By Business Wirevia The Motley Fool
Filed under: Investing
OTK Associates Files a Motion to Join Derivative Lawsuit Against Morgans Hotel Group
Alleges that Company’s Recapitalization Plan is Invalid Under Delaware Law and Board Actions Disenfranchise Stockholders and Entrench Management
NEW YORK–(BUSINESS WIRE)– OTK Associates LLC, the largest stockholder of Morgans Hotel Group Co. (NAS: MHGC) with 13.9% of the outstanding common stock of the company, today disclosed that it has filed a motion to join a derivative lawsuit filed in Delaware Chancery Court to stop a self-serving recapitalization that the company is rushing to consummate in advance of a stockholder meeting initially scheduled for May 15, 2013.
OTK Associates also issued the following letter to MHGC stockholders:
April 5, 2013
Dear Fellow Stockholders,
We are writing to inform you that we have filed a motion to join the recently filed derivative lawsuit against Morgans Hotel Group that seeks to stop a series of transactions with the Yucaipa Companies which the company’s directors are rushing to consummate. The board’s actions are invalid under applicable Delaware law, and will further disenfranchise stockholders while thoroughly entrenching the current board and management.
As the company’s largest stockholder, we are deeply concerned by actions of this nature deliberately undertaken during an ongoing proxy process. The board’s move to effectuate a coercively dilutive recapitalization is an obvious attempt to place a large block of stock in friendly hands prior to the annual meeting in order to preserve the positions of its incumbent directors and avoid review of the transaction by a truly independent board.
Similarly, the board’s retroactive decision to postpone the previously scheduled annual meeting to July 10, 2013 from May 15, 2013, and to reset the meeting’s record date to May 29, 2013 from March 22, 2013, serves only to ensure stockholders will be denied the benefit of reviewing the transaction. Existing stockholders of record will effectively lose their right to cast votes at the May 15th meeting, where we believe the company’s incumbent directors would likely be replaced by OTK‘s proposed nominees. This attempt to both rig an election and defend a self-dealing transaction will further burn the funds of a company already operating at a loss.
To preserve stockholders’ rights and the integrity of the corporate decision-making process we are seeking the following: