NexPoint Affiliate Demands Medley Capital Corporation Records Regarding Proposed Merger
March 1, 2019 | James Sprow | Blue Vault
On February 28, Highland Select Equity Master Fund LP, an affiliate of NexPoint Advisors LP, accused Medley Capital Corp.'s board of preventing its shareholders from voting against its proposed merger into Sierra Income Corp. when it cancelled a scheduled February 8 shareholder meeting.
Highland Select demanded Medley Capital make its books and records available for inspection as part of an investigation into the cancellation, which it said benefited Medley Management Inc. and its shareholders at the expense of Medley Capital's shareholders.
Medley Capital's board said it cancelled the meeting due to the recent U.S. government shutdown, which allegedly prevented the government from reviewing certain filings needed to effect the merger. Highland Select claims the government did not actually need to review those forms and that by unilaterally changing the company's charter to allow the board to adjourn the meeting without the approval of company shareholders, Medley Capital was attempting an "end-run" around certain requirements in order to prevent shareholders from voting against the merger.
The deal involves Medley Capital merging into Sierra Income Corp. and Sierra Income acquiring Medley Management. NexPoint Advisors submitted a proposal which would retain the merger of Medley Capital into Sierra Income but have Sierra Income enter into an advisory agreement with NexPoint Advisors instead of Medley Management. The proposal claims it would bring more than $225 million in net cumulative post-merger value to Medley Capital and Sierra Income shareholders.
Medley Capital and Sierra Income's boards said the $225 million figure was "unsubstantiated and misleading" and that NexPoint Advisors and parent company Highland Capital Management Fund Advisors LP have a "concerning track record as fiduciaries."
NexPoint Advisors reiterated its advice to Medley Capital to accept its proposal. The company also said it will nominate two independent directors to Medley Capital's board to force it to honor its fiduciary duties to shareholders.
NexPoint Advisors LP reiterated its advice to Medley Capital Corp. stockholders to vote against Medley's merger with Sierra Income Corp., while acquiring Medley Management Inc. under the combined entity.
NexPoint pointed out that the proposal siphons more than $100 million in cash from the surviving company and the stockholders of Medley Capital, in favor of Medley Management stockholders, among other issues.
If the merger is not approved by Medley Capital stockholders, NexPoint will nominate two independent directors at the annual meeting of Medley Capital stockholders, who can force the company's board to honor its fiduciary duties to stockholders.
Sierra Income Corporation was organized on June 13, 2011 and is an externally managed non-traded BDC that commenced operations through the initiation of a continuous public offering in April 2012. As of September 30, 2018, Sierra had total assets of approximately $1.1 billion and its net asset value (“NAV”) per share was $7.05.
Medley Capital Corporation (“MCC”) is an externally managed BDC that commenced operations following completion of its IPO in January 2011. As of September 30, 2018, MCC had total assets of approximately $742 million, NAV per share of $5.90, and its closing market price on the NYSE was $3.82. MCC Advisors, a wholly controlled subsidiary of Medley Management Inc., is the investment adviser to MCC. The MCC Board currently consists of seven members, four of whom are Independent Directors.
Sources: SEC, S&P Global