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A major Harvard donor and a former dean of the Kennedy School of Government (KSG) are accused of suppressing shareholder voting rights in the latest turn in a corporate control struggle, according to court documents made public last week.
The controversy revolves around Taubman Centers, Inc. (TCI), founded by A. Alfred Taubman, the real estate magnate who donated $15 million to the Kennedy School in 1988 to establish the Taubman Center for State and Local Government.
Simon Property Group (SPG) is attempting a $1.74 billion hostile takeover of TCI and has filed suit against the company in U.S. District Court, alleging illegal attempts to avert shareholder approval of their purchase offer.
SPG claims that the Taubman family is exploiting voting rights illegally obtained in a 1998 reorganization of the company to block its acquisition.
Dillon Professor of Government Graham T. Allison, who was the KSG dean at the time of the Taubman donation, has served on the board since this reorganization and is one of the directors being accused by SPG of wrongly allowing the family to gain such power.
SPG alleges that the 1998 TCI board of directors—which included Allison—improperly issued the Taubman family economically worthless but politically valuable Series B preferred stock during this reorganization. The result was that the family gained control of 30 percent of the TCI voting rights for a mere $38,000, according to Hugh Burns of Citigate Sard Verbinnen, SPG’s public relations firm.
Because of the terms of the company’s charter, which requires a two-thirds vote for amendment, the 30 percent voting rights allow the family to block takeover attempts like this one.
Burns said Allison, as a so-called “outside” director with no immediate ties to the company, has a responsibility to defend shareholders’ interests that he has not been fulfilling.
“I would be embarrassed if one of my professors was doing this kind of stuff,” he said. “If your job is to protect the shareholders, how could it make sense to give away control of the company for $38,000?”
Allison could not be reached for comment on Friday or over the weekend.
In a brief filed Friday, TCI said that “there is no factual, legal or equitable substance” in SPG’s claim.
“They are simply part of SPG’s relentless public relations campaign feeding trumped-up charges of illegality to credulous journalists to pressure Taubman Centers’ directors into accepting a tender offer that they believe, in their good faith judgment, is inadequately priced and opportunistic,” TCI wrote in its brief.
Also on Friday, SPG sent a letter urging shareholders to call a vote on the tender offer.
In that letter, SPG said that 85 percent of common shareholders have expressed their willingness to sell their stock, but SPG cannot capitalize because of a provision adhered to by many real estate companies prohibiting a single entity from owning more than ten percent of a company’s shares.
This technicality can be overcome by a two-thirds vote of all shareholders. But in TCI’s case, because the Taubman family controls 30 percent of the votes, such an obstacle could not likely be surmounted without its support.
The company’s board, including Allison, has supported the family’s decision not to sell.
SPG is thus accusing the family and the board of “unilaterally” blocking shareholders from realizing its offer.
“[We] believe that the company’s common shareholders, and not the Taubman family, should decide the future of the company and that the company board should not prevent the company’s common shareholders from receiving $20.00 per share in cash for their shares in the offer,” SPG wrote in its letter.
SPG has been attempting to gain control of TCI since November, when they made their first public offer of $17.50 a share. The company increased its offer to $18 in December.
In January, SPG partnered with Westfield America, Inc., to make a tender offer of $20 a share. Each time, according to the TCI brief, SPG claimed to be making an offer equivalent to the “full value” of the shares.
Shares of TCI, which closed Friday at $17.27, traded at $13.32 at the time of the $18 tender offer, according to SPG spokesperson Burns. He said TCI shares had not closed above $16.01 in its ten-year history prior to the tender offers—evidence that the offers had raised TCI share value.
The SPG brief had been sealed until the court granted a motion to release it last Thursday. The motion was filed by The Detroit Free Press, The New York Times and Dow Jones & Co., the parent company of The Wall Street Journal.
This is not the Taubman family’s first run-in with the law. A. Alfred Taubman is currently serving out a sentence for price fixing while he directed the Sotheby’s auction house.
—Staff writer Stephen M. Marks can be reached at email@example.com.
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