Game on: American Realty ups its bid for Cole III

American Realty Capital Properties Inc. on Wednesday sweetened its bid to take over Cole Credit Property Trust III Inc. The announcement immediately upped the stakes in a testy battle between two of the biggest players in the nontraded-REIT space. In a letter to the board of the Cole real estate investment trust, Nicholas Schorsch, chief executive of publicly traded American Realty Capital, offered not less than $13.59 per share in stock, or $12.50 in cash, for the REIT. The offers work out to a total value of more than $9.7 billion including the assumption of debt. American Realty Capital's initial buyout proposal from a week ago was for at least $12 in cash or stock for each Cole share, a valuation of just more than $9 billion. In its latest offer, ARC said it would also acquire Cole's management company, Cole Holdings Corp., as part of the merger. Mr. Schorsch said the revised bid is based on more-detailed operating data Cole released Monday in a filing with the Securities and Exchange Commission, as well as in response to Cole's claims that its own proposal to merge Cole Holdings with the Cole REIT could not be averted. “This offer is a floor of $13.59, and in [Cole's] filing, they already pegged [their proposal] at $13 to $15 … in a best-case scenario” after going public, Mr. Schorsch said in an interview. In its SEC filing Monday, Cole said the acquisition by the Cole Credit Property Trust of its management company would benefit shareholders of the newly combined entity. Cole also said that the initial proposal from ARC would result in 12% to 25% less for shareholders and result in a new entity with too much leverage. Those claims “are just crazy,” Mr. Schorsch countered. “We are actually one of the lowest-leveraged REITs.” A spokesperson for Cole did not have an immediate comment on the revised offer from ARC. Earlier this month, the Cole REIT, whose client roster includes Home Depot, Wal-Mart and Lowe's, made its offer to buy Cole Holdings, with a plan for the combined entity to go public. The controversial proposal included hefty “internalization” fees paid to Cole Holdings management. Mr. Schorsch said his new offer to buy Cole Holdings “allows a smooth and seamless transition” because founder “Chris Cole and his management team [are] getting paid.” He added that total internalization fees paid by Cole REIT shareholders to management would total about $165 million, not including additional fees based on performance. So far, Cole hasn't responded to American Realty Capital's offers. Mr. Schorsch alluded to the lack of contact in his letter today. “As you are well-aware, we again reached out to you, Cole Holdings' management and your advisers numerous times over the past few days, to no avail,” he wrote. “We continue to believe that at this point, negotiating in a public forum, although not our preference, is the only path available to us due to your refusal to engage with us privately.”