Annaly Capital to Buy Hatteras Financial for $1.5 Billion

  • Deal would help largest mortgage REIT diversify its holdings
  • Hatteras shares jump 10%, the most since August 2011

Annaly Capital Management Inc., the largest real estate investment trust that buys mortgage debt, agreed to purchase Hatteras Financial Corp. for $1.5 billion to expand and help diversify its holdings.

The offer values Hatteras at $15.85 a share. Annaly will acquire the Winston-Salem, North Carolina-based mortgage REIT using a combination of cash and its own shares, the companies said in a statement on Monday. The value represents a premium of about 24 percent to the 60-day volume-weighted average price of Hatteras’ stock, according to the statement.

“This strategic transaction represents a unique and sizeable value-creation opportunity for our shareholders,” Kevin Keyes, chief executive officer and president of New York-based Annaly, said in the statement. “With the acquisition of Hatteras, we significantly grow our diversified portfolio and broaden our investment options.”

Hatteras jumped 10 percent, the most since August 2011, to $15.68 at 10:27 a.m. New York time. Its shares have fallen 22 percent in the 12 months through April 8. Annaly slipped 1.6 percent to $10.24.

Value Discount

Mortgage REITs have been trading at discounts to the value of their assets. That makes it it hard for them to grow by raising additional equity, which would dilute existing investors’ holdings. Several mortgage REITs have announced this year they’d be consolidating into other related public entities. An acquisition such as Annaly’s purchase of Hatteras is more unusual in that both companies have external-management contracts, according to a note from Compass Point Research & Trading analysts led by Fred Small.

Armour Residential REIT Inc. said last month it planned to buy Javelin Mortgage Investment Corp., and Apollo Residential Mortgage Inc. announced in February it would merge with Apollo Commercial Real Estate Finance Inc. Zais Financial Corp. also said it was evaluating strategic alternatives including a possible sale or liquidation of the company.

A Bloomberg index of 40 mortgage REITs has lost more than 10 percent, included reinvested dividends, in the past year through April 8.

Hatteras, formed in 2007, owns and manages residential mortgage investments, primarily mortgage-backed securities secured by adjustable-rate loans on single-family homes. The deal is expected to close by the end of the third quarter.

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