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ARCP Files a Lawsuit Against RCAP

The feud between American Realty Capital Properties, Inc. (ARCP) and RCS Capital Corporation (RCAP) has just begun. Announced this morning, ARCP filed litigation in the Court of Chancery of the State of Delaware against RCAP for their purported termination of an earlier agreement to purchase Cole Capital.

On October 1st, 2014, the two firms announced a deal in which RCAP would purchase Cole Capital for $700 million in considerations. ARCP would continue to sub-advise Cole’s non-traded REITs and also earn additional fees based on overall performance.

On October 29, 2014, ARCP issued a statement that accounting irregularities were found and believed to have been known to exist, but ignored from the first and second quarters of 2014. This sent the values of both publicly traded ARCP and RCAP spiraling down. The firms are not related entities, but through ownership and employees, are thought of as connected.

Despite attempts by RCAP and many of its subsidiaries to distance themselves from ARCP, its stock price continued to plummet losing over 50% from October 1st.

On November 3rd, RCAP terminated its agreement to acquire Cole Capital. That same day, ARCP fired back that RCAP has no cause to back out of the deal.

“In the middle of the night, we received a letter from RCS Capital Corporation [RCAP] purporting to terminate the equity purchase agreement, dated September 30, 2014, between [RCAP] and an affiliate of ARCP. As we informed [RCAP] orally and in writing over the weekend, [RCAP] has no right and there is absolutely no basis for [RCAP] to terminate the agreement. Therefore, [RCAP’s] attempt to terminate the agreement constitutes a breach of the agreement,” said ARCP in a statement.

Just yesterday, ARCP’s Board of Directors, in an effort to protect investors’ interests, filed litigation against RCAP for breach of agreement.

In a statement this morning, ARCP offered, ““We continue to believe that RCS’s [RCAP] attempt to terminate the Purchase Agreement constitutes a breach of the Purchase Agreement. Under the circumstances, the independent members of the ARCP Board of Directors and ARCP had no choice but to file this litigation in order to preserve and protect the interests of ARCP’s shareholders under the Purchase Agreement.”

With close to a dozen reports of independent broker-dealers suspending sales of Cole non-traded REITs, revenues for the manager will certainly take a hit, making it less valuable to other prospective buyers if the deal with RCAP does not come to fruition.

The DI Wire reported earlier this week that analysts from Oppenheimer peg the value of Cole Capital at $368 million, almost half of the $700 million RCAP agreed to pay.