Schorsch snares the brass ring he missed the first time with Cole deal

Acquires rival that rebuffed him earlier in the year for $11.2B

Oct 23, 2013 @ 12:34 pm

By Bruce Kelly

Nicholas Schorsch finally got his prize Wednesday when American Realty Capital Properties Inc. said it had acquired rival Cole Real Estate Investments Inc. in a deal valued at $11.2 billion.

With this merger, the acquisitive Mr. Schorsch, chief executive of American Realty Capital Properties and other related real estate companies, will gain control of a net-lease real estate investment trust that he had made an aggressive run at in the spring. He was rebuffed by an entrenched Cole management team that claimed publicly that Mr. Schorsch never made an honest offer for the REIT.

(In Depth: A look at Nicholas Schorsch's year-long buying binge)

Expected to close by the middle of next year, the ARCP-Cole merger will create the largest net-lease REIT, with an enterprise value of $21.5 billion, according to the two companies. The offer has two parts: $7.2 billion in stock or cash and $4 billion in assumed debt.

Cole shareholders will receive $13.82 per share in cash or $14.59 per share in American Realty Capital Properties stock, which was a 13.8% premium over the closing price for Cole shares Tuesday. ARCP will increase its annual dividend to $1 per share, from 94 cents, once the merger closes.

The announcement of the merger was made just barely six months after ARCP launched a hostile takeover bid for Cole's predecessor, a nontraded REIT called Cole Credit Property Trust III. Cole summarily rejected ARCP's unsolicited bids for the company, the first for $12 per share and a follow-up for $12.50 in cash per share or $13.59 in ARCP stock.

The ARCP offers came on the heels of Cole Credit Property Trust III's announced acquisition of its manager, Cole Holdings Corp., for $127 million. Such transactions, called “internalizations” of company management in the nontraded REIT industry, have recently been roundly criticized as a layer of management fees that erodes shareholder value.

The broker-dealer community was “frustrated” that Cole Credit Property Trust III rejected ARCP's bid of $12.50 in cash per share, said Daniel Wildermuth, CEO of Kalos Financial, a broker-dealer that focuses on alternative investments.

The merger is “an effort on Cole's part to gain some credibility back in the market,” Mr. Wildermuth said. “At different due diligence conferences, there was talk about the general unhappiness at [Cole III] not taking the $12.50 offer. Cole can look at this and say, 'Everybody wins.'”

In an interview after the deal was announced, Mr. Schorsch took the blame for the fractious negotiations between the two companies, which resulted in top executives at Cole characterizing Mr. Schorsch's offer as “illusory” and “misleading” in a letter to investors.

That letter was signed by Marc Nemer and Chris Cole, respectively, CEO and chairman of Cole Holdings Corp., the management company for the REIT.

“In reality, Mark and Chris had a strong vision of their company, and I probably went about it the wrong way,” Mr. Schorsch said. “Things got off on the wrong foot, and today we're a better partner,” he said, adding that ARCP's recent string of acquisitions, reaching “investment grade” status, and issuing preferred shares as important steps in making the company a more attractive partner for Cole.

“Mark and Chris had an open mind” to sit down and get the deal done, he said. “There's no acrimony.”

Before last week, the share price for Cole Real Estate Investments, which listed on the New York Stock Exchange in June, had not closed at the $12.50 per share that Mr. Schorsch had previously offered. It jumped to a high of $14.61 a share Wednesday morning before falling back slightly to $13.99 by afternoon.

“Most of our shareholders are invested as part of Cole Credit Property Trust III,” the nontraded REIT, Mr. Nemer said. “They invested at $10 per share, and now, let's call it $14. If you add the price appreciation onto the dividend, it's a terrific result for our shareholders.”

Mr. Schorsch has been on an acquisition tear this year. Through ARCP, he has closed or announced seven separate acquisitions, including the Cole deal. Through RCS Capital Corp., a holding company, and its entities, he has announced acquisitions of two independent broker-dealers and one alternative-asset manager.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

May 02

Conference

Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

Speculation mounts on whether others will follow UBS' latest move to prevent brokers from leaving

UBS brokers must sign a 12-month non-solicit agreement if they want their 2017 bonuses.

Maryland jumps into fiduciary fray with legislation requiring brokers to act in best interests of clients

Legislation requires brokers to act in the best interests of clients.

8 apps advisers love for getting stuff done

Smartphone apps that advisers are using in 2018 to run their business more efficiently.

Galvin's DOL fiduciary rule enforcement triggers industry plea for court decision

Plaintiffs warned the Fifth Circuit that Massachusetts' move against Scottrade signaled that the partially implemented regulation can raise costs for financial firms.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print