Lawyers for investors opposed to a deal to take New York’s Empire State Building public expect a judge to deny their motion to declare illegal a plan to buy them out for $100 a share.
New York State Supreme Court Justice O. Peter Sherwood said during a hearing in Manhattan today that he will rule by the end of tomorrow. Sherwood said state law is “pretty clear” as to the rights of members and non-members of limited-liability corporations to dissent to mergers or consolidations.
“It is pretty clear that the participants here are not members,” Sherwood said. Attorneys for the Malkin family that controls the building say the only members of Empire State Building Associates LLC, the tower’s owner, are Peter and Anthony Malkin and Thomas Keltner, its general counsel, while lawyers for the dissenters argued that they are “beneficial owners” who are entitled to the “fair value” of those interests.
Stephen Meister, an attorney for the dissenters, said he expects Sherwood to deny his motion. Meister said he plans to appeal the ruling to an appellate court in Manhattan and may seek a stay or other emergency relief to prevent a May 2 hearing on a $55 million settlement of lawsuits filed by investors seeking to stop the deal to take the building public.
“The people should know the final ruling of the New York courts” before they choose whether to oppose or support the plan, and the judge should know the ruling before deciding whether to approve the settlement, Meister said.
The proposal for the second-biggest initial public offering of a U.S. real estate investment trust on record has faced challenges by investors, and both sides are fighting to bring the few remaining votes to their side.
Investors filed five class actions in New York state court last year, accusing the company and Malkin Holdings LLC, supervisor of the firm that holds title to the tower, of breaches of fiduciary duty. The trust announced the $55 million class-action settlement of the cases in November.
Sherwood gave preliminary approval to the settlement in February and denied a motion by Penson and the other investors opposing the deal to intervene in the case, while allowing them argue their claim that the $100 buyout provision is illegal.
Peter Malkin, Malkin Holdings LLC’s chairman, and his son Anthony, its president, said on April 3 that shareholders representing about 75 percent of the skyscraper’s 3,300 ownership units had voted in favor. They need 80 percent to move ahead and have been calling holdouts individually to urge their support.
The Malkins said last month they would leave voting open until Sherwood rules on the $100-a-share buyout or until the May 2 hearing on the class action settlement. Opponents can avoid being bought out if they change their vote to “yes” within 10 days after receiving written notice that the 80 percent approval has been achieved, a time frame Meister called “impermissibly short.”
Investors have claimed that the $100 buyout provision coerces them to vote in favor of the REIT because their units are potentially worth more than $300,000 each. Meister told the court that he’s not seeking to stop the entire deal, just to ensure that his clients get “fair value” for their shares.
“We are not here to say that the buyout is illegal wholesale,” Meister said during today’s hearing. “We are saying that the price is illegal. We are not here to say that there shouldn’t be a consolidation. It should go through and the 20 percent should get their fair share.”
Thomas E.L. Dewey, an attorney representing Malkin Holdings, said his clients are the “only members” of Empire State Building Associates and that “should be the end of the matter.”
“The members run Empire State Building Associates,” Dewey said. “They own the shares in it, they manage the operations.”
Lawrence Kolker, an attorney who negotiated the settlement on the behalf of the investor plaintiffs, said a denial of the motion to declare the buyout provision illegal would “dent a large part but not all” of the dissenters’ objections.
The motion “was designed to stop the vote,” Kolker said.
Empire State Realty Trust Inc., as the new company would be called, is seeking to raise about $1 billion for the REIT, which would include the 102-story tower and 20 other properties the Malkins supervise. Only the 2006 debut of Santa Monica, California-based Douglas Emmett Inc. was bigger in the industry, at $1.6 billion, according to data compiled by Bloomberg.
The dissidents say a conversion to a REIT would mean giving up a reliable income stream that should rise when renovations at the skyscraper are finished. The Malkins have said their plan would give unit-holders liquidity, regular dividends and greater growth opportunities. Some investors are also questioning more than $300 million in shares the Malkins would potentially receive under the deal.
At the end of 2012, the skyscraper was about 69 percent occupied, with such tenants as LinkedIn Corp., the Federal Deposit Insurance Corp. and Coty Inc., according to the building’s annual report.
The case is Meyers v. Empire State Realty Trust Inc., 650607/2012, New York state Supreme Court, New York County (Manhattan).