GNL and RTL Definitive Merger Agreement Slammed by Activist Investor Blackwells

Global Net Lease Inc. (NYSE: GNL) and The Necessity Retail REIT Inc. (NASDAQ: RTL) announced that they have entered into a definitive merger agreement, under which GNL will acquire RTL in an all-stock transaction. The announcement comes on the heels of a withering campaign by Blackwells against the REITs’ external manager, AR Global.

In October 2022, Blackwells originally charged AR Global with “corporate piracy of the highest order” and launched a proxy campaign to replace AR Global management and directors which resulted in lawsuits from both sides.

In a public statement, Blackwells founder Jason Aintabi slammed the two REITs for the merger, calling it a “deceptive effort” to avoid a potential defeat in the proxy contest.

“Shareholders should be on high alert that the compromised boards of GNL and RTL approved a deal that would arrogate a $375 million ransom payment to AR Global, Michael Weil, and Nick Schorsch in return for all the value they’ve destroyed. Blackwells strongly opposes the cockamamie merger, and expects most other shareholders to do the same,” said Aintabi.

In connection with the merger, GNL and RTL announced that they have entered into a definitive agreement that will result in the combined entity becoming internally managed, with the external asset and property management functions currently performed by affiliates of AR Global LLC being internalized. The combined internally managed company, which will operate as Global Net Lease, is expected to own and manage over 1,350 properties and have an aggregate real estate asset value of approximately $9.6 billion at the closing of the transactions.

RTL stockholders will receive 0.670 shares of GNL for each common share of RTL, which represents a total consideration of $7.08 per share based on share prices as of May 23, 2023, and a 35% premium to RTL’s 30-day volume-weighted average price. Following closing of the transactions, based on the stated fixed exchange ratio of 0.670, GNL stockholders are expected to own approximately 45% of GNL post-closing, RTL stockholders are expected to own approximately 39%, and the owner of the former external manager and its affiliates are expected to own up to 17%.

Pursuant to the internalization agreement, upfront consideration to AR Global will consist of $325 million of GNL stock and $50 million in cash. In connection with the transactions, the aggregate share ownership limit for the company’s charter will be reduced to 8.9%. In addition, GNL has granted a waiver to AR Global and certain owners thereof to own more than the 8.9% limit, effective at the closing of the transactions. After giving effect to the transactions, AR Global and its affiliates are expected to own up to 17%, effective immediately upon closing of the transactions.

The merger agreement provides RTL with a go-shop period of 30 days, during which the special committee of the RTL board of directors and its advisors may actively solicit alternative proposals from third parties, subject to certain limited exceptions.

GNL post-closing will also adopt “enhanced corporate governance practices.” In connection with the close of the transactions, GNL post-closing will opt out of the classified board provision of the Maryland Unsolicited Takeovers Act, declassify its board of directors, repeal the company’s stockholder rights plan, and amend bylaws that currently require up to two board members to be “managing directors.” The internalization is projected to generate approximately $54 million in annual cash savings and the merger is projected to generate approximately $21 million in annual cash savings realized within 12 months of transaction close, totaling approximately $75 million in expected annual savings.

Upon completion of the merger, the size of the GNL board of directors will be expanded to nine members, including the members of the current GNL board and three independent RTL directors. GNL’s current independent chairperson will remain in her position.

Current GNL chief executive officer James Nelson and current RTL chief executive officer Michael Weil will become co-chief executive officers. Weil will be the sole chief executive officer upon Nelson’s retirement in April 2024. Current GNL chief financial officer Chris Masterson will remain in his position with GNL post-closing.

The transactions were unanimously recommended by the special committees of the boards of directors of both GNL and RTL, comprised of independent directors, and approved by the full boards of directors. The transactions are expected to close in the third quarter of 2023, subject to the satisfaction of closing conditions and approval by the stockholders of GNL and RTL.

“The merger of Global Net Lease and The Necessity Retail REIT is an exceptional opportunity to build a premier global net lease portfolio with very attractive future prospects,” P. Sue Perrotty, chair of the GNL board of directors, said. “GNL Post-closing’s enhanced corporate governance is highlighted by a majority-independent, declassified board, as well as other enhancements that we are proud to institute. Combined with the internalization of management, we are realizing significant cost savings to our stockholders. I am honored to have the opportunity to lead an experienced and diverse group that is dedicated to building the long-term value of GNL.”

Blackwells Capital was founded in 2016 by Jason Aintabi and invests in public securities, ranging property development and management to REITs and adjacent real estate activities, including financing, origination, and managing real estate backed securities, including direct mezzanine and equity investments.

As of Dec. 31, 2022, Global Net Lease Inc. owned 309 properties consisting of 39.2 million rentable square feet, which were 98.0% leased, with a weighted-average remaining lease term of 8.1 years.

As of Dec. 31, 2022, Necessity Retail REIT Inc. owned 1,044 properties, comprised of 27.9 million rentable square feet, which were 93.7% leased, including 935 single-tenant net leased commercial properties, 897 of which are retail properties, and 109 multi-tenant retail properties.

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