GlobeSt.com UPDATE: First Union, Sizeler Battle Heads to Federal Court

BALTIMORE-The battle between New Orleans-based Sizeler Property Investors and one of its major stockholders, Boston-based First Union Real Estate Equity and Mortgage Investments, has moved from Maryland State Court to the federal District Court of Maryland. The fight surrounds Sizeler’s sale last week of about 2.65 million shares of newly issued common stock.With its stock price hovering around $12, Sizeler sold the stock at $10.75 per share on March 15 in a direct placement to a group of institutional REIT investors. First Union filed suit in Maryland State Court the same day but was unable to obtain a restraining order because the sale occurred earlier in the day.  When Sizeler and its board members this week brought the issue to the federal District Court of Maryland–seeking a declaratory judgment that the stock sale was not a breach of fiduciary duty or otherwise improper–both companies filed to dismiss the Maryland State Court suit.In its motion to dismiss, First Union calls the move by Sizeler and its board to seek the declaratory judgment “extraordinary. As First Union believes that it will prevail on the merits and does not wish to distract from the substantive questions by an ancillary dispute over the forum, it will join the issue in the federal court forum selected by Sizeler and its board,” states the motion. In backing up its position, First Union quotes the judge in the State Court action as saying, “I agree that [First Union] has, in my view, raised grave questions about this transaction.”On the day of the sale, First Union executive Michael Ashner said in a prepared statement that the sale of the stock “at substantially below the stock’s current value” is a move by Sizeler management “to thwart First Union’s efforts to increase shareholder value and was designed to entrench current management,” which he described as “under performing.”  Sizeler executives say the sale positions the company to execute important components of its strategy for increasing shareholder value over the long term, and that First Union’s statements “are littered with disingenuous rhetoric.”In a more recent press release responding to First Union’s press release about the State Court judge’s statement, Sizeler states that “First Union’s zig-zagging, ill-conceived legal tactics…make clear that First Union has a significant credibility problem. When one…looks at the plain language of the revised First Union 13D, it is clear that First Union is desperately backing and filling to correct more than a dozen prior 13D filings with respect to its long-held designs on Sizeler and Sizeler’s assets.”Last week’s exchange sparked above average trading of shares in both companies that lowered their share prices. Sizeler’s share price has since rebounded to pre-litigation levels, while First Union’s stock price remains depressed at $3.97, off $0.28 from its close on Monday, March 14.While Sizeler’s stock was depressed, First Union acquired additional shares in the company. The company said this week it has increased its ownership to 1.4 million shares or 8.73% of the company’s outstanding shares. Prior to that, First Union filed with the SEC a preliminary proxy statement related to its solicitation of proxies to elect its executives–Michael L. Ashner, Peter Braverman and Steven Zalkind—as directors at Sizeler’s 2005 Annual Meeting of Stockholders.