American Realty buys Cole Real Estate for $7bn

December 2013 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

On 23 October American Realty Capital Properties Inc announced that it had finally agreed a deal to purchase Cole Real Estate Investments Inc for around $7.2bn excluding debt. American Realty confirmed that the deal was valued at around $11.2bn including the assumption of debt. American Realty noted in a statement that the company has arranged around $2.75bn in financing from Barclays in order to complete the deal.

The amalgamation of the two firms comes after American Realty made an unsolicited approach to acquire Cole Credit Property Trust III Inc, a non listed real estate investment trust (REIT) in March. American Realty offered $6.7bn for the company but that bid was rejected. Instead, Cole Credit advanced with its plan to buy its management company and go public as Cole Real Estate.

According to a statement announcing the acquisition, American Realty offered 1.0929 common shares or $13.82 in cash to acquire each share of Cole. The stock offer is valued at $14.59 per Cole share, which represents a 14 percent premium over Cole’s closing price on 22 October. Both companies expect the deal to close in the first half of 2014. The transaction has been approved by the boards of Cole and American Realty but is still subject to customary closing conditions, including stockholder votes by both companies. “We are pleased to have reached this agreement with American Realty, which we believe provides compelling value and significant equity upside potential for Cole stockholders at a time when we believe the industry is consolidating,” said Cole founder and chairman Christopher Cole.

Once the deal has been completed, two of Cole’s existing independent directors will become additional independent directors of American Realty, subject to approval by the company’s existing board. “This merger represents a new beginning for former competitors, and we look forward to uniting two of the industry’s most talented organisations,” said Nicholas Schorsch, chief executive officer of American Realty. “Far more can be accomplished by these two great companies working together than either one could have hoped to achieve independently.”

The purchase of Cole is the biggest acquisition of a US REIT for over two years, and is the latest in a recent spate of deals agreed by American Realty. In July the company announced plans to acquire American Realty Capital Trust IV, a non-traded REIT managed by American Realty executives, for $3.1bn, and in May the company announced that it would buy rival CapLease Inc in a deal worth $2.2bn. American Realty also purchased two large portfolios of over 400 retail properties from GE Capital for a combined $807m in October. The deal for Cole is expected to achieve synergies of around $70m in the first year.

Once the acquisition of Cole has been completed the newly combined American Realty will boast a portfolio of 3732 properties across 49 US states and Puerto Rico. Corporate tenants such as Walgreen Co and CVS Caremark Corp pharmacies will be added to American Realty’s already considerable corporate portfolio. American Realty’s newly expanded portfolio will have over 600 different tenants, with around 47 percent of tenants investment grade. The merger of the two companies will create the largest net lease REIT with an enterprise value of $21.5bn.

Cole’s chief executive Marc Nemer added “This transaction brings together two high quality property portfolios managed by talented professionals serving investors, broker dealers and financial advisors.

Moreover, it underscores our commitment to creating diversified capital sources and income streams and the importance of net lease real estate. The combined company’s size, access to low cost equity and debt capital, broad-based institutional and retail ownership, and exceptional leadership and organization, will furnish ARCP considerable competitive advantage as the premier originator of net lease properties and consolidator of net lease companies.”

Richard Summerfield