Sierra Income Corporation to Acquire Medley Capital Corporation
August 17, 2018 | Luke Schmidt | Blue Vault
On August 9, 2018, Sierra Income Corporation (“Sierra”), Medley Capital Corporation (“MCC”), and Medley Management Inc. (“Medley”) issued a joint press release announcing the agreements for Sierra to acquire both MCC and Medley. MCC will merge with and into Sierra, with Sierra as the surviving entity. Simultaneously, Sierra will acquire Medley, and Medley’s existing asset management business will operate as a wholly-owned subsidiary of Sierra. As a result, Sierra, as the surviving company, will be internalized. The boards of directors of Sierra, MCC, and Medley unanimously approved the transactions based on recommendations of independently advised special committees.
Under the terms of this transaction, MCC shareholders will receive 0.8050 shares of Sierra common stock for each share of MCC common stock. Medley Class A shareholders will receive 0.3836 shares of Sierra common stock for each Medley Class A share, $3.44 per share of cash consideration and $0.65 per share of special cash dividends.
Medley LLC unitholders have agreed to convert their units into Medley Class A common stock, and will receive nearly identical compensation as that received from Medley Class A common stockholders. The only exception is that they will only receive $0.35 per share as a special cash dividend as opposed to the $0.65 per share received by Class A common stockholders.
After the announcement of the proposed merger, MCC saw its closing share price jump from $3.38 on August 9 to $3.59 on August 10, a 6.2% increase. The share price closed even higher at $3.79 on August 16, a 12.1% increase from the closing price on August 9. Medley saw its closing share price increase from $3.50 on August 9 to $5.35 on August 10, a 52.9% increase. The price remained unchanged on August 16.
Based on Sierra’s published net asset value of $7.27 as of June 30, 2018, each share of MCC will be worth approximately $5.85 at the close of the merger, approximately 54% higher than the current trading price. Each share of Medley will be worth approximately $6.88 at the close of the merger, $4.09 in cash and $2.79 in share value, approximately 29% higher than the current trading price.
At close, current Sierra shareholders will continue to own shares of Sierra common stock. As a condition to closing these transactions, Sierra’s common stock will be listed to trade on the New York Stock Exchange and Sierra will remain a BDC. The only change relating to the current dividend policies of these entities comes from MCC terminating its dividend reinvestment program. Additionally, Sierra will be suspending its share repurchase program.
The mergers are cross conditioned upon each other and are subject to approval by Sierra, MCC, and Medley shareholders. The transaction is expected to close in the fourth quarter of 2018 or early 2019. These transactions currently have a $6 million termination fee to be paid in cash by any party who decides to exercise its right to terminate the merger agreement.
The combined company will have over $5.0 billion of assets under management, including $2.0 billion of internally managed assets. After closing, Sierra is expected to be the second largest internally managed BDC with approximately $2.0 billion in AUM, with Main Street Capital Corporation being the largest with approximately $2.4 billion in AUM. Sierra also projects to become the seventh largest publicly traded BDC.
Sources: SEC, Yahoo! Finance
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