Sculptor standoff makes sense mainly for one guy

Sculptor Capital Management

08/09/2023 17:48

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Jeffrey Goldfarb
       NEW YORK, Sept 8 (Reuters Breakingviews) - Sculptor
Capital Management’s  SCU.N  defensive barricades have been
chiseled away. The firm, which oversees $34 billion, keeps
snubbing a competing takeover bid led by rival hedge fund
manager Boaz Weinstein. His group, which includes billionaire
investors Marc Lasry and Bill Ackman, is willing to pay more
than chosen buyer Rithm Capital  RITM.N , and rejigged its offer
to address various concerns raised by Sculptor’s special board
committee. At this stage, the standoff makes sense mainly for
the target’s boss, Jimmy Levin.
    The Weinstein consortium was an active participant in the
extensive sale process. Formerly known as Och-Ziff, Sculptor
dismissed the latest sweetened entreaty of $12.76 a share, which
eclipses Rithm’s $11.15 by 14%. Sculptor shareholders seem
tempted, using Friday’s $12.18 trading price as a guide. 
    It further suggests Weinstein has succeeded in dismantling
pushback and that shareholders are willing to absorb some
additional risk. Sculptor pinned part of its rejection rationale
on Weinstein’s inability to finance a $730 million bid. It’s a
flimsy argument considering the collective wealth involved, but
the hedge fund bosses have nevertheless provided additional
details about their funding structure.
    Sculptor also claims an insufficient proportion of its
clients might sign off on a Weinstein deal and leave the firm
high and dry in a couple months. It has 1,300 limited partners,
five of which accounted for more than 40% of the assets under
management at the end of last year. Such concentration adds a
degree of difficulty, but Sculptor’s former CEO Rob Shafir, a 6%
shareholder, says the special committee’s argument isn’t
“credible.” He’s presumably in a good position to know despite
Sculptor’s vague contention that client feedback indicates
otherwise.
    There are other wrinkles. Although Sculptor disclosed this
week that its flagship multi-strategy fund overseen by Levin is
up nearly 13% in 2023, its performance over the past five years
has failed to outperform the average of about 20 peers collated
by HSBC’s alternative investment division. Weinstein’s group has
indicated it would replace Levin, and his returns may not be
good enough for clients to choose Rithm over Weinstein.  
    Even Rithm probably stands to benefit from being dumped. Its
deal allows Levin to renegotiate his compensation package next
October and, if the two sides can’t agree, leave with a handsome
payout and limited restrictions on where he works next or when.
It’s a precarious arrangement to make with a man whose generous
pay already has caused nasty rifts. The sophisticated investors
with a stake in a Sculptor sale should have no trouble doing the
math.
    Follow @jgfarb on X
  
    CONTEXT NEWS
    A group of hedge fund managers led by Boaz Weinstein revised
its takeover bid for rival Sculptor Capital Management,
Bloomberg reported on Sept. 6, citing unnamed sources.
    The consortium, which includes billionaire investors Marc
Lasry and Bill Ackman and has offered $12.76 a share, beefed up
its equity commitments, eliminated risks associated with debt
financing and said it would be willing to pay higher damages if
it failed to complete the transaction, according to the report. 
    Sculptor, which has $34 billion of assets under management,
agreed on July 24 to be acquired by real estate investment firm
Rithm Capital for $11.15 a share, or about $639 million. 

 (Editing by Lauren Silva Laughlin and Sharon Lam)
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