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NEW YORK CITY-As the day for Reckson Associates’ shareholders to vote on the merger with SL Green approaches, analysts, shareholders and executives are weighing in on all sides. A special meeting will be held Nov. 22 at 10:30 am in New York for shareholders to cast their vote on the $6 billion merger. Two-thirds of the board must approve the transaction for it to move forward.

Last week, shareholder Arnhold and S. Bleichroeder Advisors LLC sent a letter to Reckson’s board of directors informing them that the firm will vote against the merger until the non-core assets are re-marketed. Arnhold and S. Bleichroeder owns 835,000 shares, or about 1%. “We are writing to inform you of our current intention to vote all of our eligible shares against adoption of the merger agreement with SL Green Realty Corp,” the letter stated. “We will consider lending our support to the merger only if the Board of Reckson takes the necessary steps to achieve maximum value for the portfolio.”

Arnhold and S. Bleichroeder’s main concern is that SL Green was only interested in the core assets and therefore shareholders are not getting the greatest value for their stock. SL Green plans to sell back the non-core properties to a group of Reckson investors, headed by CEO Scott Rechler for $2.1 billion. “We have concluded that these properties were inadequately marketed to potential acquirers… Accordingly we believe an open and thorough auction of these assets has the potential to deliver significantly more value to Reckson shareholders. Mack-Cali has openly expressed interest in the non-core properties.

Arnhold and S. Bleichroeder declined to comment on the letter or any kind of response the company may have received from Reckson. For its part, Reckson has acknowledged receiving the letter but had no comment other than, “The company remains committed to this value creating transaction. We have been meeting with Reckson shareholders over the past weeks and are pleased with the level of support expressed for this transaction,” according to a company spokeswoman.

Reckson’s Q3 results, announced last week, showed lower than expected funds from operation. A year before the diluted FFO were $51.7 million, or $0.61 per share compared to Q3 2006′s diluted FFO of $42.6 million of $0.50 per share. In the statement about the company’s results, Rechler said, “We weren’t pleased but we weren’t surprised that FFO dropped this quarter. These trends are consistent with some of the pressures that we have been seeing in the competitive market recently and consistent with the rationale for our pending transaction with SL Green.”

Analysts from both Citigroup and Credit Suisse issued opinions Monday on the pending merger and encouraged shareholders to approve the deal, especially in the wake of last quarter’s results. “Reckson’s 3Q results came in significantly below expectations, underscoring our view a higher bidder is unlikely to emerge,” said John Stewart and Michael Gorman of Credit Suisse in a statement. “We see significant downside to (Reckson) in the event activist shareholders succeed in blocking the transaction.”

Citigroup, which served as a financial advisor to Reckson in the transaction, agreed failure to approve the merger would be detrimental. “We think the worst thing for Reckson’s shareholders at this time would be for the SL Green merger to fall apart,” the report said. Operating fundamentals appear somewhat strained, consistent with the view we had in May, when we cut (Reckson) to sell.” Jonathan Litt and Michael Bilerman issued Citigroup’s opinion.

But it remains uncertain if shareholders can gain greater value for the non-core assets. Arnhold and S. Bleichroeder completes its letter with, “We welcome the opportunity to find out how much more than $2.1 billion an unaffiliated third party might pay for the non-core assets after a full and fair auction process, whether SL Green or another party ultimately acquires the core assets.” Credit Suisse sees the potential of garnering a higher price in an open auction on the suburban assets SL Green plans to sell off. Citigroup said, “It appears that Scott Rechler is not getting a sweetheart deal for the assets he is buying.”

Both companies express thoughts of a ‘conspiracy theory’ that Reckson posted understated Q3 results to make the merger more attractive. “The cynic in us questions whether the earnings miss in the quarter was designed to ensure that the deal gets done, as the sudden rise in expenses seems well-timed,” Citigroup said.

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