REIT fight: Western Asset agrees to merge with AG Mortgage after spurning Terra

AG Mortgage Investment Trust, Inc. entered into a definitive agreement Tuesday to merge with Western Asset Mortgage Capital Corp., beating its competitor Terra Property Trust, Inc.

AG Mortgage, a pure-play residential mortgage REIT controlled by Angelo, Gordon & Co. and owner of mortgage lender ARC Home, made a stock-and-cash offer for its peer Western Asset, managed by Franklin Resources, Inc. As a result, Western Asset terminated its previously-announced acquisition agreement with Terra Property. 

The AG Mortgage deal includes the payment of $10.11 per Western Asset common share and $1.12 in cash per share, representing a transaction value of $11.23 per share, a 34% premium on Western Asset’s closing stock price on the NYSE on July 12, 2023.

“Combining these highly complementary portfolios will help scale our platform, generate greater operational efficiencies, cost synergies, and accretive earnings growth, and benefit all stockholders,” T.J. Durkin, president and CEO of AG Mortgage, said in a statement. 

Last year, Western Asset, a non-qualified-mortgage player, announced it was exploring a potential company sale or merger after posting a $22.4 million net loss for the second quarter of 2022.

The dispute between AG Mortgage and Terra Property began two months ago. 

On June 28, Terra Property, managed by Mavik Capital Management, and Western Asset announced that they entered into a definitive agreement to merge in a book-for-book deal. The transaction valued Western Asset at $17.30 per share, but the REIT’s stocks traded down after the deal became public. Investors were skeptical about Terra Property’s share value since it’s a non-traded REIT. 

On July 13, AG made its first offer for Western Asset at $9.88 per share, including $0.98 in cash. The bid included an implied value of $8.90 per common share ($54.5 million in total) and $0.98 per share in cash to shareholders ($6 million in total). AG Mortgage waived $2.4 million in management fees in the first year after closing.

Terra Property then enhanced its proposal, offering an implied share price of $15.96 per share, including $1.43 per share and $8.75 million in cash, but Western Asset declined. 

Vik Uppal, chairman & CEO of Terra Property and Mavik Capital Management, expressed disappointment with the response to its proposal that he felt demonstrated “superior value.” “

“[Western Asset] requested additional changes that we were unwilling to make because they would not have been in stockholders’ best interests, ” Uppal said in a statement.  

Bonnie Wongtrakool, Western Asset CEO, said the merger with AG Mortgage delivers immediate cash value to Western Asset  stockholders and will let them continue to participate in the upside of the combined company.