ARV Assisted Living Sues Top Shareholder
Worried that its expansion plans are being undercut by an ally, ARV Assisted Living said Wednesday it has filed a lawsuit to try to keep its largest shareholder from buying a Kentucky-based retirement home operator.
The lawsuit is the latest twist in a knotty alliance formed last year between the Costa Mesa-based ARV, which also operates retirement centers, and an affiliate of the New York investment house Lazard Freres & Co. that now owns almost 50% of ARV.
ARV had hoped to carry out its own expansion plans by linking its management experience in the industry with Lazard’s financial resources. Instead, ARV maintains, Lazard is using another company that it has since purchased--Kapson Senior Quarters Corp.--to move into the assisted living market, leaving ARV behind.
“We were invited to the dance and nobody showed up,” said Howard G. Phanstiel, ARV’s chief executive.
In a statement released Wednesday, Lazard Freres Real Estate Investors said the lawsuit is “wholly without merit and completely misrepresents the contractual agreement” between the two companies. Lazard’s affiliate “will vigorously defend this action,” the firm added.
ARV said its board of directors allowed Lazard’s affiliate to purchase Kapson, another assisted living community operator, with the understanding that ARV would have the right to lease and operate Kapson’s retirement centers. Instead, ARV maintains that Lazard proposed lease terms that were “commercially unreasonable.”
Banking on the Kapson deal, Phanstiel said, ARV in October rejected another buyout offer from Seattle-based competitor Emeritus Corp., which has since sued ARV over Lazard’s investment in the Costa Mesa company.
Emeritus had offered to pay $16.50 a share for ARV stock, which closed Wednesday at $13.38, down 38 cents.
ARV maintains that Lazard and its affiliates are prohibited from owning a stake in any assisted living company in the United States without first getting consent from 75% of ARV’s board members.
But last month, Kapson moved to buy the Louisville-based Atria Communities Inc. for $750 million without ARV’s approval, the suit said.
Analyst Frank Morgan said ARV’s willingness to take legal action against its largest shareholder on behalf of other owners is “a big plus” for other ARV shareholders.
“I think it says a lot that Howard Phanstiel is standing up to its largest investor and representing the interest of all shareholders of ARV,” Morgan said.
It could, however, make for some tense board meetings since three of ARV’s nine members who represent the Lazard affiliate are also named in the lawsuit, which was filed Tuesday in Orange County Superior Court.
In addition to seeking a court order blocking Kapson’s purchase of Atria, the lawsuit also asks for unspecified damages.
Also named in the lawsuit are Atria; Kapson; Prometheus Assisted Living LLC, the Lazard affiliate that bought into ARV last year; and Lazard Freres Real Estate Investors LLC, which manages Prometheus.
