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NexPoint Advisors Proposes Merger with Sierra Income Corporation and Medley Capital Corporation

February 4, 2019

NexPoint Advisors Proposes Merger with Sierra Income Corporation and Medley Capital Corporation

February 4, 2019 | Luke Schmidt | Blue Vault

On August 17, 2018, Blue Vault covered the potential acquisition of Medley Capital Corporation (“MCC”) and Medley Management Inc. (“Medley”) by Sierra Income Corporation (“Sierra”).  The companies issued joint press releases on August 9, 2018, detailing the agreements for Sierra to acquire both MCC and Medley, with Sierra as the surviving entity. The boards of directors of Sierra, MCC, and Medley unanimously approved the transactions based on recommendations of independently advised special committees.  The transactions were cross-conditioned upon each other and were subject to approval by Sierra, MCC, and Medley shareholders, with special stockholder meetings scheduled for February 8, 2019, to vote on the proposed transactions.

Related: Sierra Income Corporation to Acquire Medley Capital Corporation

On January 24, 2019, NexPoint Advisors, L.P. (“NexPoint”) submitted a proposal to the Special Committee of the MCC Board seeking consideration ahead of the February 8, 2019, special stockholder meeting on the merger.  NexPoint’s proposal offers a streamlined and simplified merger of MCC into Sierra while excluding Medley.  It advocates establishing a new investment advisory agreement between this merged entity and NexPoint.  According to NexPoint, the Special Committee failed to respond or even acknowledge receipt of NexPoint’s proposal, despite several follow-up attempts.  Following the non-response by MCC, NexPoint submitted its proposal to the Special Committee of the Sierra Board on January 31, 2019.

According to NexPoint, their proposed transaction would result in a net cumulative post-merger value in favor of MCC and Sierra stockholders of over $225 million. NexPoint claims the currently proposed transaction siphons $125 million of cash from Sierra and MCC to Medley at closing.  Additionally, NexPoint states the transaction is undervaluing MCC and Sierra while overvaluing Medley.

NexPoint claims their proposal retains all $125 million of cash and includes additional consideration of more than $100 million from NexPoint to the merged entity.  The additional $100 million comes from the following:

• $9 million in annual savings to stockholders over the next three years due to reduced asset management fees in accordance with an updated investment advisory agreement
• A $25 million payment from NexPoint to the merged entity
• Purchases by NexPoint of $50 million of shares of the merged entity, consisting of $5 million of shares per quarter over the next five quarters and an additional $25 million in purchases.

On February 2, 2018, both MCC and Sierra responded to the press release issued by NexPoint claiming it contained inaccurate statements and was misleading.  According to Sierra and MCC, NexPoint’s proposal does not offer $225 million of net value to MCC’s shareholders.  The special committee of MCC’s board of directors had previously received and reviewed the letter from NexPoint sent on January 24 before unanimously determining that it was in the best interests of its shareholders to decline to pursue NexPoint’s proposal.  The special committees of the boards of both MCC and Sierra have received the second letter from NexPoint sent on January 31 and are currently in the process of reviewing before responding to NexPoint.

Sources:  Blue Vault, SEC, Press Releases

To learn more about Highland Capital Management, L.P. or Medley Management Inc. go the Blue Vault Investment Manager page

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