I wasn't expecting this morning's merger news that American Realty Capital Properties (ARCP) agreed to buy Cole Real Estate Investments (COLE). After last spring's rancorous battle when ARCP tried to buy non-traded REIT Cole Credit Property Trust III (CCPT III) before it merged into its sponsor and became COLE, I thought the ill will would have left ARCP and COLE adversaries for some time. It just proves I shouldn't think.
ARCP is buying COLE for $6.85 billion. ARCP will pay a fixed ratio of 1.0929 ARCP shares for each share of COLE, valuing the transaction at $14.59 per share based on yesterday's close. ARCP is offering to acquire up to 20% of COLE shares for cash at a price of $13.82 per share. The boards of each company have approved the transaction and shareholders in both companies must now approve the merger. The transaction is expected to close in the first half of 2014.
ARCP expects to raised its dividend to $1.00 per share, up from the current $.94 per share, upon closing the merger. This is an increase for both COLE and ARCP investors. The combined company will be the largest net lease real estate company in the United States with over 3,700 properties and a $21.5 billion enterprise value, according to the joint press release announcing the merger.
There is an old James Bond movie called Never Say Never that clearly applies here. Money helps, too - it's the ultimate business salve for bruised egos and hard feelings. Today's offer is a premium to ARCP's final offer last spring of $13.59 per share in stock or $12.50 in cash for CCPT III, although that offer didn't include COLE's syndication business, which has exceeded pre-listing expectations.
This deal is a nice move for COLE shareholders and COLE executives. The merger represents a 14% premium over yesterday's close for COLE. As I noted last spring, the breakeven point for COLE to earn its incentive listing fee was $10.45 per share. At $14.59 per share COLE set for another big pay day. Based on the table I presented last spring, COLE is set to receive a $224 million incentive listing fee at the $14.59 price, and Chris Cole who owns 10,624,788 shares (much received as part of the non-internalization internalization), sees his stake now worth $155 million, and upon completion of the merger all shares will likely vest, no longer subject to the multi-year lock-up.
There is plenty to consider on this transaction, but on the surface I'm still trying to mentally absorb the big news.