Proposal disrupts WMC's merger deal with Terra Property Trust
AG Mortgage Investment Trust (MITT) has made a counteroffer for Western Asset Mortgage Capital (WMC) after it agreed to merge with Terra Property Trust’s (TPT) all-stock deal.
The Angelo Gordon-back REIT has submitted an unsolicited non-binding proposal to WMC’s board of directors to acquire the firm for an implied price of $9.88 per share, consisting of a stock consideration of $8.90 a share and cash consideration of $0.98 a share.
If successful, AG Mortgage’s proposal would block WMC’s proposed all-stock transaction with TPT. Under the deal, WMC and TPT expect to form a commercial real estate-focused REIT with approximately $1.2 billion in assets and $436 million of adjusted book value.
However, AG Mortgage president and CEO T.J. Durkin noted that WMC has seen a 10.1% decline in its share price since announcing its merger plans with TPT on June 28. Meanwhile, MITT said its offer represents an 18.2% premium to WMC’s closing share price as of July 12.
“Combining WMC and MITT, two publicly traded REITs, presents a value-enhancing investment opportunity for WMC’s stockholders, which we believe is superior to the TPT transaction,” Durkin wrote in a letter addressed to the WMC board.
AG Mortgage further outlined how its acquisition proposal offers WMC stakeholders a “substantial upside while eliminating many risks posed by the TPT transaction.” Benefits include:
- MITT’s stock trades on the NYSE with an observable value, while TPT’s shares are not listed and have never been valued by public markets through a stock exchange listing.
- There is no post-closing selling pressure, given MITT stockholders already have liquidity.
- WMC and MITT are highly complementary businesses, eliminating any need for strategy shift and creating significant business and cost synergies.
- WMC stockholders would receive a portion of the transaction consideration in cash.
- MITT’s proposal provides speed and certainty of closing.
- MITT’s proposal avoids accelerating payment of WMC’s convertible debt.
- MITT has strong support from external manager Angelo Gordon, a leading alternative investment firm with $73 billion of assets under management.
“We believe combining WMC with MITT would result in a focused, residential mortgage REIT with an optimized capital structure and significant growth potential and value-creating opportunities for the combined company’s stockholders,” Durkin said. “Our complementary core competencies in residential mortgage credit would establish an even more efficient and competitive company. Importantly, our proposal provides closing certainty and does not accelerate WMC’s convertible notes while also benefiting WMC stockholders, particularly given the cash consideration we describe in greater detail below, significant opportunities for cost synergies, and expected earnings accretion following the transaction’s close.”
TPT addressed the issue with a counterstatement clarifying several points about the merger in MITT’s proposal.
“TPT continues to believe that the TPT merger is a compelling combination and a unique opportunity to establish a diversified REIT that prioritizes capital preservation, maintains a robust balance sheet, and consistently generates attractive risk-adjusted returns for its shareholders,” the statement read. “TPT also believes that the TPT merger could be consummated more quickly and provides more certainty of execution compared to the MITT proposal. TPT’s merger agreement has already been negotiated and executed, and, for the reasons noted above, the voting agreement nearly guarantees a successful TPT stockholder vote.”
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