According to the news report by Bloomberg, Forest City Realty Trust Inc. is going to be acquired by Brookfield Asset Management Inc. for $6.8 billion. Just four months ago, the real estate investment trust had stated that it had no intention of being acquired and planned to stay an independent company.
On Tuesday, however, Brookfield, the Toronto based alternative asset management company announced that it was going to buy Forest City at $25.35 per share in cash. This is a 10% premium over the price of the shares at market closing on Monday night.
Bloomberg had originally reported the commencement of talks between the two companies a few weeks ago. Since then, Forest City’s shares have jumped 26%. Now, after the announcement that the deal was going through, Forest City’s shares went up by 8.6% to trade at $25 per share.
Evercore ISI analyst Sheila McGrath, who covers both Forest City and Brookfield Property Partners LP., stated that it was a gain for Brookfield to be buying Forest City at such a competitive price. She said that through this deal, Brookfield would gain access to Forest City’s development assets, which would give the asset manager an “embedded upside”.
Forest City announced that 9 of its directors would be resigning. In their place, representatives from activist investor groups Scopia Capital Management and Starboard Value would be named to the company’s board. According to the deal, Starboard and Scopia will own a collective 14% of Forest City’s stock.
Forest City stated that it would not be paying out a dividend to its shareholders until this deal was closed. The realty trust also stated that it was not going to hold its second quarter earnings conference call. The company stated that it was expecting this acquisition to be closed by the fourth quarter of this year, on condition that all regulatory requirements are met.
Back in March, Forest City had announced that there were 18 buyers who were interested in acquiring the company. One investor (later identified as Brookfield) had even made a non-binding proposal to buy the company at $26 per share. The realty trust’s board rejected this bid, which was then later revised to $25 per share – with conditions.
However, now, the Chief Executive Officer of Forest City, David LaRue said that they had made a lot of progress in transforming itself over the last few years. LaRue continued that he was pleased that Brookfield had acknowledged its value as well as the growth opportunities the company offered.
LaRue also stated that this transaction would deliver a cash premium to stakeholders immediately, and that this acquisition also represents the best way forward for the realty trust.
Forest City had been founded in 1920 by the Ratner family. Its focus is on commercial, residential and mixed-use projects. In fact, it was Forest City that constructed the residential tower designed by Frank Gehry which is located on Spruce Street in Lower Manhattan. The company also owns large life-science office spaces in Cambridge in Massachusetts.
For this deal, Forest City has been given financial advice by Goldman Sachs Group Inc. and Lazard Ltd. Sullivan & Cromwell is the realty trust’s legal advisor for this deal. Additionally, legal counsel was provided to the company’s board by Wachtell, Lipton, Rosen & Katz.
For Brookfield, Barclays Plc., Bank of America Corp., Citigroup Inc., Royal Bank of Canada, Bank of Montreal, Toronto-Dominion Bank and Deutsche Bank AG provided the financing for this deal. These banks also provided the asset manager with financial advice, along with Moelis & Co. Legal advice was provided by 3 law firms.