ARCP’s Schorsh on CCPT III: ‘We Wish Them Well, but We’re Out’

In an interview with CPE on Thursday, American Realty Capital Properties' chairman & CEO talked about his company's decision to back off from its aggressive pursuit of Cole Credit Property Trust III with a $9.7 billion bid.

Nicholas Schorsch, ARCP chairman & CEO

American Realty Capital Properties has backed off its $9.7 billion bid to take over Cole Credit Property Trust III, several days after CCPT III rejected ARCP’s third unsolicited offer and closed on the acquisition of its sponsor, Cole Holdings Inc.

“We wish them well, but we’re out,” ARCP chairman and CEO Nicholas S. Schorsch told Commercial Property Executive yesterday.

Schorsch said CCPT III’s actions during the process and decision to close on the merger just hours after it had rejected ARCP’s offer made it clear that its directors and management were not willing to explore a transaction with the New York-based REIT.

“I was surprised, not shocked, but surprised,” Schorsch said of the late-day announcement April 5 by CCPT III that the acquisition of Cole Holdings had been completed. “You don’t close a merger of that size in two hours or two days or a week and a half.”

Because some CCPT III shareholders have already filed suit against the CCPT III/Cole Holdings merger and others could be filed, Schorsch said he and ARCP management agreed they had to step away because of “possible economic, legal, reputational and other risks” that may follow the CCPT III/Cole Holdings deal. A lawsuit filed by some shareholders in Maryland seeking a temporary restraining order before the closing was denied last week, but Schorsch said he was concerned other legal action could occur.  

“This could be something that could tarnish our company. We can’t be mired in any of that,” he said.

ARCP, which owns more than 700 net-lease properties, had hoped to become the largest publicly traded net-lease REIT when it made its first offer March 20 to the CCPT III Board of Directors. The first bid was for about $9 billion and would have paid at least $12 a share or $5.7 billion in cash, stock and assumption of debt. CCPT III, which earlier in the month had announced it was merging with its sponsor Cole Holdings, rejected the first bid and said it was committed to closing the Cole Holdings deal. ARCP made a second offer on March 27 that included Cole Holdings and boosted the bid with an offer of $13.59 per share in stock or $12.50 in cash, pushing that proposal to about $9.7 billion. A third offer made earlier this month would have increased the cash portion of ARCP’s proposal from 20 percent to 60 percent.

“Our intentions were very obvious. We wanted to buy the company. It’s simply about what’s best for the shareholders,” Schorsch told CPE today.

CCPT III did not respond to any specific comments made in the ARCP press release today, but did issue its own statement noting that “recent public activities have highlighted, if nothing else, the industry leading nature and robust value of our portfolio and business model.”

The CCPT III release added that management remained “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.”

CCPT III, a Phoenix-based owner of nearly 1,000 net-lease properties, and its Special Committee stated several times throughout the nearly month-long drama that ARCP was undervaluing the company and that it was not in the best interests of the firm or its shareholders. CCPT III remained committed to the merger with Cole Holdings, a real estate management firm that manages more than $12 billion in assets.

Meanwhile, ARCP repeatedly blasted CCPT III and its Special Committee for not taking its proposals seriously and engaging in discussions or negotiations to learn more about the ARCP offers. Today, ARCP noted again that it has “repeatedly invited CCPT III to meet and constructively discuss its offer in an effort to create value for ARCP’s stockholders and provide CCPT III’s stockholders the surety of a transaction at a superior price with a seasoned public company, absent the price uncertainty and volatility of a public listing as currently favored by CCPT III’s Board.”

On April 5, just hours after rejecting ARCP’s third takeover bid, CCPT III said that the acquisition of Cole Holdings was completed and it would pursue the NYSE listing. The deal was for $20 million in cash and about 10.7 million shares of common stock along with other unspecified stock. Christopher H. Cole, founder and executive chairman of Cole Holdings, and other management were expected to get about $127 million in cash and stock once the merger occurred.

CCPT III has said all along that the Cole Holdings merger would provide the best deal for its shareholders and repeated that when it publicly announced the closing on April 5.

“We expect to drive additional value for stockholders by leveraging the accretive benefits associated with self-management – by the same real estate management platform that has acquired and managed the industry-leading real estate assets of CCPT III since its inception,” Leonard Wood, chairman of the CCPT III’s Board of Directors Special Committee, said in a news release.

Cole called the merger “a major milestone in the history of Cole Holdings and CCPT III.” He added that the team looked forward to “becoming one of the largest publicly-traded REITs in the net-lease sector and to providing enhanced dividend expansion and significant growth potential to our stockholders.”

As for Schorsch, now that the quest to acquire CCPT III is over, ARCP will move ahead with other ways to grow the business.

“We are focused on continuing to increase value for ARCP’s investors from our highly accretive property acquisition pipeline and other potential, significant strategic combinations,” Schorsch said, adding that the REIT purchased nine properties last week for $37.8 million.

“We have great prospects for other strategic combinations that are friendly and easy and don’t have all the attendant risks,” he said. “The Cole chapter is over.”