Report Chides Sizeler; Upholds $324M Merger

KENNER, LA-Proxy Governance Inc., an independent proxy adviser for institutional investors, has raised "a few red flags" in a just-issued report about the $324-million sale of Sizeler Property Investors Inc. to two Canadian REITs. The upshot is a recommendation for the hand-off despite a sound knuckle-rapping over the deal's history.

The transaction analysis faults a plan to pay $1.8 million in severance to CEO Thomas A. Masilla and $1 million to CFO Guy M. Cheramie although "it appears that they will continue employment at the combined company." Masilla could realize up to an additional $1 million based on the equity award for unvested stock options. The report also criticizes the dissemination of information to shareholders, specifically the failure to provide up-front disclosure about a competing offer from Boca Raton, FL-based Compson Holding Corp.

As it now stands, shareholders will vote Nov. 8 on a lock, stock and barrel sale of Sizeler to Toronto-based Revenue Properties Co. Ltd. and Morguard Corp. If the merger is approved, the deal is penciled to close Nov. 10. And if it's rejected, the break-up fee is based on the cheaper avenue: $6.5 million or all of the pursuers' expenses, which represents a maximum of about 2% of the deal value.

"We certainly raised a few red flags in the report," Shirley Westcott, managing director of policy staff for the Vienna, VA-based Proxy Governance, tells GlobeSt.com. "But, I think overall the deal looks sound to us."

Proxy Governance provides analyses for subscribers, which predominately are Russell 3000 Index-listed public pension funds, investment advisers and mutual funds. Westcott says Sizeler did not initiate or pay for the report.

The Proxy Governance team, though critical of the Sizeler board's handling of events leading up to the pending merger, says "we believe that the board undertook a thorough process in negotiating the sale of the company." In hindsight, the review team says "we believe that it may have been better to establish a special committee composed of disinterested directors." The findings also conclude the Revenue Properties-Morguard offer of $15.10 per share "represents a reasonable return."

Likewise, Westcott says the review supports a whole-company sale, which is a bone of contention between Compson and the Sizeler board. Compson's offer is considerably higher per share, but it's just for the real estate.

According to the report, there are three lawsuits floating around, two of which are attempts to force Sizeler to negotiate with Compson. The opposition camp had been vocal about the merger, but has fallen silent due to the pending litigation.

The team also fired a salvo at Sizeler's disclosure of advisers' fees. It's not yet said what it is paying to financial adviser Wachovia Capital Markets LLC, which was hired in February. Cohen & Steers Capital Markets Advisors LLC, though, is due to receive $400,000 for its fairness opinion and another $100,000 for services related to the Compson proposal. "We believe that shareholders would appreciate more specific disclosure on the fees paid," the policy staff wrote, noting the fees are not contingent upon the closing.

Westcott expects the merger to close as planned. "I have not seen any indication that it won't," she says.