Thursday, October 24, 2013

2 Commercial Property Giants to Combine in $7.2 Billion Deal

Summary:  Cole Real Estate Investments has agreed to be acquired (along with $4 billion of Cole's debt) by American Realty Capital Properties in a $7.2 billion cash and stock deal that will combine two of the largest commercial real estate owners in the the US, after nearly seven months of negotiations.  This comes after American Realty spent the summer acquiring companies to increase its capitalization.


New York --(New York Times DealBook)--
American Realty Capital Properties and Cole Real Estate Investments, two of the largest commercial property owners in the country, are finally seeing eye to eye.

The two real estate investment trusts agreed to a $7.2 billion deal on Wednesday in which American Realty will buy Cole with a mix of cash and stock, bringing an end to tensions between the companies that have simmered much of the last yearThe combined company will be one of the biggest commercial landlords in the country, leasing space to companies including FedEx, AT&T, CVS, Walgreens and Home Depot. American Realty will also take on about $4 billion in debt from Cole.

The origins of the deal date to March, when American Realty made an unsolicited offer for Cole that would have derailed Cole’s move to go public. Cole rejected the offer and went on to list on the New York Stock Exchange. Since the listing in June, Cole shares have climbed more than 17 percent.

Nonetheless, American Realty still wanted to make a deal. It will pay 14 percent above Cole’s closing stock price on Tuesday of $12.82, and assume significant new debt in taking over the larger company.

“These two companies were meant to be together,” American Realty’s chief executive Nicholas S. Schorsch said in an interview. “This is a one plus one equals four or five scenario.”

Under the terms of the deal, Cole stockholders can choose either 1.0929 shares of American Realty stock, valued at $14.59, or $13.82 cash for each Cole share.

Commercial real estate investment trusts are in vogue right now because they pay almost no corporate taxes and return most earnings to investors through dividends, making them attractive stocks for investors to own.

Both American Realty and Cole operate in the lucrative “net lease” market, meaning they offer large and stable commercial customers long-term leases, and leave the maintenance and operations of the properties up to the tenants.

Over the summer, as Cole’s shares debuted on the public market, American Realty, which had been the smaller of the two companies, went on a shopping spree, acquiring several billion dollars in assets.

“These are two comparably sized companies now,” Cole’s chief executive Marc Nemer said in an interview. “The discussions this go round were friendly and were all about maximizing value for shareholders.”

As part of the deal, American Realty plans to increase its dividend to $1. And despite taking on additional debt, it expects its overall leverage ratio will come down by the end of next year.

American Realty shares were down 1.5 percent at midday on Wednesday.

“This was a once in a life time moment when you actually have a perfect storm for these two companies to come together,” said an ebullient Mr. Schorsch. “You can say put Ford and General Motors together, but it doesn’t always work. This really is a phenomenal union in a moment in time that may never come again.”

Barclays and RCS Capital advised American Realty, and Proskauer Rose provided legal advice. Goldman Sachs advised Cole, and three law firms — Wachtell, Lipton, Rosen & Katz; Venable; and Morris, Manning and Martin — provided legal advice. Christopher H. Cole, the chief executive of Cole, and other executives received legal advice from Sullivan & Cromwell.http://dealbook.nytimes.com/2013/10/23/2-big-commercial-property-owners-to-combine-in-11-2-billion-deal/

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