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Forest City concludes strategic review with board revamp, no company sale

Forest City Realty Trust Inc. will continue to pursue its stand-alone plan following its just-completed strategic review and reached deals with shareholder activists to reconstitute its board.

The diversified real estate investment trust said its board decided against pursuing a March 13 conditional proposal to buy out the company for $25.00 per share in cash. Forest City said the majority of its board would support a $25.50-per-share cash transaction, with dividends paid through closing and no conditions with respect to third-party consents or completion of an internal reorganization. However, the interested party had conditioned its buyout proposal on the cessation of future dividend payments, and it was not willing to eliminate certain third-party consents as a condition to either signing or closing a deal.

As such, Forest City's board concluded that "stockholder value would be better enhanced on a stand-alone basis and that the conditional requirements specified by the counterparty in the March 13 proposal created more uncertainty around a potential transaction than the board was prepared to accept," the company said in a release.

Prior to the March 13 proposal, Forest City said it decided to pursue a nonbinding $26-per-share cash buyout proposal from "a large financial investor with a strong track record of executing large, complex real estate and corporate transactions," subject to a 45-day exclusivity period that ended March 9. The investor then submitted a letter indicating its intention to make a fully financed, binding proposal to buy out the company for $24.50 per share in cash with certain conditions, which the board later rejected.

Forest City said there were more than 50 potentially interested buyers during the initial stage of its strategic review, 18 of which executed confidentiality agreements and received confidential information about the company. The company then conducted two rounds of bidding in October 2017 and mid-December 2017, resulting in the two full acquisition proposals and a structured, tax-efficient portfolio transaction that were contingent on a grant of exclusivity to the potentially interested buyers.

As part of its agreements with shareholders Starboard Value LP, Scopia Capital Management LP and RMS LP, Forest City will reconstitute its board, with nine current directors resigning. Choice Properties Real Estate Investment Trust trustee and Turner Impact Capital advisory board member Michelle Felman, Carlyle Group LP Managing Director and Head of International Real Estate Adam Metz, Four Corners Property Trust director Marran Ogilvie, immediate past chairman of MedStar Health William Roberts and Houlihan Lokey director Robert Schriesheim will become new independent directors.

James Ratner will become interim board chairman, and the reconstituted nominating and governance committee will promptly initiate a process to identify and recommend a new chairman or executive chairman, as well as an additional independent director. Starboard and Scopia will also have the right to appoint one additional director to Forest City's board.

RMS agreed to alter its director nomination rights to two designees from four members of the Ratner family, with Roberts serving as its independent nominee. It will also give up its right for Ratner to be elected chairman, and he will resign from the chairmanship once the new chairman is appointed.

David LaRue, Kenneth Bacon, Z. Jamie Behar and Ratner will remain on Forest City's board. All members of the newly reconstituted board will stand for election at the 2018 annual meeting, and the board will comprise 13 directors, 11 of whom will be independent.

Further, Forest City said its board increased the company's existing $100 million share buyback program to $400 million.

Lazard, together with Goldman Sachs & Co. LLC, led the financial advisers in the company's strategic review.

Starboard owns about 3.0% of Forest City's outstanding shares, while Scopia owns a roughly 8.3% stake in the company. RMS was Forest City's controlling stockholder before the company's dual-class stock structure was eliminated.