ARCP throws in the towel on Cole III bid

American Realty Capital Properties (ARCP) Inc. and its outspoken chief executive Nicholas Schorsch have withdrawn their bid to acquire real estate investment trust Cole Credit Property Trust III. “I'm out. We're done,” Mr. Schorsch said in an interview, after ARCP announced Thursday that it had pulled its offer. “We made a good faith offer, $9.7 billion” for the REIT and its management company, Cole Holdings Corp., he said. ARCP launched its hostile bid for the nontraded REIT on Mar. 19, offering $12 per share. After Cole management quickly rejected the offer, ARCP upped its bid to $12.50 in cash per share or $13.59 in ARCP shares. Cole III and its management never seriously negotiated, Mr. Schorsch said. “We wish them well. … We like the company and the assets, but [the withdrawal] won't affect our business in any way,” he said. ARCP shareholders apparently liked the news, driving the stock price up nearly 3% Thursday, to an intraday high of $16.15. The withdrawal of ARCP's bid comes nearly a week after Cole III closed on its previously announced acquisition of Cole Holdings. The REIT paid $20 million in cash and 10.7 million of its shares at the closing last Friday, with future share payouts contingent on performance. Cole plans to take the combined company public in June. In a statement Thursday, Cole said, “recent public activities have highlighted, if nothing else, the … robust value of our portfolio and business model. We thank all of our broker-dealers, financial advisors and stockholders for their support.” In its own statement, ARCP said it withdrew its proposal “in order to safeguard its stockholders from any possible economic, legal, reputational or other risks” from Cole's internal transaction, “including the numerous pending class action and derivative lawsuits filed.” At least three shareholder lawsuits have been filed against Cole III since the REIT announced in early March that it planned to merge with Cole Holdings and go public. The suits allege that Cole's internal merger benefited Cole management, not REIT shareholders. “If we were to buy, and any of this litigation had a cost attended to it … we would bear that cost,” Mr. Schorsch said. “That's a risk we can't take.” Both ARCP and Cole are major players in the so-called “triple net lease” property market, in which high quality tenants — not the REIT sponsors — are responsible for covering maintenance, insurance and tax costs for the properties. Mr. Schorsch has made his case for the acquisition in the media. Last week, he discussed the bid in an appearance on Jim Cramer's 'Mad Money' on CNBC.