Brookfield to buy Forest City in $11.4B blockbuster deal
Brookfield Asset Management Inc. agreed to acquire Forest City Realty Trust Inc. for about US$6.8 billion just four months after the real estate investment trust said it planned to remain a stand-alone company.
The Toronto-based alternative asset manager said in a statement Tuesday it will acquire Forest City for US$25.35 a share in cash, a 10-per-cent premium over where shares closed Monday and about 26 per cent above where they were trading the day before Bloomberg reported that the pair had restarted talks. The deal is valued at US$11.4 billion including debt, according to the statement.
“Forest City has created a highquality portfolio of operating and development assets over its 100year history,” said Brian Kingston, chief executive of Brookfield Property Group. “We look forward to creating further value in these great assets on behalf of our limited partners.”
Forest City shares rose as much as 8.7 per cent after Bloomberg reported the firms were nearing a deal. The stock closed at US$24.97, up 8.47 per cent, in New York.
“I think it’s a positive for Brookfield as they’re buying Forest City at an attractive price,” said Sheila McGrath, an analyst at Evercore ISI who covers Forest City and Brookfield Property Partners LP. Forest City’s development assets may provide an “embedded upside” for Brookfield, she said.
The acquisition comes just four months after Cleveland-based Forest City said it had completed a strategic review and decided shareholders would be better off if it remained a stand-alone company.
The firm announced then that nine directors would resign. Representatives from activist investors Starboard Value and Scopia Capital Management were among those named to the board. Starboard and Scopia, which collectively hold about 14 per cent of Forest City ’s shares, said Tuesday they agreed to support the transaction.
Forest City said it wouldn’t pay a dividend while the transaction was pending and also wouldn’t hold its second-quarter conference call. It said it expected the transaction to close in the fourth quarter, subject to standard conditions.
In March, Forest City said that 18 interested buyers had entered into confidentiality agreements. One large financial investor, which people familiar with the process identified as Brookfield, made a non-binding proposal of US$26 a share for the company. The board ultimately decided not to pursue that transaction, which was revised to US$25 a share as of March 13, with conditions attached.
Forest City said at the time it would have supported a US$25.50 all-cash deal with dividends paid through closing, and no conditions related to third-party consents or the completion of an internal reorganization.
David LaRue, Forest City ’s chief executive, said the firm had made significant progress in its transformation over the past several years and was pleased Brookfield recognized the value of its portfolio and its growth opportunities.
“We believe that this transaction will deliver an immediate cash premium to stockholders for their investment and represents the best path forward for our company and our stockholders,” he said.
Forest City, founded by the Ratner family in 1920, focuses on commercial and residential projects, including mixed-use developments, according to its website. The company built the Frank Gehry-designed residential tower on Spruce Street in Lower Manhattan and owns substantial life sciences office space in Cambridge, Mass.
Buying Forest City is the second major real estate deal by Brookfield and its affiliates this year. In March, its real estate arm agreed to take U.S. mall owner GGP Inc. private in a deal worth about US$15 billion.