Sierra Income Corporation, a non-traded business development company, Medley Capital Corporation (NYSE: MCC), a publicly traded BDC, and Medley Management Inc. (NYSE: MDLY), an affiliated alternative asset management firm, have amended their merger agreements after the Delaware Court of Chancery ruled in April that Medley Capital’s directors breached their fiduciary duties in entering into the proposed merger and halted the vote until investors were provided with corrective disclosures on the deal.
Sierra, a non-traded BDC, plans to merge with Medley Capital and then acquire Medley Management, with Sierra being the surviving company that would be structured as a publicly-traded BDC. Medley Capital and Sierra are both controlled by Medley Management. Following the closing, Sierra will be the surviving entity and operate as an internally managed business development company.
The combined company will have approximately $4.7 billion of assets under management, including $1.8 billion of internally managed assets, and is expected to be the third largest internally managed BDC and the 13th largest publicly traded BDC by assets.
The company said that the transaction is expected to be accretive to net investment income per share for both Sierra and Medley Capital and increase share trading liquidity for stockholders of the three companies.
Eariler this year, a significant shareholder, FrontFour Capital, filed a stockholder class action lawsuit accusing Medley Capital and its board of breaching their fiduciary duties to shareholders in connection with the proposed merger. The lawsuit sought to block the merger vote and enjoin enforcement of certain provisions of the merger plan.
As part of the settlement terms, the Sierra/Medley Capital merger agreement now includes a 60-day “go shop” process to solicit alternative transactions to the merger. In addition, a settlement fund was created for eligible class members.
Medley Capital stockholders will receive 0.66x to 0.68x shares of Sierra common stock for each share of MCC common stock. In addition, the eligible class members will participate pro rata in a settlement fund consisting of $17 million of cash and $30 million of Sierra common stock.
Medley Management Class A stockholders, other than Medley LLC unitholders, will receive 0.2668 shares of Sierra common stock for each Medley Class A share and $2.96 per share of cash consideration.
Medley LLC unitholders have agreed to convert their units into MDLY Class A common stock immediately prior to closing and will receive 0.2072 shares of Sierra common stock for each MDLY Class A share and $2.66 per share of cash consideration. As part of the transaction, Medley LLC Unitholders have agreed to forgo all payments that would be due to them under the existing tax receivable agreement with Medley for the benefit of the combined company.
Additionally, Medley LLC unitholders will roll over 100 percent of their after-tax equity value into the combined company, which will be subject to a 12-month lock-up period.
At close, current Sierra stockholders will continue to own shares of Sierra common stock, which will be listed to trade on the New York Stock Exchange and the Tel Aviv Stock Exchange.
The mergers are subject to approval by stockholders, regulatory approval, other customary closing conditions and third-party consents. The Sierra/Medley Capital merger requires court approval of the stipulation of settlement.
The transactions are expected to close in the fourth quarter of 2019.