Rithm deal opposition driven by Och's resentment, Sculptor says

Sculptor Capital Management responded to the latest efforts led by founder Daniel Och to upset the transaction with Rithm Capital, saying it is more about his resentment over being removed from his positions after legal difficulties.

Och sent a letter on Aug. 22 asking Sculptor to allow inspection of books and records related to the transaction; that was followed by an Aug. 29 letter asking Sculptor to release bidders from non-disclosure agreements. 

"The company believes that your requests are improper as they continue to propagate and rely upon a false narrative as a cover for your true motives: to disparage the company, its board of directors and management, and to make self-interested demands," a cover letter to Sculptor's full response to Och declared.

If the deal were to be completed, Rithm is then expected to go ahead with a spinout of its mortgage business; a confidential S-1 form is on file with the Securities and Exchange Commission.

Och's filings were made after a rival bid, reportedly from Boaz Weinstein, Marc Lasry and Bill Ackman at more than $12 a share, became public. Rithm agreed to pay $11.15 per share.

Supposedly when initially informed of a higher bid, Och's group rejected it, Sculptor said on Aug. 22.

Och's opposition to the deal is retribution for being forced out following a bribery scandal in Africa, which beyond the company's punishment included his personal payment of a related $2.2 million SEC fine, the letter claimed. The penalties nearly resulted in Sculptor (at the time called Och-Ziff) going out of business.

Any specific attacks by Och on the Rithm agreement are misplaced, the letter claimed.

"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 declared. "Nor does Rithm's bid crystallize supposed losses from the adoption of [current CEO Jimmy] Levin's compensation package."

Levin instead agreed to "substantial reductions" in pay in order to facilitate the deal, Sculptor continued.

Even if such a bid did exist, it is not clear that Rithm would make a higher offer, an Aug. 22 report from BTIG analyst Eric Hagen said.

"We think the acquisition could offer a meaningful medium- to longer-term opportunity in Rithm, but we don't think there's material downside to Rithm if the deal is broken up," Hagen wrote. "Nonetheless, we think a breakup with Sculptor could temporarily slow the idea of a spinout of certain business units, as we've discussed, but not derail the opportunity."

The transaction was announced before the market opened on July 24. Sculptor opened at $10.92 per share, $1.50 per share higher than its July 21 close.

But it did not move above the deal price until Aug. 17, the day after Och's opposition became public.

Rithm's stock price has been up and down since the deal was announced. Its low point was $9.44 per share, which happened during the trading day on Aug. 18. On Aug. 30, Rithm opened at $10.30 per share.

Sculptor alleged Och, who reportedly owns 12.5% of the company, was acting in his own self-interest regarding any negotiations with Rithm.

"For example, you requested that, as part of any closing, Rithm agree to accelerate tens of millions of dollars as a prepayment at a favorable discount rate of the Tax Receivable Agreement and pay you an additional $5.5 million in cash for your legal expenses supposedly incurred in connection with the company's sales process, including costs for counsel that were negotiating for your own economic benefits," Sculptor said. "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."

Rithm's refusal to those conditions led to Och's opposition to the deal, Sculptor added in its full response to the Aug. 22 SEC filings.