Your Mother Was A Hamster and Your Father Smelled Of Elderberries

The following is a letter sent yesterday (and filed in an 8-K) by American Realty Capital Healthcare Trust to the board of directors of Griffin-American Healthcare REIT II:

American Realty Capital Healthcare Trust, Inc. (“ARC Healthcare”) no longer sees the acquisition of the former Grubb & Ellis Healthcare REIT II, Inc. (“GEHRII”), now Griffin-American Healthcare REIT II, Inc. (“GAHRII”), to be viable due to the substantial risk of litigation between GAHRII and Grubb & Ellis, and the potential sizeable liability and cost to defend such action. Therefore, effective immediately, we are withdrawing our offer to acquire GAHRII.

There exists an allegation in a pending bankruptcy petition¹ that GAHRII has failed to pay millions of dollars currently due and owing to Grubb & Ellis. Furthermore, Grubb & Ellis maintains that they have material and substantial claims against GAHRII. Moreover, some of these monies, Grubb & Ellis alleges, are owed to Grubb & Ellis and have been paid instead to American Healthcare Investors, an entity owned and operated by Mr. Hanson and other former executive officers of Grubb & Ellis.

Because, in our view, there is risk of potential litigation between GAHRII and Grubb & Ellis which could result in an unquantifiable liability to ARC Healthcare’s stockholders, we believe it would be imprudent for our board of directors to expose ARC Healthcare to a risk that cannot be insured against or limited in amount.

For these reasons, we no longer see the acquisition of GAHRII to be viable from a financial or portfolio standpoint, and therefore effective immediately we are withdrawing our offer to acquire GAHRII.

This letter is an instant classic, a candidate for the "Wow" Hall of Fame. 

The letter can be read another way.   American Realty Capital Healthcare Trust, on the heels of American Realty Capital Trust's successful NASDAQ listing, is raising substantial amounts of equity every month and gaining scale fast.  It doesn't need the headache and potentially Pyrrhic outcome that a stockholder fight to gain control of Griffin-American Healthcare REIT II would entail.  

American Realty Capital Healthcare Trust couldn't resist a competitive taunt on withdrawing its offer for Griffin-American Healthcare REIT II.  It reminded me of this classic scene from Monty Python and the Holy Grail: