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Oppenheimer Values Cole at Almost Half of the $700 Million RCAP Agreed to Pay

In an analyst report issued last week by Oppenheimer, Cole Capital lost nearly 50% of its value, according to Steve Manaker, CFA and Amit Nihalani, CFA, the analysts listed on the report.

Cole Capital is owned by American Realty Capital Properties (NASDAQ: ARCP) (ARCP), a Nicholas Schorsch entity in which he is chairman of the board.

On October 1st, 2014, it was announced that ARCP would sell Cole Capital to another Schorsch controlled entity, RCS Capital (NYSE: RCAP), otherwise known by its ticker, RCAP, for $700 million in considerations.

October 1, 2014

ARCP Closing Price: $12.04

RCAP Closing Price: $23.81

Just 28 days later, on October 29th, ARCP announced that it had discovered accounting irregularities and certain staff knew of the errors, but chose to leave them uncorrected. The Wall Street Journal has reported that former Pennsylvania Governor Edward Rendell, who sits on the board of ARCP, says the incorrect numbers had to do with bonus payments rather than the business of buying and managing real estate.

October 28, 2014

ARCP Closing Price: $12.38

RCAP Closing Price: $19.76

October 29, 2014

ARCP Closing Price: $10.00

RCAP Closing Price: $16.99

With the stock price of RCAP being dragged down significantly by the ARCP debacle, on November 3, 2014 RCAP withdrew its offer to purchase Cole Capital.

November 3, 2014

ARCP Closing Price: $7.85

RCAP Closing Price: $13.69

Later in the day, ARCP fired back with a public statement of its own saying that RCAP has no suitable reason to back out of the deal.

“RCS [RCAP] has no right and there is absolutely no basis for RCS to terminate the agreement. Therefore, RCS’s attempt to terminate the agreement constitutes a breach of the agreement. In addition, we believe that RCS’s unilateral public announcement is a violation of its agreement with ARCP,” said ARCP in a statement.

November 4, 2014

ARCP Closing Price: $8.15

RCAP Closing Price: $10.91

Since these announcements, others have followed suit from the RCAP family of companies, issuing statements aimed at distancing themselves from ARCP.

Also, published reports indicate many major broker-dealers have suspended sales of Schorsch related non-traded investments, including those from AR Capital and Cole. On this list includes RCAP’s own Cetera Financial Group [Cole sales], LPL, Securities America, and Commonwealth, to name a few.

The Value of Cole

After meeting with ARCP executives David Kay, CEO and Michael Sodo, CFO, the Oppenheimer analysts issued an update on ARCP November 6, 2014. Included in the narrative, they place a value on Cole almost half of what RCAP agreed to pay.

“The sale of Cole to RCAP is up in the air and distributors are suspending sales. In our current NAV we give this business a value of $368 million, or about $0.40/share [of ARCP’s share price]. To be blunt we believe Cole isn’t that material to the value of the stock,” according to the Oppenheimer report.

Keep in mind ARCP’s financials have been called into question so this value could be quite different once revised, audited financials become available.

November 6, 2014

ARCP Closing Price: $8.64

RCAP Closing Price: $10.97

Today, just prior to 3pm EST

ARCP Closing Price: $8.52

RCAP Closing Price: $10.89

ARCP has made it clear they want to move forward with a sale of Cole. If RCAP does not buy the firm, would another buyer step in? If so, would Nick Schorsch let Cole go to a competitor?

One such firm could be NorthStar Asset Management (NorthStar).

During a recent earnings call, NorthStar executives did not dismiss the idea of purchasing Cole when suggested by an unrelated analyst. When asked if the $700 million was out of NorthStar’s league, they said no.