Annaly Acquires MTGE for $900 Million

NEW YORK CITY—Locally-based mortgage REIT Annaly Capital Management, Inc. will acquire the Bethesda, MD-headquartered REIT, MTGE Investment Corp., in a cash-and stock transaction valued at $900 million.  The deal values MTGE at $19.65 per share of MTGE common stock based on the closing price of Annaly’s common stock on April 30, 2018.

MTGE shareholders will have an ability to choose cash, stock or a combination of cash and stock, subject to proration rules such that the aggregate transaction consideration will consist of approximately 50% of Annaly’s common stock and approximately 50% in cash.

In addition, Annaly will assume the existing notational $55 million in MTGE 8.125% Series A cumulative redeemable preferred stock.

MTGE’s special committee of independent directors recommended the merger, which then Annaly’s and MTGE’s boards of directors approved. The transaction is expected to close in Q3 2018.

“The acquisition of MTGE adds complementary assets across three of our four businesses, deepens the breadth of our investment alternatives, is accretive to earnings and provides immediate cost savings and efficiencies to shareholders,” says Kevin Keyes, chairman, CEO and president of Annaly. “This strategic acquisition further enhances our capital base to support continued growth of our investment platforms and creates tremendous value for both of our companies’ shareholders.”

Randy Dobbs, chairman and lead independent director of MTGE, said with the sale of the company, MTGE expects shareholders will benefit from the increased diversification, scale and liquidity of the Annaly platform.

Since its founding in 1996 and IPO in 1997, Annaly has become one of the world’s largest mortgage REITs, according to its 2017 annual report filed with the SEC. With $104.3 billion in assets, Annaly’s portolio includes securities, loans and equity in the residential and commercial markets.

MTGE Investment Corp. is a REIT that invests in and manages a leveraged portfolio of agency mortgage investments, non-agency mortgage investments and investments in triple net-leased healthcare real estate. The company is externally managed and advised by MTGE Management, LLC, an affiliate of AGNC Investment Corp.

This transaction will increase the equity base to over $14 billion to support continued growth of all investment businesses, diversification and optionality. Annaly noted MTGE’s portfolio complements its existing businesses and expands the number of investment options to 37. Following the transaction, Annaly will have 27% of its capital allocated to credit assets.

On May 3, Johnson Fistel, LLP launched an investigation into whether the MTGE board members breached their fiduciary duties with the proposed sale of the company to Annaly. The investigation concerns whether the board failed to satisfy its duties in adequately pursuing alternatives to the merger and obtaining the best price possible. The law firm is looking into whether the proposed deal of $19.65 per share of MTGE common stock is adequate consideration, claiming one Wall Street analyst has a $21.00 price target on the stock.

This is Annaly’s third acquisition since 2013, having a combined value of approximately $3.3 billion. 

Annaly’s Q1 2018 report noted a net income of $1.3 billion, $1.12 per average common share. This compared to $.62 per average common share in Q4 2017, and $.41 per average common share in Q1 2017. Annaly reported adjusted earnings for Q1 2018 of $.41 per share,

In the merger, Wells Fargo Securities, LLC and Sandler O’Neill + Partners, L.P. served as financial advisors and Wachtell, Lipton, Rosen & Katz were legal counsel to Annaly. Barclays Capital Inc. served as financial advisor and Cooley LLP was legal counsel to the MTGE special committee.