Lawsuits Challenging NorthStar Merger Settled
NorthStar Asset Management Group (NYSE: NSAM) and Northstar Realty Finance (NYSE: NRF) have each entered into a memorandum of understanding with plaintiffs in two separate, but substantially similar, lawsuits that were filed against the companies and directors last month in connection with the proposed merger with Colony Capital. At the time, a nearly identical class action was filed against Colony as well.
NSAM, which spun off from NorthStar Realty in July 2014, is the sponsor of NorthStar’s non-traded REITs and other direct investment offerings. NRF is a publicly traded REIT that is managed by an affiliate of NSAM
The proposed merger agreement was announced in June and would create a $58 billion equity REIT called Colony NorthStar Inc. The transaction is expected to close in January 2017, if the companies’ respective shareholders approve.
The class actions allege that NSAM and NRF filed materially incomplete and misleading joint proxy statements and prospectuses with the Securities and Exchange Commission. Both allege that the proxy omits information concerning the fairness of the proposed transaction and merger consideration. The complaints claim that projections disclosed in the proxy for each company prevent stockholders from assessing the relative valuations of each company and the fairness of the exchange ratios.
In each memorandum of understanding, the three companies agreed to make supplemental disclosures to the proxy statement “to minimize the time, burden, and expense of litigation.” The memoranda provide that, in exchange for making the disclosures, defendants will be released from claims relating to the merger, upon court approval.
In its projection, NorthStar Asset Management estimates net income attributable to common stockholders of $150 million, $182 million and $227 million for 2016, 2017 and 2018, respectively. Cash available for distribution is estimated at $237 million, $256 million, $281 million for 2016, 2017 and 2018, respectively.
NorthStar Realty Finance disclosed net income attributable to common stockholders estimates of $63 million in 2016, $20 million in 2017, and a $24 million loss for 2018. Cash available for distribution is estimated at $417 million for 2016, $288 million for 2017 and $263 million for 2018.
Colony Capital estimates net income attributable to common stockholders of $100 million in 2016, $157 million in 2017, and $225 million in 2018. Estimates relating to core funds from operations are $271 million in 2016, $330 million in 2017, and $389 million for 2018.
The merger has been unanimously approved by the special committees of NSAM and NRF, and the board of directors of Colony. If approved by shareholders, NRF common stockholders will receive 1.0996 shares of Colony Northstar’s common stock for each share of NRF common stock they own. NSAM stockholders will continue to own one share of Colony Northstar common stock for each share of NSAM common stock they previously owned. Colony common stockholders will receive 1.4663 shares of Colony Northstar’s common stock for each share of Colony common stock they own.
NSAM shareholders will own approximately 32.85 percent of the combined company on a fully diluted basis, Colony shareholders will own approximately 33.25 percent, and NRF shareholders will own approximately 33.90 percent.
NSAM shareholders will also receive, in addition to its regular quarterly dividend, a special cash dividend equal to $228 million, which represents a one-time distribution of excess NSAM taxable earnings and profits.
Shareholders of the three companies will vote either by mail or in person at a special meeting of stockholders held on December 20th at Morgan Stanley located at 522 5th Avenue, conference room 3A in New York City.
The special meeting of NRF stockholders will begin at 9:00 a.m. EST, the special meeting of NSAM common stockholders will start at 10:00 a.m. EST, and the special meeting of Colony stockholders will be held at 11:00 a.m. EST.
