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With help from activist investors, Brookfield Asset Management Inc. has reached a US$11.4-billion deal, including debt, to buy Forest City Realty Trust Inc. and gain control of its offices, apartments and buildings in major U.S. cities.

Brookfield’s offer of US$25.35 a share comes after a major shakeup at the Cleveland-based company’s board in March, when nine directors resigned and two activist shareholders gained seats.

At the time, Forest City had concluded that shareholders were better served if the company remained as a standalone business in charge of its top life-sciences buildings in Cambridge, Mass., as well as retail buildings and apartments in New York, San Francisco and Washington.

Forest City had been talking to prospective buyers earlier this year and ultimately rejected an offer from an undisclosed buyer that was valued at US$25 a share plus certain conditions. In announcing plans to remain as a standalone entity, Forest City said Scopia Capital Management LP and Starboard Value LP would get board seats.

Now, Scopia and Starboard will vote their Forest City shares in favour of the Brookfield acquisition. Together, they own approximately 14 per cent of the stock and will not play a role in the combined company, according to Brookfield. Scopia publicly disclosed its Forest City stake in 2016 and Starboard revealed its stake in 2017.

This is the latest real estate deal to come together after activist shareholders got involved.

“We are seeing a significant increase in shareholders driving sales of companies,” said Walied Soliman, chair of Norton Rose Fulbright Canada and co-chair of the law firm’s Canadian special situations team. “Here you had a company whose board and management team went through a process and concluded that it was in best interest of the company to continue on a standalone basis. Yet more short-term-oriented activists have driven a sale."

If shareholders approve the deal, the Forest City properties will boost Brookfield’s position in the competitive U.S. markets of Cambridge, Manhattan and San Francisco. Brookfield is already a major real estate player in the Americas, Europe, Asia and Australia and has US$285-billion in assets under management.

The offer represents a 27-per-cent premium over Forest City’s closing share price of US$20.03 on June 15, the day before market speculation began that Brookfield was in talks to buy Forest City, Brookfield said. Forest City stock traded near US$25 a share after the deal was announced on Tuesday.

Since 2016, Forest City has publicly faced pressure to change the structure of the company, improve its business and boost its stock price. Forest City stock traded near US$70 a share in 2007 but never fully recovered after the global financial crisis and Great Recession.

It is unknown whether any of Forest City’s executives or board members would join Brookfield. “Given that this transaction has just been announced, it is too early to get into any specifics,” a Brookfield spokesperson said.

The deal requires shareholders representing a majority of Forest City stock to approve the deal. A vote is expected to occur in the fourth quarter of this year.

This is Brookfield’s second large real estate deal this year. A unit of Brookfield Asset Management succeeded in March in buying the two-thirds of U.S. mall owner GGP Inc. that it did not already own in a bid that valued the company at more than US$15-billion.

Activist investors have been zeroing in on companies with big real estate holdings. For example, Land & Buildings Investment Management LLC last year took a small stake in Hudson’s Bay Co. and urged the department store chain to sell or develop its prime real estate properties. HBC has since put its flagship Vancouver property up for sale. Also last year, FrontFour Capital Group and Sandpiper Group shook up the board of Granite Real Estate Investment Trust.

"The real estate space offers a significant opportunity for an agitator or activist to control more factors that can lead to a better outcome. That is why we are seeing more of it,” Mr. Soliman said.

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