Office and apartment giant Mack-Cali could be worth $6.1 billon in a sale after a big vote of no confidence from shareholders gave activist investors from Bow Street four seats on its board.
The New Jersey-based REIT pulled four members from its board last week, including David Mack, the brother of company chairman, Bill Mack.
The company also opted out of Maryland’s unsolicited takeover statute and rescinded its agreement with the Mack family that allowed it to nominate up to three directors.
The REIT said it would also set up a committee to “evaluate strategic alternatives,” including a potential sale.
“Over the past several weeks, members of the Mack-Cali Board have met with many of our stockholders and heard their views, including their desire for change, and the Board has heeded their wishes,” said Bill Mack. “Today’s actions will accelerate the comprehensive process to refresh the Board and further improve corporate governance that the company has been pursuing for the past several years.”
Following Mack-Cali’s 2019 Annual Meeting of Shareholders, Bow Street’s nominees Alan Batkin, Frederic Cumenal, MaryAnne Gilmartin and Nori Gerardo Lietz were all elected to the Board of Directors. Re-elected were William L. Mack, Alan S. Bernikow, Michael J. DeMarco, Lisa Myers, Laura Pomerantz, Irvin D. Reid and Rebecca Robertson.
Bow Street had been locked in a proxy fight with the company for months after making an unsolicited bid to acquire Mack-Cali’s office portfolio and to spin off its valuable apartment properties.
Mack-Cali rejected what it deemed a low-ball offer with CEO Michael DiMarco saying the company believed it should continue to focus on the ongoing transformation and repositioning of its assets.
But following last week’s shareholder vote, Akiva Katz and Howard Shainker, managing partners of Bow Street, issued a statement saying, “Shareholders have spoken loudly and presented the company with a clear mandate for change. Now, the real work begins.
“Alan, Frederic, MaryAnne and Nori are excited to roll up their sleeves and work alongside their fellow directors to ensure that a robust strategic alternatives process leaves no stone unturned in creating meaningful value for all shareholders.
“We have no doubt that with truly independent directors and renewed oversight in the boardroom, Mack-Cali shareholders will finally reap the long-overdue benefits of their investment.”
The ouster surprised analysts who had commended Mack-Cali’s recent efforts to shed non-core office buildings to focus on key multifamily assets.
However, Tom Catherwood, director of REITs Equity Research at BTIG, said, “I think Mack-Cali very much overplayed its hand and didn’t fully grasp the level shareholder frustration with the company’s performance over the long term.
“As they began to engage with shareholders and heard that feed back, they realized the position they were in and ended up giving in not just to what Bow Street was asking for, but adding the other agreements.
“My belief is that this will culminate in the sale of Mack-Cali.”
The new board is expected to consider a range of options, from selling pieces of the company , annexing its residential portfolio or offloading cherry-picked assets.
According to Catherwood, an outright sale is in the cards “based on what the assets could fetch in the private market and Mack-Cali’s high leverage levels, which are unlikely to come down for a number of years.
“If the company remains in its current state, its discount to net assets value will persist and the board will realize that the best way to achieve value for shareholders is a sale.”
Private equity-type investors are likely to begin circling their wagons around Mack-Cali’s office portfolio while experts believe a larger institutional investor, or group of investors, looking for value creation will be eyeing the residential portfolio.
Mack-Cali’s current Net Asset Value is $30.06 per share, although shares are currently trading at $24.04. With 100 million shares outstanding, a sale of the company could net $3 billion plus $3.1 billion of debt that would have to be assumed or repaid.