IPO / M&AMortgageOrigination

Sculptor accuses founder of acting on resentment amid scrutiny of Rithm’s deal 

Asset management firm called Daniel Och’s demand to inspect books and records “improper”

In a letter to a group of founders and shareholders, New York-based asset management firm Sculptor Capital Management said their request to inspect the company’s books and records pertaining to its acquisition by Rithm Capital was “improper” and motivated by founder Daniel Och’s “long-standing resentment” of being exited from the company. 

Sculptor also said in the letter sent on Tuesday that Och and the other shareholders have requested millions of dollars in cash for legal expenses incurred during the process of being acquired by Rithm Capital. Och and shareholders also requested a prepayment related to a tax agreement tied to the company’s IPO in 2007. 

Och, shareholders and Rithm Capital did not reply to requests for comment.

The letter from Sculptor is the latest chapter of a dispute between the asset management firm, Och and other shareholders since Rithm — the real estate investment trust that operates NewRez, Caliber and several other businesses —announced a deal to acquire Sculptor for $639 million in July. If regulators approve, it will bring Sculptor’s $34 billion in assets under management to Rithm. 

“While ostensibly requesting information about the sales process described in the Company’s preliminary proxy statement, your Demand for books and records is set against historical context that makes clear that purpose is pretextual, and that the true purpose is the continuation of what the company views as Mr. Och’s well-publicized, years’ long smear campaign against the Company’s management,” the letter states. 

Och, who founded Sculptor in 1994, stepped down as CEO in 2018. In 2016, an Africa-based subsidiary entered into an agreement with the Department of Justice (DOJ) to pay a criminal penalty of more than $213 million in connection with a bribery scheme involving officials in the Democratic Republic of Congo and Libya. 

Och, who is still an active shareholder, and other former executives sued the firm in 2022 over CEO Jimmy Levin’s $145.8 million compensation.

Och, who was previously a mentor to Levin, now finds himself on the opposite side of a dispute with Levin in which the Rithm deal is a key issue.

On August 16, a group of shareholders, including Och, Harold Kelly, Richard Lyon, James O’Conner and Zoltan Varga, sent a letter to Sculptor’s ​​special committee of the board of directors saying the deal with Rithm “substantially undervalues the company.” 

They noted that on December 17, 2021, when “the Board of Directors approved the exorbitant compensation package” for Levin, the stock was trading at $20.02. 

“Just over 18 months later, the Board now has approved a deal that would pay the public shareholders $11.15 per share, just a fraction of what the stock was once worth.” 

In the letter, Och and the other shareholders said they were working with Rithm to see whether deal terms could be improved. Absent “material changes,” the group will “vigorously oppose this transaction,” they wrote.   

On August 21, Sculptor replied in a proxy statement that it received multiple takeover bids higher than the Rithm offer, some valuing the company at more than $700 million. Sculptor did not accept these bids due to burdensome conditions, lack of secured financing, or, according to the company, because Och and other founding partners rejected its terms. 

Och and other shareholders, in subsequent correspondence, demanded that Sculptor release books and records on August 22.  

“The suggestion that there were other credible bids that provided greater value and certainty of closing, with or without current management, is distorted — no such bid exists,” Sculptor said in response to the request. “Nor does Rithm’s bid crystallize supposed losses from the adoption of Mr. Levin’s compensation package. Mr. Levin has also agreed to substantial reductions in his compensation to support a Rithm transaction.”

Sculptor said in its letter that Och and the other shareholders asked Rithm to agree to advance tens of millions of dollars as a prepayment at the favorable discount rate of the company’s Tax Receivable Agreement. 

Och and shareholders also demanded Rithm pay an additional $5.5 million in cash for the group’s legal expenses supposedly incurred in connection with the company’s sales process. 

“The transaction under discussion between the Och Group and Rithm would have included the option for a rollover in order to allow you to avoid recognizing significant taxable gain received in the transaction. Notably missing from those discussions were meaningful concessions by any of you for the benefit of public stockholders,” Sculptor states in its letter. 

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