April 5 (Bloomberg) -- Cole Credit Property Trust III rejected a $6.7 billion buyout offer from American Realty Capital Properties Inc., saying the bid undervalues the company and requires “unsustainable” levels of debt.
“The result for stockholders would be a highly levered company with an unstable capital structure,” Cole, a Phoenix-based nontraded real estate investment trust, said in a statement today.
Cole Credit, owner of more than 900 mostly single-tenant office, retail and industrial properties, is trying to fend off American Realty while it plans to purchase its sponsor, Cole Holdings Corp., and go public. The acquisition would provide shareholders better dividend growth through the added cash flow of new properties, while the public offering would give them flexibility to sell their shares, Cole said today.
American Realty on March 27 bid $12.50 a share in cash or 0.80 a share of its common stock for each share of Cole Credit, raising an earlier offer. Three days ago, the New York-based firm said the cash payout would be capped at 60 percent, an increase from the previous 20 percent limit. Under the stock-payment plan, American Realty guaranteed to pay at least $13.59 for each Cole Credit share. The proposal is valued at about $9.7 billion, including the assumption of debt.
“The deal that we’ve proposed, and taking all the politics and distractions out of the conversation, is a very powerful transaction,” Nicholas Schorsch, chairman and chief executive officer of American Realty Capital Properties, said today in an interview before Cole issued its statement. “The combined company will be the largest net-lease REIT in the market.”
Schorsch said “it doesn’t make any sense” for Cole Credit to buy Cole Holdings, a securities company.
A Cole investment committee that studied American Realty’s proposal concluded that the cash bid of $12.50 a share reflected a 21 percent discount to Cole’s implied share value. The guarantee of 60 percent cash also would add about $8 billion of debt to American Realty’s balance sheet, according to Cole.
On top of that, “substantial additional cash would be required” for American Realty to meet its guarantee, Cole said. “How can ARCP bid to acquire a company with funding it does not have?”
American Realty also would have difficulty fulfilling its $13.59-a-share stock offer without selling additional shares and diluting its existing investors’ holdings, Cole said.
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