PHOENIX-In March 2013, American Realty Capital Properties Inc. made an unsolicited bid to acquire local non-traded REIT Cole Credit Property Trust III in a deal valued at $9 billion. But CCPT III, on track to acquire Cole Holdings Corp., refused the offer, leading to a weeks-long salvo of acrimonious back-and-forth between the two REITs. The result was that CCPT III adhered to its original plans while ARCP went on to acquire CapLease for $2.2 billion.
To coin a cliché, what a difference a few months makes.
This morning it was reported that ARCP and Cole Real Estate Investments (the merger between CCPT III and Cole Holdings Corp.) signed a definitive agreement to merge, with the end result being the largest net lease REIT in the U.S., with an enterprise value of $21.5 million. And, unlike the acrimonious situation some months ago, the proposed merger, anticipated to close in early 2014, has the approval of the board of directors of both companies.
The differences between then and now was that ARCP "approached us in a collaborative manner," says Cole Real Estate Investments CEO Marc Nemer. "To pull something of this magnitude, we had to work together, and I give them full credit for doing that."
Furthermore, he tells GlobeSt.com that ACRP was a much more compelling company. "In March, it was a smaller company, whereas today with pending acquisitions set to close at about $10 billion, there are significantly greater capabilities across the organizations," he explains. "They've achieved investment-grade credit rating and are in the process of becoming self-managed."
CREI also went through its own changes. "We were in the process of going public, which we did in June, and at that point, allowed for larger transparency in terms of value," Nemer says.
As such, Nemer believes the combination of both entities will be, in his terms, a "category killer and a better value for the shareholder."
Under the terms of the agreement, CREI will be merged into a subsidiary of ARCP. Two independent directors currently on CREI's board will move over to ARCP's board; Nemer says that will lead to a nine-member board, of which six members will be independent directors.
The Cole brand name is not, however, going away. Nemer says the private capital management business – the function by which which identification, underwriting and management of properties on behalf of Cole's various funds takes place – will remain under the Cole brand. "If you think about Toyota, Lexus is the premier brand," Nemer comments. "Cole will continue to be the premier branding for net lease investing in the private channel."
The company will also continue operating in Phoenix and Nemer says that no major personnel changes are anticipated. The main cost savings involve corporate overhead – stock exchange fees, law firms and two sets of public reporting. "There may be some overlap in some back-office functions, but that's far down the road," Nemer comments.
Nemer didn't comment about the negotiation process between ARCP and CREI, pointing out that a proxy will be issued shortly that will offer more detail. He did acknowledge that both entities had been in quiet discussion over a period of many weeks to negotiate the best deal, and that the outcome was far better than what happened in April 2013.
"It was a different method, a different result and a terrific situation," Nemer says.
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