In July, Forest City (NYSE:FCE.A) announced that it had concluded a circuitous path to a sale transaction by agreeing to be purchased by a fund managed by Brookfield Asset Management for $25.35 per share. Previously, Forest City had undertaken a strategic review in its effort to maximize value for shareholders. Over recent years, the company had reduced financial leverage, simplified complex elements of ownership of certain assets, simplified its governance structure by collapsing dual classes of shares, reconstituted its board of directors and converted into a REIT. Notwithstanding the considerable progress, the company remained materially undervalued in the eyes of its board of directors and its shareholders, hence the strategic review. In the context of the review, it became clear that Forest City had received multiple purchase offers and an acquisition of the company became widely anticipated.
In the end, the review concluded in March without having produced a satisfactory bid and the company’s board of directors determined that more long-term shareholder value would be created through a go-it-alone plan. Given the significant level of anticipation of a sale transaction, this news sent the stock down materially to levels we believed offered great value with or without a transaction, particularly given the board of directors’ determination to maximize value for shareholders. We purchased shares at that time and were rewarded unusually quickly when Brookfield came back to the table with an agreement to purchase Forest City a few months later making it one of our largest contributors to performance during the quarter and year to date.
From Third Avenue Management (Trades, Portfolio)'s third-quarter 2018 shareholder letter.
