Colony Financial, Inc. (NYSE:CLNY) and the parent company of its
manager, Colony Capital, LLC, today announced that the parties had
reached a non-binding agreement in principle with respect to certain
terms for the potential contribution to CLNY of substantially all of
Colony Capital's real estate and investment management businesses and
operations (the “Proposed Transaction”). The non-binding
agreement in principle contemplates that the combined company would be
led by Executive Chairman, Thomas J. Barrack, Jr. and Chief Executive
Officer, Richard B. Saltzman, and would employ the full management and
investment team of Colony Capital. The Proposed Transaction would
include the contribution of Colony Capital's management contracts for
its existing real estate and non-real estate funds and investment
vehicles, including all Colony Distressed Credit (CDCF) and Opportunity
funds, Colony Realty Partners funds (CRP) and other Colony debt and
equity co-investment and parallel (“side car”) investment vehicles, to
an operating subsidiary of CLNY. In addition, in the Proposed
Transaction, CLNY would have the right to conduct all future
Colony-branded investment activities going forward, including the
formation of real estate and non-real estate private investment funds,
and would own the Colony name and related intellectual property. The
non-binding agreement in principle also contemplates that only Colony
Capital's interests in Colony American Homes, which today announced it
has become a self-managed REIT, would not be included in the Proposed
Transaction.
Proposed Transaction Terms
The non-binding agreement in principle with respect to certain terms for
the Proposed Transaction has been negotiated on behalf of CLNY by a
special committee comprised of independent and disinterested members of
CLNY’s board of directors (“Special Committee”). No binding or
definitive agreement has been entered into with respect to the Proposed
Transaction, and there can be no assurance that any such agreement will
be reached between the parties. Any such definitive agreement must be
reviewed and approved by the Special Committee before CLNY could enter
into such agreement. Furthermore, the parties also contemplate and agree
in principle that, if binding and definitive agreement is reached with
respect to the Proposed Transaction, consummation of the Proposed
Transaction would be subject to prior approval by CLNY stockholders.
The Proposed Transaction would encompass Colony Capital's funds
management business and related assets, liabilities and personnel,
representing approximately $19 billion of assets under management
("AUM") and over $13 billion of equity under management ("EUM") as of
November 4, 2014, including CDCF III, which closed its final capital
raise in October 2014 at its maximum (“hard cap”) size of $1.2 billion,
excluding side cars. Following the Proposed Transaction, CLNY would be
empowered to form and invest as general partner in new funds under the
Colony name and, consistent with general market terms, would receive all
fees and 60% of the carried interest generated by such funds (rights to
carried interest relating to existing and legacy Colony Capital funds,
including CDCF III, are allocated to investment professionals and will
not be contributed to CLNY).
The form of consideration payable by CLNY in the Proposed Transaction
would be entirely in CLNY common stock and/or operating partnership
units (exchangeable for shares of CLNY common stock or their equivalent
in cash and to include associated voting rights), each with a reference
price of $22.05 for purposes of determining the number of shares and
units to be issued in the Proposed Transaction. The $22.05 reference
price is based on the higher of the (x) volume-weighted average closing
price of CLNY common stock over the 30 trading days prior to November 4,
2014 (the date prior to public announcement of the non-binding agreement
in principle) and (y) the third quarter 2014 board-approved CLNY $22.05
“fair value” per share included in today’s CLNY earnings release.
The aggregate consideration of up to $657.5 million would be payable as
follows:
-
fixed upfront consideration equal to approximately $547.5 million;
-
contingent consideration of up to approximately $110 million, subject
to multi-year performance targets for achievement of certain adjusted
funds from operation (FFO) per share targets, and capital raising
thresholds from the funds management businesses. If the minimum
performance target for either of these metrics is not met or exceeded,
the contingent consideration paid in respect of other metric would not
be paid out in full; and
-
up to $15 million of the contingent consideration would be reallocated
to upfront consideration if the volume-weighted average closing price
of CLNY common stock over the 10 trading days prior to the trading day
preceding the date of a shareholder vote in connection with the
Proposed Transaction were to exceed $24.05.
