Schorsch's RCS Capital, American Realty Capital Properties, bury hatchet in $60 million settlement

Differences over Cole Capital Partners acquisition resolved as RCAP pays to end deal for Cole from ARCP

Dec 4, 2014 @ 1:30 pm

By Mason Braswell

Two feuding companies under Nicholas Schorsch's REIT empire have resolved their disputes as part of a $60 million settlement.

RCS Capital Corp., or RCAP, the wholesaling broker-dealer, will pay $60 million to nullify its agreement to purchase Cole Capital Partners and Cole Capital Advisors Inc. from American Realty Capital Partners Inc., or ARCP, the companies announced Thursday.

That's just under 10% of the $700 million RCAP said it would pay for ARCP's Cole subsidiaries, which manage and advise nontraded REITs, in October.

“We believe the negotiation of a fixed-cost settlement clearly outweighs the potential expense and distraction of a drawn-out litigation process,” Michael Weil, chief executive officer of RCAP, said in a statement.

The dispute between RCAP and ARCP began in November when RCAP said it wanted to terminate the deal following ARCP's disclosure of a $23 million accounting error that was intentionally uncorrected.

Both of the companies are connected through Mr. Schorsch, who is executive chairman of RCAP and chairman of ARCP. He recused himself from the acquisition, however, on account of his roles.

RCAP had been looking to distance itself from ARCP in the aftermath of the disclosure of the error.

ARCP filed a complaint in the Delaware Court of Chancery accusing RCAP of violating the acquisition agreement.

The deal announced Thursday includes a cash payment of $32.7 million and a $15.3 million promissory note. In addition, ARCP will keep a $10 million payment connected to the closing of the deal and will be forgiven from having to pay $2 million for services provided by Realty Capital Securities, a subsidiary of RCAP.

Shares if RCAP were up more than 12% as of 11 a.m. New York time Thursday after being up as much as 16% earlier. It was trading around $10.90, still down from its 52-week high of $39.98.

Former hedge fund manager Steven Cohen recently upped his stake in RCAP to 5.1%, according to filings.

ARCP was up a fraction of a percent, trading at $9.22 Thursday midmorning. The company's executives said they will be looking at how to “stabilize” the Cole entities in the wake of the failed transaction.

“Our immediate plan is to stabilize Cole Capital, which we continue to believe is a valuable business, as we focus on creating long-term value and strengthening ARCP's position as the leading company in the net lease REIT industry," said David Kay, chief executive officer of ARCP, in a statement.

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