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Rich payday for Schorsch and his partners

May 30, 2014 @ 11:45 am

By Bruce Kelly

nick schorsch, rcs capital, rcap, american realty capital, iss
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(Bloomberg News)

Nicholas Schorsch has made a lot of money for investors. Now he's ready to make a lot of money for himself and his partners.

Through a secondary offering for his broker-dealer and an unrelated executive compensation plan voted on by shareholders of his real estate firm, Mr. Schorsch and other top executives stand to share a total of $362 million.

While it is not clear exactly how much Mr. Schorsch stands to profit individually from these two events, his share of the compensation plan alone is potentially $92.7 million.

Mr. Schorsch's broker-dealer, RCS Capital Corp., known by its ticker symbol, RCAP, said Thursday it was selling 20 million shares of company stock, with a target price of $29.74 a share, the closing price a day earlier. The company would reap net proceeds of $466.3 million from the sale of 15 million shares and a private placement, minus the commission to underwriters, according to Andrew Backman, managing director, head of investor relations for RCAP, in an email.

Mr. Schorsch, executive chairman of RCAP, and his partners, including CEO William Kahane, are selling five million shares. With an estimated share value of $29.74, those shares would generate about $140 million after subtracting underwriters' fees.

“The five million secondary shares being sold are by the founding partners and yield no proceeds to the company,” Mr. Backman said in the email.

It's not clear exactly how much money Mr. Schorsch would receive as part of that pending sale of stock.

“The five million secondary shares being sold represent shares from all of the founding partners, not just (Mr. Schorsch) and (Mr. Kahane),” Mr. Backman said.

RCAP, which went public last June, is hoping to sell its secondary offering as soon as next Wednesday, according to an executive who asked not to be named.

But as the company prepares for the offering, RCAP shares have taken a beating this week. As of 12:30 p.m. New York time on Friday, RCAP shares were off $5.40, or 17% this week and were trading at $25.89, well below the price used in the company filings.

RCAP has been on acquisition binge this year, buying retail broker-dealers, a rival nontraded REIT wholesaler, an liquid alternative fund company and even a due diligence shop. It has financed the acquisitions through the sale of common and preferred shares, and borrowed $700 million as part of its most significant acquisition, the Cetera Financial Group, which consists of four broker-dealers.

Meanwhile, shareholders in Mr. Schorsch's real estate firm, American Realty Capital Properties Inc., on Thursday voted at the company's annual meeting whether to approve a new executive pay program that would create a $222.1 million pool of incentive-related compensation. As of 1 p.m. Friday, the results of the shareholder vote were not available.

The Wall Street Journal first reported on the incentive compensation package for ARCP executives. Mr. Schorsch acknowledged that he is well-paid but defended it.

“I haven't played a round of golf in years,” Mr. Schorsch told the newspaper. “I make a lot of money, but I earn it.”

Mr. Backman said the company had no comment about the Journal report.

According to corporate governance watchdog Institutional Shareholders Services Inc., Mr. Schorsch would be in line to receive 42.5%, or 7.45 million, of the multi-year “outperformance plan” units, which are convertible to ARCP stock.

ARCP calculated the units “by multiplying the participation percentage by the total market cap on the day the plan was approved, divided by $12.43, the 5-day trailing average closing price of the company's common stock on the plan's start date,” according to ISS. At that price, Mr. Schorsch's units are worth $92.7 million.

In a May 16 report, ISS criticized ARCP's new executive incentive plan. “While it is difficult to evaluate the (outperformance plan) goals, they do not seem rigorous relative to the potential payout values,” according to the report.

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