NorthStar Investors Sue to Block Colony Merger
Shareholders of NorthStar Asset Management Group (NYSE: NSAM) and Northstar Realty Finance (NYSE: NRF) have filed two separate class action lawsuits against the companies and their respective directors in connection with the proposed tri-company merger with Colony Capital.
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, which were filed in U.S. District Court for the District of Maryland on the same day, are substantially similar and 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 the inconsistencies between the 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.
The lawsuits also claim that executives of each NorthStar entity will receive significant compensation if the merger is consummated.
The plaintiffs of each suit seek to enjoin the defendants from taking any steps to consummate the proposed merger unless all material information is disclosed “so that they may properly evaluate whether it is in their best interests.” The plaintiffs also seek relief in the form of damages and fees, and requested a trial by jury in each case.
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.
Proxy materials relating to the proposed merger were mailed on November 18th. 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.
