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RCAP and ARCP Settle Litigation for $60 Million

It’s official. Cole Capital (Cole) is staying put, for now. RCS Capital Corporation (RCAP) and American Realty Capital Properties, Inc. (ARCP) agreed to settle litigation over the terminated Cole transaction and avoid a business-interfering court battle. The split was initiated by RCAP after ARCP announced accounting irregularities that sent both companies’ stock prices downward.

To catch up on the story, be sure to read Oppenheimer Values Cole…

RCAP agreed to pay ARCP a break-up fee which consists of a $32.7 million cash payment and a $15.3 million, two-year promissory note. In addition, RCAP will forfeit a $10 million payment it made to ARCP in connection with the first closing, plus, release the publicly-traded REIT from a $2 million obligation for structuring services by a subsidiary, Realty Capital Securities, LLC, for dealings related to an earlier equity offering by ARCP.

“We are confident that this settlement is in the best interests of RCS Capital stakeholders. We believe the negotiation of a fixed-cost settlement clearly outweighs the potential expense and distraction of a drawn-out litigation process, enabling us to focus on the execution of our proven business strategy,” commented Michael Weil, Chief Executive Officer of RCS Capital, in a statement.

Where does this leave Cole Capital?

In a statement this morning, ARCP left the door open to seeking other alternatives for Cole. Given that many independent broker-dealers have suspended sales of Cole Capital non-traded REITs in addition to alternatives sponsored by AR Capital, LLC, an unaffiliated entity owned by Nicholas Schorsch, it may be some time before a buyer steps forward at a price close to the $700 million RCAP was willing to pay.

Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. have been hired to evaluate long-term alternatives for Cole that would provide the most value to ARCP. The two companies also assisted in the negotiations to settle with RCAP.

CEO of ARCP, David Kay, remains optimistic about the future.

“Today’s agreement is a positive outcome that serves the best interests of ARCP shareholders and our broader business, including our investment in Cole Capital. Our immediate plan is to stabilize Cole Capital, which we continue to believe is a valuable business, as we focus on creating long-term value and strengthening ARCP’s position as the leading company in the net lease REIT industry,” said Kay.