May 9, 2011 · 0 Comments
NEW YORK, May 9, 2011 (www.hospitalitybusinessnews.com) — Morgans Hotel Group Co. announced today that it has entered into an agreement to acquire the remaining 50% interests that it does not already own in its food and beverage joint ventures from China Grill Management (“CGM”) for approximately $20 million. The joint ventures operate, and CGM manages, restaurants and bars at Delano, Mondrian Los Angeles, Mondrian South Beach, Morgans, Sanderson and St Martins Lane.
The transaction will convert CGM’s long-term management arrangements to short-term cancellable management agreements for each property. CGM will continue to manage the operations for a transitional period while Morgans reassesses its food and beverage strategy. As part of the agreement, MHG’s ownership interest in the Asia de Cuba brand, and all intellectual property connected therewith, will be transferred to CGM. The transaction is expected to close in the second quarter of 2011 and is subject to satisfaction of certain closing conditions.
Michael Gross, Chief Executive Officer of MHG said, “We have had a great partnership with CGM for many years but we felt it was time to reassess our F&B strategy and consider alternative approaches to strengthening this important area of our business. We are actively reviewing all our food and beverage concepts and are excited about the opportunity to further enhance the buzz that makes Morgans special.”
Based on 2010 results, the $20 million purchase price represents a 5.7x multiple on EBITDA of $3.5 million based on CGM’s ownership and management fees. The $20 million purchase price will be funded through cash on hand generated through the recent sale of Mondrian Los Angeles. The ultimate cost to MHG may be reduced as the Company is in discussions with its owner partners at certain of the affected hotels to have certain of these food and beverage interests purchased by the respective hotel owners.