A battle royal is developing for some of the world's most stylish hotels as two sovereign wealth funds from Dubai and Abu Dhabi battle for control of Morgans Hotel Group, The Times has learnt.

Zabeel, a Dubai-based fund, and Mubadala, an investment and development arm of the Abu Dhabi Government, are both understood to have approached Morgans with offers valuing it at more than $600 million ($316 million), or $1.4 billion including debt.

Morgans, which was founded by Ian Schrager, the so-called king of hip, runs ten hotels that are renowned for their style and chic. They include the Delano in Miami, the Clift in San Francisco, the Royalton and Morgans hotels in New York and the Sanderson and St Martins Lane hotels in London.

The bidders, controlled by the royal families of Dubai and Abu Dhabi respectively, are understood to be undertaking some preliminary due diligence with a view to making formal offers.

None of the parties would comment, although The Times understands that the Morgans' board is pushing for a price above the $20-a-share launch price when the company was floated on Nasdaq two years ago. Yesterday they were trading at less than $17.

The two London properties are jointly owned by the company itself and Walton Street Capital, an American real estate investor, and Morgans has a long-term contract to manage both.

Mr Schrager, who is no longer involved with the group, gained notoriety in 1978 when his Studio 54 nightclub in New York was raided by the US Internal Revenue, which found rubbish bags full of cash, drugs and a duplicate set of accounts. Mr Schrager and his partner served a year in prison for tax evasion.

According to analysts, Morgans was approached by a number of suitors after sounding out financial institutions about raising fresh capital for expansion. One analyst said: “It was unable to raise money via the public markets so had to look at other options.”

Morgans is keen to roll out the Delano and Mondrian concepts into chains while both its suitors are keen to take advantage of the growth of the Middle Eastern economy to develop such style-led hotels in the region.

In January Morgans announced the signing of a joint venture to develop a Mondrian hotel in Palm Springs. It has two Mondrians trading in Hollywood and Scottsdale, Arizona, plus four more under development in Las Vegas, Miami, Chicago and New York.

It is understood that Zabeel is being advised by Credit Suisse, while Goldman Sachs advises Mubadala.

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