Cole Credit Property Trust III Inc. filed anpresentation with the SEC on March 25 to present reasons why its previously announced acquisition of Cole Holdings Corp. is in the best interest of the company and its shareholders. In response, American Realty Capital Properties Inc. revised its previous acquisition offer, including a proposal to acquire both CCPT III and Cole Holdings as a merged entity.
ARCP has modified its offer to incorporate the acquisition of Cole Holdings and increased value for CCPT III, now offerings not less than $13.59 per share, implying a minimum equity value for CCPT II and Cole Holdings of approximately $6.7 billion. This value assumes 492 million shares of CCPT common stock outstanding, consisting of 481.3 million shares of CCPT III common stock outstanding as of the date of the merger agreement, plus 10.7 million shares of CCPT III common stock to be issued to Cole Holdings in connection with the internalization.
“We firmly believe our fully financed proposal is a full and fair offer and well within the valuation ascribed to CCPT III and Cold Holdings in [the] March 25 filing, but without all the attendant risks of a proposed listing on uncertain terms and timing,” ARCP executives said in a statement to CCPT III management.
In its March 25 SEC filing, Cole revealed that it expects $25 to $33 million of pre 2013E pro-forma EBITDA contribution from Cole Holdings and significant savings in overhead costs. Cole Holdings will also forgo 25 percent of its existing contractual promote. The expected CCPT III listing in June 2013 will provide stockholders with access to liquidity and the flexibility to sell or retain shares based on public market value.
In addition, the company pointed out that the acquisition of Cole Holdings was negotiated exclusively by a special committee of the CCPT III board of directors, all of them independent REIT industry professionals with significant experience. The special committee also engaged nationally recognized advisors to review the transaction.
The special committee has also reviewed the unsolicited proposal from ARCP and determined that it was not as attractive. In the committee’s view, a combination of CCPT III and ARCP would create excessive leverage levels, including an additional $1.2 billion to $2.4 billion of debt to fund the 20 percent to 40 percent cash component of ARCP’s proposal. The combined company would also function as an externally managed publicly traded REIT, and in the committee’s view, there have been many instances of suchunderperforming their peers.
Furthermore, ARCP’s previous offer represented a 12 percent discount to the per share value of CCPT III that CCPT III stockholders would achieve if CCPT III trades at the average of the comparables ARCP identifies. Assuming that CCPT III should be valued at implied cap rate of approximately 5.3 percent, the notional value of ARCP’s proposal represents a 22 percent discount to the implied per share trading value of CCPT III.
The term of ARCP’s new acquisition proposal include the following:
- CCPT III stockholders will receive at least $13.59 per share of value and an equivalent annual dividend of 74.4 cents per share, a 15 percent increase over their current dividend.
- All CCPT III shares converted into ARCP shares will be immediately tradable on NASDAQ.
- CCPT III stockholders who take ARCP stock will benefit from a tax-free exchange safe harbor.
- ARCP expects the proposed transaction will be immediately accretive to AFFO per share by 10 percent.