Western Asset Mortgage Capital Corporation will have to weigh its options as two real estate investment firms duel over it.
AG Mortgage Investment Trust, a publicly traded residential mortgage REIT managed by AG REIT Management, LLC., announced Thursday its desire to acquire Western Asset Mortgage Capital Corporation. Meanwhile, in late June, Terra Property Trust, another REIT, announced plans to merge with WMC for a combined book
Some analysts believe that AG Mortgage's acquisition proposal should be seriously considered by WMC, especially in light of a poor market reaction to news that WMC and TPT were merging.
AG Mortgage has offered to purchase WMC for an implied value of $9.88 per share, representing an 18.2% premium to WMC's closing share price as of July 12, 2023. The company in its recent proposal argues that combining two publicly traded REITS will "[create] significant business and cost synergies."
"It will present a value-enhancing investment opportunity for Western Asset Mortgage Capital's stockholders, which we believe is superior to the TPT transaction," wrote T.J. Durkin, CEO of AG Mortgage Investment Trust to WMC's members of the board.
In response to this, Terra Property Trust fired back on Thursday noting in a press release that its merger "represents the most compelling transaction for stockholders of WMC."
It urged WMC to "consider its fiduciary duty and its contractual rights under the TPT merger agreement and enter into discussions with us to finalize the terms of our proposed superior transaction." It included in its public announcement that if the merger is completed the implied per share consideration to WMC shareholders is $15.40, an 84% premium to WMC's share price as of July 12.
For now it is uncertain who Western Asset Mortgage Capital will ultimately choose. The company did not respond to a request for comment.
The merger transaction is expected to close between Western Asset Mortgage Capital and Terra Property Trust during the fourth quarter of 2023, subject to the respective approvals by the stockholders of TPT and WMC and other customary closing conditions.
Nonetheless, some analysts see the upside of WMC picking AG Mortgage's proposal.
A BTIG report reacting to AG Mortgage's proposal noted that "it's hard to gauge the likelihood of WMC accepting MITT's offer, but from a fiduciary standpoint…WMC's Board will need to strongly consider the proposal.
The investment banking company pointed out the negative market reaction to a merger between WMC and TPT, with stocks dropping 10% in the two weeks following the announcement.
"We expect MITT had been stalking the merger with TPT and was prepared with its proposal following the reaction in WMC's stock," BTIG's report said. "We think there could be some upside to MITT if it successfully acquires WMC given some better visibility around potentially maintaining the dividend."
Another investment bank pointed to the benefits of two companies in the same sphere coming together to form one. "Given the benefits of increased scale [if AG Mortgage acquires WMC], it could be quite accretive to earnings," a Keefe, Bruyette & Woods research note said.
