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Brookdale slams Land & Buildings' nominee for its board, citing past lawsuit

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Brookdale slams Land & Buildings' nominee for its board, citing past lawsuit

A proxy battle over two board seats at Brookdale Senior Living Inc. turned ugly as the seniors housing operator harshly criticized an activist investor's nominee over his past leadership at HCP Inc., highlighting an unfavorable jury verdict and remarks concerning a rival executive that it described as crude and inappropriate.

In a letter to shareholders, Brookdale took aim at Jay Flaherty III, who Land & Buildings Investment Management LLC has nominated to the company's board. The hedge fund, founded by Jonathan Litt, owns a minority stake in Brookdale and is pushing for the company to focus its business on operations, while spinning off or selling its owned real estate.

Land & Buildings had nominated Litt and Flaherty for two seats on Brookdale's board in a vote scheduled for Oct. 29, but withdrew Litt's nomination in what it said was recognition of the qualifications of one of Brookdale's nominees, Guy Sansone. Sansone is managing director of the healthcare group at consulting firm Alvarez & Marsal.

Brookdale's remaining nominee is Royal Caribbean International executive Victoria Freed, and the company said it has reached an agreement with Glenview Capital Management LLC, its largest shareholder, to support both of its candidates. Under the agreement, if both are elected, Brookdale will appoint Sansone as its nonexecutive chairman by Jan. 1, 2020. Glenview owned 9.9% of Brookdale's outstanding shares as of Sept. 9, the record date for the vote, and Land & Buildings said in a Sept. 19 filing it owned roughly 4%.

In the newest letter to shareholders, Brookdale charged that Flaherty, who was terminated as HCP's chairman, president and CEO in 2013, "has a troubled history of demonstrating dishonesty and a disregard for baseline ethics."

In particular, the company cited a case in which a jury awarded $101.7 million to Ventas Inc. after finding that HCP improperly interfered in Ventas' acquisition of Sunrise Senior Living REIT. Brookdale quoted a 2011 appeals court decision upholding the verdict, in which the court said there was evidence suggesting that HCP had engaged in a "fraudulent act designed to mislead the market" under Flaherty's leadership.

Citing the same court case, Brookdale also said Flaherty made what it called "derogatory and inappropriate" comments toward Ventas' female CEO, Debra Cafaro, assigning a crude code name to its bid-topping strategy in the Sunrise acquisition.

"In considering Mr. Flaherty's candidacy, Brookdale's Nominating and Corporate Governance Committee determined that Mr. Flaherty's crude comments were unacceptable, especially for a company like Brookdale where women make up a large percentage of its workforce and which has a female CEO and a Board comprised of 50% female directors," the company said.

In response, Land & Buildings decried Brookdale's criticisms of Flaherty as "smear tactics" using "cherry-picked, out-of-context information," adding that Flaherty's reputation is "beyond reproach and his track record of success undeniable."

Noting corporate governance improvements it said Flaherty made upon joining HCP, the firm added that Brookdale "should spend less time trying to spin 11-year-old litigation and more time explaining why Brookdale's stock has declined by 80% since its 2015 peak."

Regarding Brookdale's charge of inappropriate language surrounding Cafaro, Land & Buildings added: "Brookdale's slanderous use of one line from this litigation to paint Mr. Flaherty as not being a champion of diversity is extremely misleading." The firm noted that Flaherty added three women to the HCP board during his tenure.