When West Coast REIT Pan Pacific Retail Properties Inc. agreed to be acquired by Kimco Realty Corp. for $70 per share earlier this summer, analysts were surprised by seemingly low valuation, which they said did not reflect the company’s high credit rating and strong growth potential. The transaction price represented no premium to Pan Pacific’s stock price before the deal was announced.

Now, a class action has been filed on behalf of Pan Pacific shareholders by Jack G. Blaz, a Dallas-based shareholder representing an entity called Momentum Partners. The suit charges both Kimco and Pan Pacific with a breach of fiduciary duties and self-dealing on the part of Pan Pacific’s senior management.

In papers filed with the Baltimore County Circuit Court on Aug. 30, Blaz’ lawyers accuse Pan Pacific executives, including president and CEO Stuart Tanz, of rushing to complete the transaction with Kimco on terms that are unfavorable to Pan Pacific’s investors. The plaintiff believes the company completed sales negotiations with Kimco prior to the release of its Second Quarter 2006 financial report to ensure that Kimco got a discount on the purchase price. During the second quarter, Pan Pacific’s net operating income was $27.3 million, $0.67 per share, an 11.9 percent jump over the same period in 2005. Blaz was also dismayed to find that Pan Pacific did not attempt to get bids from several buyers and only pursued negotiations with Kimco.

When the deal was announced, some analysts interpreted the valuation as an indication that investors were losing their ardor for the retail sector. Also, as some analysts pointed out, Pan Pacific’s stock had rallied in the days before the deal was announced, as rumors spread that Kimco was on the verge of announcing a major acquisition; Pan Pacific was frequently mentioned as a target. The deal price, in fact, is about 7 percent above where Pan Pacific traded before the weeklong run-up.

The class action asserts that only malfeasance kept Pan Pacific holders from getting a higher price. Specifically, the plaintiffs assert that Pan Pacific failed to solicit other bids. “The proposed sale is the product of a hopelessly flawed process that was designed to ensure the sale of Pan Pacific to one buying group, and one buying group only, on terms preferential to Kimco,” the complaint reads. “The defendants did not even attempt to ascertain whether anyone else was interested in purchasing Pan Pacific nor did they even consult with a financial advisor in negotiating the terms of a proposed sale.”

In an interview Stuart Tanz gave Retail Traffic on the day the merger was announced, he refused to discuss whether Pan Pacific received interest from anyone other than Kimco. He also insisted that the sale price was consistent with the REIT’s market valuation.

But Ross Nussbaum, a stock analyst with Banc of America Securities, wrote in his report that Pan Pacific could have been taken out at a premium to its NAV. In recent years, REIT buyers have been paying premiums of up to 15 percent on NAV estimates, a fact that has been noted by the plaintiff.

According to the lawsuit, Pan Pacific’s management was motivated by greed in its pursuit of the deal with Kimco, and not by the best interests of the company’s shareholders. For example, according to his employment contract, if Tanz leaves his job as CEO as a result of a “change in control,” he will receive a severance package of $4.2 million and more than $6.2 million for his restricted shares of Pan Pacific’s stock.

Neither Kimco nor Pan Pacific Retail Properties returned calls for comment.

The Kimco/Pan Pacific merger is expected to close in the fourth quarter of 2006. On Friday, the companies said the $70 per share would be paid to Pan Pacific shareholders in $60 in cash and $10 in newly issued Kimco common stock. If the merger falls through, however, Pan Pacific will be forced to pay $65 million in breakup fees.