FrontFour Capital Group and Medley Capital Corporation (MCC) have entered into a binding term sheet settlement to explore options other than the MCC management-backed merger.
As part of the agreement, MCC, a New York-based business development company, will hire an investment bank to assist in a 60-day go-shop period in which MCC would entertain other offers for the BDC. MCC will be marketed as a single entity rather than alongside Medley Management (MDLY), MCC’s external advisor, and Sierra Income Corporation, a private BDC related to MCC.
At the end of 2018, multiple MCC shareholders asked the BDC’s management to entertain other offers, with the shareholders stating MCC was undervalued in the original proposed merger and may be better valued on its own.
The term sheet with FrontFour “will form the basis of a definitive stipulation of settlement”, centred around an 11 March Delaware court decision.
In addition, MCC announced that FrontFour co-founder David Lorber and veteran financier Lowell Robinson, who has experience with corporate governance, have joined MCC’s independent board of directors. In addition, Lorber was named the chair of the independent special committee.
Robinson and Lorber will be up for reelection in 2020 and 2021, respectively. The settlement also fixes the size of the MCC board at seven members. FrontFour pledged to withdraw its board nominations slated for the 2019 shareholder meeting.
The agreement outlined stipulations for the creation of a fund that would give MCC shareholders additional payments. The stockholders would receive the distributions if the revised version of the original proposed merger passes a shareholder vote.
The fund includes $17 million in cash, contributed by FrontFour and other defendants in the lawsuit in the Delaware court, and $30 million worth of Sierra common stock shares. The shares would be given to MCC shareholders based on the pro forma net asset value of those shares reported in the future proxy supplement.
FrontFour and MCC have until 15 May to make these amendments to the merger agreement, or either party can terminate the term sheet. The settlement also extends the outside date for the merger to 31 October.
FrontFour has agreed to customary standstill restrictions and will vote in favour of amendments made to the merger agreement and will also vote in parallel with MCC board and the combined company board for any nominations to the board.
However, FrontFour, which currently owns more than 1.6 million MCC shares, remains able to vote its own position toward any publicly announced proposals that are not in connection with or inconsistent with the proposed MCC merger agreement.
Medley declined to comment beyond the release. FrontFour could not be reached for comment by press time.