Pursuant to the non-binding agreement in principle, upon the
consummation of the Proposed Transaction, all of Colony Capital’s senior
executives would become employed by CLNY. In order to further
demonstrate their collective long term commitment to CLNY’s business, in
accordance with the terms of the non-binding agreement in principle,
Messrs. Barrack and Saltzman would enter into five-year employment
agreements, and certain other key senior executives would enter into
three-year employment agreements, and all such executives would each
enter into lock-up arrangements with CLNY, which, subject to certain
exceptions for estate planning, partial share pledges and tax-related
sales, would generally restrict them from transferring their respective
interests in CLNY operating partnership units and/or shares received in
connection with the Proposed Transaction over the same period as their
respective employment agreement terms, following the closing (if any) of
the Proposed Transaction (the locked-up shares would be ratably reduced
over such period). Messrs. Barrack and Saltzman also would enter into
non-competition arrangements with CLNY, each of which would provide for
clawback as to a material portion of the Proposed Transaction
consideration in the event such individuals violate the non-compete
restrictions during the same period as their respective lock-ups.
Rationale for the Proposed Transaction
Potential benefits of the Proposed Transaction (if binding and
definitive agreement with respect to the Proposed Transaction is reached
by the parties) include:
-
terms contemplated by the Proposed Transaction which CLNY believes are
financially attractive to its stockholders, including being accretive,
immediately and into the future
-
reduction in CLNY’s operating expenses, as a result of replacing
management fees paid to Colony Capital with directly incurred costs
-
enhanced simplicity by virtue of unifying all of CLNY's and Colony
Capital's investment activity and resources under a single,
transparent corporate structure;
-
increased alignment of interests by putting all activities and
employees within a single entity (to be renamed Colony Capital, Inc.)
-
affording CLNY shareholders the full expertise and investment
resources of Colony Capital, including professionals, investor
relationships and intellectual property;
-
enhanced revenue to CLNY from the addition of Colony Capital’s
in-place, fee-generating and promote-bearing arrangements with third
parties; and
-
greater diversity of future capital formation alternatives by virtue
of CLNY becoming the sponsor of new funds and investment vehicles in
which third party investors participate, thereby reducing reliance on
raising incremental shareholder capital.
Timing of the Transaction
CLNY and Colony Capital caution that no assurances can be made regarding
timing and/or certainty of binding and definitive agreement with respect
to the Proposed Transaction. If a definitive agreement were to be
approved by the Special Committee and entered into by CLNY and Colony
Capital with respect to the Proposed Transaction, subject to obtaining
approval of CLNY stockholders, Colony Capital and CLNY anticipate that
the consummation of the Proposed Transaction could occur by the end of
the first half of 2015.
REIT Status
Following the closing of a Proposed Transaction, if any, Colony Capital
and CLNY expect that CLNY would maintain its REIT status.
About Colony Financial, Inc.
CLNY is a real estate investment and finance company that is focused on
acquiring, originating and managing a diversified portfolio of real
estate-related debt and equity investments at attractive risk-adjusted
returns. CLNY’s investment portfolio and target assets are primarily
composed of interests in: (i) real estate and real estate-related debt,
including loans acquired at a discount to par in the secondary market
and new originations; and (ii) real estate equity, including single
family homes held as rental investment properties. Secondary debt
purchases may include performing, sub-performing or non-performing loans
(including loan-to-own strategies). CLNY has elected to be taxed as a
real estate investment trust, or REIT, for U.S. federal income tax
purposes.
