What happened

Shares of Forest City Realty Trust Inc (NYSE:FCE-A) are soaring on Monday, rising by nearly 15% as of 4 p.m. EDT after Bloomberg reported that the company is reconsidering a transaction to sell itself to Brookfield Asset Management Inc (NYSE:BAM).

Bloomberg wrote that the companies are discussing a deal at a price "close to the range of $25 to $25.50 per share." That price is consistent with the price at which Brookfield Asset Management previously showed interest in the real estate investment trust (REIT) earlier this year.

So what

Forest City Realty Trust has been under the gun of activist investors who have pressured the company to improve shareholder value by selling some or all of its real estate. 

On March 22, activists Scopia Capital Management and Starboard Value reached an agreement with Forest City in which the company agreed to accept the resignations of nine out of 13 board members. Each of the two activist firms also received the right to appoint one director to Forest City's board. 

New York Times building in NYC

Forest City owns a stake in the New York Times building in New York City. Image source: Forest City.

The shakeup in the boardroom followed back-and-forth negotiations earlier in March, when Forest City's board unanimously decided not to pursue a sale of the business at $25 per share in cash, subject to certain limitations on dividends and a requirement to obtain consent from joint venture partners prior to signing a definitive agreement.

Forest City's board said then that it believed "stockholder value would be better enhanced on a stand-alone basis and that the conditional requirements specified by the [bidder] in the March 13 Proposal created more uncertainty around a potential transaction than the Board was prepared to accept." 

Now what

With fresh faces on the board of directors, some loyal to its outside investors, it wouldn't be surprising to see Forest City Realty Trust put itself back on the auction block. Starboard Value and Scopia Capital Management own about 13% of the company on a combined basis, according to SEC filings compiled by WhaleWisdom.

While Wall Street may be more optimistic about a potential buyout, it isn't willing to pay full price on a rumor. Even after today's rally, shares of Forest City trade at an 8% discount to the price of $25 per share reported by Bloomberg.

 

Jordan Wathen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.