The opposition for the proposed merger of Medley Capital Corporation (MCC) and Medley Management (MDLY) into Sierra Income Corporation grew larger this past weekend, mere days before the shareholder vote that is scheduled for the end of the week.
NexPoint Advisors submitted a counterproposal to MCC and MDLY that the bidder claims would save or create around $225 million in value when compared to the original plan backed by MDLY and MCC management.
NexPoint’s proposal contemplates the merger of MCC into Sierra but differs from the original by excluding MDLY from the equation entirely. The surviving business development company would be managed by NexPoint.
“The biggest difference is that the internal merger currently being proposed benefits MDLY management at the expense of MCC and Sierra stockholders,” a NexPoint spokesperson said in a statement to Private Debt Investor. “Merging MCC into Sierra makes sense; however, the treatment of MDLY in the current proposal presents a number of issues detrimental to MCC/Sierra stockholders.”
NexPoint’s bid outlines a surviving company that would have a reduced management fee of 1.25 percent annually, compared to 1.75 percent.
For their part, MCC and Sierra management are sticking by their initial proposal.
“In its consideration of the letter, the MCC Special Committee adhered to a rigorous and thorough review process, consistent with its fiduciary duty and in consultation with its independent legal and financial advisors,” Medley said in a statement released Monday.
“Following this, the MCC Special Committee unanimously recommended that the Board determine, and the MCC Board unanimously determined, that it is desirable and in the best interests of MCC and its shareholders to decline to pursue NexPoint’s so-called ‘proposal’,” the firm concluded.
The bid was sent to both the MCC and Sierra special committees formed for the merger process and initially went unanswered for over a week, according to a source familiar with the situation.
The firms declined to comment further.
NexPoint asserts that its proposal would protect over $125 million that MDLY’s proposal would have moved to MDLY shareholders.
NexPoint said it would also contribute up to an additional $100 million in value to shareholders. The bidder would pay $25 million of cash at closing, contribute $25 million through an updated fee structure and purchase up to $50 million of shares.
The proposal from MDLY features MDLY Class A stockholders and MDLY unitholders receiving 0.3836 Sierra shares and a $3.44-a-share cash consideration. The stockholders would receive a $0.65-a-share special dividend, while the unitholders would be paid $0.35 per share.
NexPoint’s letter also states that there are more than 24 million additional Class A shares that would be made available immediately prior to the transaction.
FrontFour Capital Group, an activist hedge fund and MCC shareholder voting against the MCC-backed merger plan, announced that proxy advisory firm Glass Lewis recommends voting against the proposed Medley merger. FrontFour owns approximately 3.7 percent of MCC shares and has been a vocal dissenter of the management-backed transaction.
The release states that Glass Lewis has many of the same concerns regarding the merger proposal as multiple MCC shareholders have publicly expressed, which include that the firm has not fully exhausted the potential options for selling MCC or maximised value for shareholders.
Another proxy advisory firm, Institutional Shareholders Service, however, did come out in favour of the original proposed merger.
Both Glass Lewis and FrontFour Capital were unable to be reached for comment by press time.
NexPoint Advisors is a Dallas-based firm that is an affiliate of Highland Capital Management. Medley Management is a New York-based asset management firm that has more than $4.8 billion in assets under management.