Activist demands halt to Colony Capital’s related-party deals
Blackwells Capital queries CEO Tom Barrack’s transaction with polo club acquaintance
An activist investor is urging Colony Capital to halt any related-party deals that could benefit its chief executive Tom Barrack, and is calling for an independent investigation into management decisions that seen the company’s shares fall nearly 70 per cent in three years.
The demand marks an escalation in Mr Barrack’s battle with activist boutique Blackwells Capital. It comes after Colony invested $185m in a data centre business associated with Marc Ganzi, a veteran investor, whom Mr Barrack last year designated as his successor.
Blackwells owns about 2 per cent of Colony, and has waged a year-long campaign against the company’s management team, winning the appointment of three new directors and a strategic review process that has led to major asset disposals.
Mr Barrack has resisted calls to step down, despite his company’s sliding share price. He has also brushed off long-running investigations into his role as chairman of President Donald Trump’s inauguration committee, and his alleged efforts to influence US foreign policy — neither of which have resulted in any accusation of wrongdoing.
Blackwells’ latest salvo focuses on the role of Mr Ganzi, the proprietor of a polo club that Mr Barrack sometimes frequents, about a 40-minute drive from his Colorado home. He joined Colony as managing director last year, after selling Digital Bridge, an investment management company he co-founded, to Mr Barrack’s company for $325m.
Mr Ganzi has a long record of investing in mobile phone masts and other digital infrastructure assets. In one of his first significant deals at the firm, he announced Colony would pay $185m for a 20 per cent stake in Databank, a data centre operator in which the Digital Bridge founders had previously invested.
Now Jason Aintabi, founder of Blackwells, is urging Colony to “impose a moratorium” on related-party deals, and demanding “a comprehensive and independent investigation into [Colony’s] inexplicable loss of value”. He wants the probe overseen by a new board, untainted by economic interests that he views as being potentially in conflict with those of shareholders, which he said “may be partly to blame for [Colony’s] miserable performance”.
Colony defended the Databank transaction, saying it would create value by “pivoting to become the leading global player in the digital real estate industry”. It said it had acquired its stake in an arms-length deal with two institutional shareholders, without Mr Ganzi selling any shares.
To mitigate any potential conflicts of interest, it added, Mr Ganzi exchanged “incentive units” he received in the deal for financial interests in Colony that are subject to a lock-up. The deal was “unanimously approved” by Colony’s board, including the three directors nominated by Blackwells.
Mr Barrack forged his reputation as a real estate investor in the 1990s, when he placed contrarian bets amid the wreckage of the savings and loans crisis.
A Financial Times investigation last year uncovered data suggesting that investors lost about 3.7 cents of every dollar they invested in 18 funds that Colony raised between 1991 and 2015. Colony disputed the data and the methodology. Some who suffered heavy losses had paid large fees to Mr Barrack’s company.