Morgans Hotel Group Co's MHGC.O largest shareholder OTK Associates said it won control of the company's board in a vote on Friday, disappointing some investors who pushed the boutique hotel operator's shares down 8 percent.
The results came as a surprise, as several observers had said that shareholder support for Morgans's incumbent board was increasing following its promise to look at a sale of the company if re-elected.
"Given that OTK's slate has been elected and that OTK has not necessarily called for a sale of the company, there appears to be less near-term upside for the shareholders," said JMP Securities analyst William Marks.
Morgans's shares were down 6 percent to $7.08 in midday trading on the Nasdaq. The shares had risen as much as 3 percent earlier in the day.
OTK has said it would first try to return the company to profitability, failing which it would "appropriately evaluate and pursue strategic alternatives in a disinterested fashion."
The investor, which holds a 13.9 percent stake in Morgans, said based on preliminary results of the shareholder vote, all seven of its nominees were elected to the board.
Morgans declined to comment.
Final results of the vote will be announced shortly, OTK said.
(Reporting by Bijoy Koyitty in Bangalore; Editing by Sriraj Kalluvila)