The Real Deal New York

Albert Ratner files federal lawsuit to halt vote on $6.8B Brookfield deal

Complaint claims sale cheats shareholders out of $5.8B
By Kathryn Brenzel | November 12, 2018 10:44PM

Bruce Flatt and Albert Ratner (Credit: Wikidata, Global Cleveland, and iStock)

The former CEO of Forest City Realty Trust is taking his fight against the company’s proposed sale to Brookfield Asset Management to federal court.

Albert Ratner, former CEO of Forest City, filed a lawsuit on Monday seeking to temporarily delay a shareholder vote scheduled for Thursday — calling the deal a “shameful value giveaway.” The complaint is Ratner’s latest salvo against the acquisition, which was announced in July and pegged at $6.8 billion, or $25.35 per share.

The company’s shareholders are voting on the sale Thursday. The price was determined by financials predating third-quarter earnings, which according to an estimate in a proxy statement meant Forest City would pay out $0.72 in dividends per share. But according to Ratner’s suit, Forest City reported more than $715 million net earnings attributable to shareholders last quarter, meaning the company should instead pay out $2.26 in dividends per share.

The complaint claims that Forest City’s board should’ve been aware of the third quarter results when it issued the proxy statement 18 days prior to the earnings release. The public filing, therefore, should’ve alerted shareholders that they would lose an additional $2.26 per share in value, “money that had been earned by Forest City while they were stockholders and that would instead flow to Brookfield under the proposed transaction,” the lawsuit states. Under the proposed agreement with Brookfield, the sale price will be reduced by the per-share amount of any quarterly dividend Forest City declares after May 18, 2018.

The lawsuit alleges that Forest City gave up $5.8 billion in shareholder value by hastily agreeing to the Brookfield deal.

“What has occurred in the third quarter report was never projected in anything put forth and that is wrong,” Ratner told The Real Deal in an interview on Friday. “People bought and sold stock without this information.”

The lawsuit also alleges that Brookfield influenced the selection of an unspecified number of new Forest City board members in April. At the time, eight new directors were named to the board, as a result of a settlement with activist hedge funds — Scopia Capital Management LP and Starboard Value LP, according to the lawsuit. The reorganization shifted control away from the Ratner family, limiting their representation to two members. Brookfield — whose initial bid for Forest City was rejected in March — made a new offer the same day as the new board was sworn in, Ratner said.

Representatives for Brookfield and Forest City declined to comment Monday night.

Ratner’s lawsuit seeks to halt a vote on the sale until 30 days after Forest City issues a corrected proxy on the deal.