American Realty Capital Properties Inc. (ARCP) and American Realty Capital Trust III Inc. (ARCT III) signed a definitive merger agreement under which ARCP will acquire all of the outstanding shares of ARCT III in a transaction that would result in a combined company with $3.0 billion of enterprise value.
Post-closing, the combined company is anticipated to be comprised of a portfolio of over 800 properties that are net leased to investment grade and other credit tenants totaling approximately 18.9 million sq. ft. and located in 44 states.
“This combination provides unique synergies in the net lease sector, furnishing our investor base with durable income, principal protection and perhaps most importantly, outsized growth potential.” ARCP Chairman and CEO Nicholas S. Schorsch said in a statement. “This combined company will be guided by a proven management team and seasoned public company directors. Combining these two companies into a $3 billion enterprise will allow us to achieve lower cost capital, substantially greater earnings multiples, and reduced fees.”
The move will increase ARCP’s enterprise value tenfold. Both companies’ independent directors unanimously approved the merger agreement. The merger agreement is subject to customary closing conditions, including a stockholder vote by both companies, and the transaction is expected to close during the second quarter of 2013. Stockholders of record for each company as of December 17, 2012 will be entitled to consider and vote on the proposal to approve the merger and the other transactions contemplated by the merger agreement.
Pursuant to the terms of the merger agreement, each outstanding share of ARCT III will be converted into a right to receive, at the election of each stockholder, either 0.95 of a share of ARCP common stock (based on ARCP’s closing stock price of $12.90 on December 14, 2012, this consideration would be equivalent to $12.26 per share) or $12.00 in cash. Based on ARCP’s closing price of $12.90 per share on December 14, 2012, the exchange ratio is currently equivalent to $12.26 per share.
ARCT III stockholders may elect to receive 100 percent stock consideration in a tax-free exchange; however, in no event will the aggregate consideration paid in cash be paid on more than 30 percent of the shares of ARCT III’s common stock issued and outstanding as of immediately prior to the closing of the merger. Any elections for cash in excess of the cap will be reduced on a pro rata basis, with the remaining consideration paid in shares of ARCP. ARCT III stockholders will not be subject to any lockup–only ARCT III’s management will be locked up for one year.
BofA Merrill Lynch is acting as exclusive financial advisor and Duane Morris LLP is acting as special legal counsel to ARCP in connection with the transaction. UBS Investment Bank is acting as exclusive financial advisor and Weil, Gotshal & Manges LLP is acting as special legal counsel to ARCT III in connection with the transaction. Proskauer Rose LLP is acting as corporate counsel to ARCP and ARCT III.