A hearing on a $55 million settlement of lawsuits over a plan to take New York’s Empire State Building public will take place tomorrow after a judge declined a request by opponents of the transaction to postpone the proceedings.
Justice Helen Freedman of the Appellate Division’s First Department declined to delay the hearing pending the appeal of a ruling that knocked down a challenge to the buyout provision of the offering, potentially the second biggest for a U.S. real estate investment trust.
New York State Supreme Court Justice O. Peter Sherwood in Manhattan yesterday rejected a request by opponents of the deal to declare illegal a buyout provision that would pay investors who oppose the transaction $100 a share. The investors argued the buyout violates the state’s limited liability corporation law requirement that they get “fair value” for their assets.
The deal’s opponents have claimed the buyout coerces them to vote in favor of the REIT. They said their units are potentially worth more than $300,000 each. A REIT conversion would mean giving up a reliable income stream that may rise as renovations at the skyscraper are finished, the dissidents argued. Sherwood held that the investors aren’t members of Empire State Building Associates LLC and thus not entitled to rights under the law.
Malkin Holdings LLC, supervisor of the building, has said its plan would give unit-holders liquidity, regular dividends and greater growth opportunities. Some investors are also questioning the more than $300 million in shares the Malkin interests that control the firm would potentially receive under the deal.
Construction on the 1,453-foot (443-meter) building began in March 1930 and it opened to the public exactly 82 years ago, on May 1, 1931. The skyscraper was the tallest building in the world until New York’s World Trade Center was built in the 1970s. The building has been featured in more than 250 feature films, including the 1933 movie “King Kong,” in which the title character, a giant ape, climbed the structure.
At the end of 2012, the Empire State Building was about 69 percent occupied, with such tenants as LinkedIn Corp. (LNKD:US), the Federal Deposit Insurance Corp. and Coty Inc., according to the iconic skyscraper’s annual report.
Both opponents and supporters of the IPO are battling for the few remaining undecided votes. Malkin Holdings needs support from 80 percent of shares. As of April 3, it had 75 percent.
Malkin Holdings has said it would leave voting open until Sherwood ruled on the $100-a-share buyout or until the 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.
Peter Malkin, the firm’s chairman, and his son Anthony, its president, said the shareholders representing about 75 percent of the skyscraper’s 3,300 ownership units had voted in favor of the buyout. They have been calling holdouts individually to urge their support.
“We are pleased by the court’s ruling and are proceeding with our solicitation with the intention of closing as soon as we reach the approval threshold,” Hugh Burns of Sard Verbinnen & Co., a spokesman for Malkin Holdings, said in an e-mail. “The fact is that far more investors support this transaction than oppose it. We are focused on delivering the majority what they want as quickly as possible.”
Empire State Realty Trust Inc. (ESB:US), 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 Malkin family supervises. Only the 2006 debut of Santa Monica, California-based Douglas Emmett Inc. was bigger in the industry, at $1.6 billion, according to Bloomberg data.
Investors last year filed five class actions, or group lawsuits, accusing the company and Malkin of breaching their fiduciary duty. The trust announced a $55 million settlement of the cases in November.
Sherwood gave preliminary approval to the settlement in February and denied a motion by Andrew Penson, owner of Manhattan’s Grand Central Terminal, and the other investors opposing the deal to intervene in the case.
“The settlement hearing will proceed,” said Lawrence P. Kolker, a partner with Wolf Haldenstein Adler Freeman & Herz LLP representing the lawsuit plaintiffs. Thomas E.L. Dewey, an attorney with Dewey Pegno & Karamarsky LLP who represents the Malkins, declined to comment on the judge’s ruling.
Stephen Meister, an attorney with Meister Seelig & Fein LLP representing the opposing investors, said he may withdraw his application for a stay of the proceedings while still pursuing an appeal of Sherwood’s ruling.
“The LLC Law says whoever holds a membership interest has the right to get fair value if he dissents to a proposed consolidation,” Meister said in an e-mail. “That law also says whoever gets cash distributions, pay taxes and can vote is a member. That makes the participants the holders of membership interests in ESBA.”
The case is Meyers v. Empire State Realty Trust Inc., 650607/2012, New York state Supreme Court, New York County (Manhattan).
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