About Colony Capital, LLC
Colony Capital is a privately held independent global real estate
investment firm and registered investment advisor headquartered in Los
Angeles, California and founded in 1991 by Thomas J. Barrack, Jr. The
firm has an extensive global footprint and corresponding infrastructure,
with over 300 direct employees operating in a total of fifteen offices
in ten countries including China, France, Germany, Italy, Lebanon,
Luxembourg, South Korea, Spain, the United Kingdom and the United
States. Over the past 23 years, Colony Capital has established 49
investment vehicles, including CLNY, global and domestic investment
funds, dedicated regional investment funds, listed securities, and
investment-specific co-investment vehicles, raising an aggregate of over
$24 billion of equity capital, which has been invested in most major
sectors of the domestic and international real estate markets and select
non-real estate transactions including media and entertainment. Over its
history, Colony Capital has acquired over 37,000 assets representing
over $60 billion in value.
Since 2008, Colony Capital has deployed over $10 billion in equity from
these and other affiliated vehicles, including over $2 billion of
institutional capital in its Colony American Homes platform which now
owns over 18,000 homes across the US. Most recently, in October 2014
Colony Capital completed the capital formation of its most recent
discretionary fund, Colony Distressed Credit and Special Situations Fund
III, L.P., a $1.2 billion vehicle focused on both foreign and domestic
real estate credit markets, as well as select equity opportunities.
Today, Colony Capital and its affiliates manage a portfolio on behalf of
over 300 institutional, high net worth, and sovereign wealth investors
of diversified real estate, real estate-related, and non-real estate
investments through 30 investment vehicles with combined AUM of $19
billion and EUM of over $13 billion.
Additional information regarding Colony Capital is available at its
website: www.colonyinc.com.
Advisors
In connection with the non-binding agreement in principle with respect
to certain terms relating to the Proposed Transaction, the Special
Committee has engaged Morgan Stanley as its financial advisor and
Wachtell, Lipton, Rosen & Katz as its legal advisor; CLNY has engaged
Hogan Lovells as its legal advisor; and Colony Capital has engaged
Goldman, Sachs & Co. as its financial advisor and Skadden, Arps, Slate,
Meagher & Flom LLP as its legal advisor.
Forward Looking Statements
This press release may contain forward-looking statements within the
meaning of the federal securities laws. Forward-looking statements
relate to expectations, beliefs, projections, future plans and
strategies, anticipated events or trends and similar expressions
concerning matters that are not historical facts. In some cases, you can
identify forward-looking statements by the use of forward-looking
terminology such as “may,” “will,” “should,” “expects,” “intends,”
“plans,” “anticipates,” “believes,” “estimates,” “predicts,” or
“potential” or the negative of these words and phrases or similar words
or phrases which are predictions of or indicate future events or trends
and which do not relate solely to historical matters. Forward-looking
statements involve known and unknown risks, uncertainties, assumptions
and contingencies, many of which are beyond the Company’s control, and
may cause actual results to differ significantly from those expressed in
any forward-looking statement. Among others, the following uncertainties
and other factors could cause actual results to differ from those set
forth in the forward looking statements: the risk that the parties do
not come to a binding agreement in respect of the Proposed Transaction;
the risk that the parties do not come to agreement with respect to the
terms of definitive documentation with respect to the Proposed
Transaction; the risk that, even if a binding agreement is reached, the
Proposed Transaction may not be consummated, is delayed, or may be
consummated in a manner different to the terms described in this
announcement; the risk that the definitive documentation relating to the
Proposed Transaction, if agreed by the parties, subsequently become
terminated thereafter; risks related to obtaining requisite consents and
approvals as may be part of the Proposed Transaction; the effect of the
announcement of the non-binding agreement in principle with respect to
the Proposed Transaction on CLNY’s or Colony Capital's business
relationships, operating results and businesses generally; and the
possibility that the share price of CLNY could decline either prior to
or after the consummation of the Proposed Transaction, reducing the
overall value proposition of the Proposed Transaction.
Furthermore, CLNY disclaims any obligation to publicly update or revise
any forward-looking statement to reflect changes in underlying
assumptions or factors, of new information, data or methods, future
events or other changes.
Copyright Business Wire 2014