nazarian's lawyer called the allegations "baseless," and the lawsuit "frivolous."

"The plaintiffs are sophisticated businessmen who made a fully documented investment with the benefit of legal counsel. Unfortunately, that investment did not perform as well as they had hoped, but that is the risk they agreed to take," said Alex M. Weingarten, Nazarian's attorney.

Morgans Hotel Group was founded by Ian Schrager and Steve Rubell at the tail end of the 1980s, though in recent years the group has battled economic losses and operational infighting. In March 2014, over one-third of its corporate staff were eliminated, including top executives and longtime employees, affecting all areas of the company.

Last September, Morgans filed a $210-million lawsuit against LM Legacy Group over the loss of a management deal. Morgans claimed the owners failed to complete the construction of a stalled hotel project in Manhattan's Meatpacking District and wrongfully terminated a 15-year management deal. 

After selling most of its hotels over the years, Morgans is left only with the Hudson in New York City and the Delano in Miami Beach, though as of October 2014 it was looking to sell those, too. Both hotels combined are worth an estimated $640 million.

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