American Finance Trust and American Realty Capital – Retail Centers of America Shareholders Approve Merger
Feb 17, 2017 | by James Sprow | Blue Vault
In a press release issued February 14, American Finance Trust announced the results of shareholder votes on the merger of American Realty Capital – Retail Centers of America into American Finance Trust. The press release stated:
“American Finance Trust, Inc. (“AFIN”) and American Realty Capital – Retail Centers of America, Inc. (“RCA”) announced today that, based on the final vote tally from each company’s special meeting of stockholders held earlier, stockholders approved the merger of RCA with and into AFIN. Pursuant to the terms of the merger agreement, dated September 6, 2016, AFIN will acquire all of the outstanding common stock of RCA at an exchange ratio of 0.385 AFIN common shares per RCA share, plus a cash payment equal to $0.95 per RCA share.”
“Of the votes cast and entitled to vote at AFIN’s stockholder meeting, approximately 87.27% were in favor of the merger transaction. In a separate vote for stockholders of RCA, the acquisition target, approximately 75.23% and 74.94% of votes cast and entitled to vote, representing approximately 50.21% and 50.02% of RCA’s outstanding shares, respectively, were in favor of the merger transaction and a related charter amendment. AFIN anticipates completing the merger in the coming days, subject to the satisfaction of customary closing conditions.”
In an unusually detailed and critical analysis of the proposed merger contained in a Special Report released January 3, 2017, Robert A. Stanger & Co. presented a multi-faceted critique of the proposed merger of the two nontraded REITs. The Report provided numerous reasons for shareholders to reject the merger proposal. Blue Vault summarized the critique in a NewsWire article on January 11.
Stanger issued another special report ripping the merger, the fourth such report dealing with the terms of the merger and casting doubt on both the ultimate value of the merger to RCA shareholders as well as the apparent conflicts of interest of the management of the two nontraded REITs. Among the criticisms was the language in the proxy statements that suggested a value to RCA shareholders of $10.26 per share, based upon a net asset value for AFIN shares and the 0.385 exchange ratio. With AFIN’s plans to list on the New York Stock Exchange, there is no guarantee that the net asset value per share of the combined company will be realized when a listing occurs. Further, Stanger pointed to the 20-year, virtually non-cancellable management agreement with AR Global and a potential internalization fee payable to AR Global of over $110 million.
“We will not be surprised to see AR Global monetize that contract sometime in the future in a huge payday by selling it to a third-party management company – a payday bought at the expense of the RCA investors,” said Stanger.
In colorful language, Stanger compared the merger to the “Valentines Day Massacre” in Chicago in 1929, coincidentally on the same date, February 14, as the shareholder vote. “The 2017 St. Valentine’s Day Massacre of the RCA shareholders is one for the ages in terms of assaults on the sensibilities of investors,” said Stanger. “The investors are now at the mercy of an apparently conflict ridden board and an onerous management agreement with a brutal exit clause that will likely overhang the value of the merged entity. The only remaining safety valve may be a pending class action lawsuit that may seek to recover the damages inflicted upon the RCA investors.”
RCA shareholders have filed a class action lawsuit alleging that the REIT’s officers and directors were soliciting shareholders’ approval through a materially false and misleading proxy statement, and in breach of their fiduciary duties. The plaintiffs are asking for a jury trial.
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The time (at Blue Vault's 2nd Annual Broker Dealer Educational Summit) proved extremely informative.