NorthStar Asset Holder MSD Joins Activists Against Merger

  • Michael Dell’s family office unhappy with value, governance
  • NorthStar Asset plans merger with NorthStar Realty, Colony

NorthStar Asset Management Group Inc.’s biggest shareholder, MSD Capital, added to activist pressure over the value and governance surrounding a planned merger between the company, Colony Capital Inc. and NorthStar Realty Finance Corp.

MSD, the family investment office of Michael Dell that owns about 10.2 percent of NorthStar Asset, said the proposed combination as announced in June doesn’t provide “sufficient value” and questioned its governance structure in a public letter Monday.

Some of the firm’s concerns are shared by activist Jonathan Litt, whose Land & Buildings Investment Management opposed the deal and is fighting for board seats at NorthStar Asset. In August, Abrams Capital Management, the company’s third-biggest shareholder, also filed an activist 13D opposing the transaction.

The proposed all-stock deal would create a real estate investment trust with $58 billion of assets under management, the companies said in joint statement in June. Shareholders of each of the companies would own 33 percent or 34 percent of the new entity, which would be called Colony NorthStar Inc.

“The proposed transaction offers benefits preferable to the status quo,” Keefe Bruyette & Woods Inc. analysts led by Jade Rahmani said in a note. Nevertheless, “broader shareholder reaction remains mixed and further clarity from management regarding the core business model/strategy is still needed.”

More transparency around the costs of the merger could improve the likelihood of the deal going through, the analysts said.

Golden Parachutes

Colony’s Tom Barrack is slated to be executive chairman of the new REIT, while Richard Saltzman, Colony’s chief executive officer, would be CEO. David Hamamoto, chairman of NorthStar Realty, is on deck to be executive vice chairman.

Litt has been highly critical of “golden parachute” payments that executives at both NorthStar businesses would receive because of changes of control in the deal -- as high as $223 million -- among other governance concerns about the relationship between the companies. That’s also a worry for MSD.

Best Interests

“As the company’s largest stockholder, we expect you to provide the oversight necessary to ensure that NSAM’s management is focused solely on value maximization for all stockholders,” MSD wrote. In addition, MSD admonished NorthStar Asset not to “allow any conflicts of interest, especially those that might arise from the potential triggering of severance and change of control payments, to impair what is in the best interests of NSAM and all of its stockholders.”

Representatives of Colony Capital and NorthStar Asset declined to comment, while a representative of NorthStar Realty didn’t immediately respond to a request for comment.

NorthStar Asset was spun off from NorthStar Realty Finance, a mortgage REIT, in 2014. The REIT hired a division of UBS Group AG to advise on a possible recombination in February.

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