American Realty Withdraws $6.7 Billion Cole Credit Bid

American Realty Capital Properties Inc. withdrew its $6.7 billion buyout offer for Cole Credit Property Trust III after the company rejected the proposal and instead completed a deal to purchase its sponsor.

Cole Credit, a Phoenix-based nontraded real estate investment trust, declined repeated requests to discuss the offer, making it “clear that its directors and management are completely unwilling to explore a transaction with us,” Nicholas Schorsch, chief executive officer of New York-based American Realty, said today in a statement.

Cole Credit, owner of more than 900 mostly single-tenant U.S. properties, bought its management company, Cole Holdings Corp., on April 5, and plans to go public. Cole Holdings oversees more than $12 billion of real estate assets for about 160,000 individual investors. The purchase gives Cole Credit fee income from the other REITs that Cole Holdings manages.

“The economic, legal, reputational and other risks inherent in the internalization transaction, and the CCPT III board’s unwillingness to engage us, forces us to withdraw our offer,” Schorsch said in the statement.

American Realty rose 3 percent to $15.97 at the close in New York. It had bid $12.50 a share in cash or 0.80 a share of its common stock for each share of Cole Credit.

American Realty criticized the sponsor acquisition partly because Cole Credit shareholders weren’t able to vote on it.

Shareholder Lawsuit

Before the deal closed, shareholders of Cole Credit had asked a Maryland judge to block the transaction, claiming that a vote was required for completion of the deal. Cole Credit said that the lawsuit was “without merit.”

Cole Holdings’ sole stockholder is Christopher Cole, who is also chairman and chief executive officer of Cole Credit.

Cole Credit said American Realty’s bid undervalued the company and would have required unsustainable levels of debt. The Cole Holdings acquisition will provide investors better dividend growth through the added cash flow of new properties, while the public offering would give them flexibility to sell shares, Cole said April 5. The merger also will eliminate the expense of paying Cole Holdings to manage the REIT, Cole said.

“We remain confident that we are extremely well-positioned to drive long-term stockholder value and look forward to our anticipated listing on the New York Stock Exchange in June 2013, which will provide stockholders with a clear path to liquidity,” Cole Credit said today in a statement.

Cole Credit agreed to pay Cole Holdings $20 million in cash and 10.7 million shares of its stock upon the deal’s completion and another 2.1 million shares after a listing on the New York Stock Exchange, which is expected this quarter. The shares being paid upfront are subject to a three-year lock-up period, with one-third of the shares released each year, according to a March 6 statement.

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