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By Jacob Rund
Brookfield Asset Management Inc. convinced a Delaware judge to throw out a lawsuit that accused it of taking Rouse Properties Inc. off the public market through a “fatally conflicted” process.
Brookfield’s 34 percent ownership in Rouse at the time of the deal can’t be treated as a controlling stake, meaning the Toronto-based firm didn’t have, or breach, any fiduciary duty to Rouse’s shareholders, Chancery Court Judge Joseph Slights wrote in a March 9 opinion.
The 2016 class action, brought by two former Rouse investors, alleged Brookfield had undue influence over the $2.8 billion transaction and took advantage of “inside knowledge” about the real estate investment trust. It also claimed that the $18.25-per-share offer price was “unfair,” and that Rouse’s proxy statement about the deal was inadequate.
Brookfield previously held a majority of Rouse’s outstanding shares, but it scaled back its ownership stake to a minority level before any merger agreement was reached, the lawsuit alleged. The complaint was structured to avoid triggering the application of Delaware case law that gives deference to a board’s decision when it acts in good faith and when a merger is approved by an informed stockholder vote, according to Slights.
However, the judge found that the Rouse investors didn’t plead facts to support the “rare reasonable inference” that a stockholder with less than 50 percent ownership is actually a controlling stockholder.
The complaint also failed to prove that the “overwhelming” shareholder vote in favor of the deal was uninformed or coerced.
Slights dismissed the claims of fiduciary duty breaches by Brookfield and certain Rouse executives, as well as claims that Brookfield aided any breaches by Rouse management.
The case is IN RE ROUSE PROPERTIES, INC. FIDUCIARY LITIGATION , Del. Ch., No. 12194-VCS, 3/9/18 .
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