American Realty Capital bids $9B for Cole Credit

American Realty Capital Properties Inc. on Wednesday made an unsolicited offer to buy fellow REIT Cole Credit Property Trust III Inc. for $9 billion in cash, stock and assumed debt.

New York-based ARCP is offering $12 per share in cash and stock for Cole's unlisted shares, valuing the target's equity at $5.7 billion, and will assume about $3.3 billion in debt. ARCP said the deal would create the largest publicly traded REIT in the net lease sector, with about 1,706 properties, 400 tenants and a strong investment-grade portfolio.

ARCP is proposing that $1.15 billion, or 20%, of the consideration be paid in cash and the balance in its shares, though the company said it would be willing to increase the cash portion to 40% of total consideration so long as the deal would still be considered a tax-free exchange for Cole shareholders.

Cole, of Phoenix, owns 1,000 single-tenant office, retail and industrial properties. The firm earlier this month said it would merge with Cole Holdings Inc., its external adviser, and seek a public listing soon after. Cole as an unlisted REIT is required to eventually find a path to return capital to shareholders.

ARCP chairman and chief executive Nicholas S. Schorsch in a letter to Cole's board said his firm's offer is superior to Cole's planned merger with its adviser because it can be accomplished more quickly and offers greater opportunity to Cole shareholders.

Schorsch said that prior to going public with the offer his firm communicated with Cole's advisers, but "we were surprised to not have received any response."

Schorsch warned that if Cole goes through with its merger with Cole Holdings, ARCP would be forced to reconsider its bid and could lower its offer.

ARCP said the cash portion of its offer is fully funded via cash on hand and borrowings under its existing line of credit. The company said its $12 per share offer provides a premium of 20% over Cole Credit's original $10 offering price.

Barclays plc and Realty Capital Securities LLC's RCS Capital are acting as ARCP's financial advisers. Proskauer Rose LLP's Peter Fass, Daniel Ganitsky, Andrew Bettwy, Glen Lim, Michael Ellis, Leon Volchyok and Andrea Hwang and Weil, Gotshal & Manges LLP's Michael Aiello, Matthew Gilroy, Sachin Kohli, Megan Pendleton and Danielle Barnes are serving as legal counsel to ARCP.

Sullivan & Cromwell LLP's Alison Ressler and Benjamin Weber advised Cole Holdings.