TPG Specialty Lending (TSLX), the publicly-traded BDC managed by alternative investment firm TPG, has submitted a stock-for-stock offer for TICC Capital Corp, a $1.05 billion BDC. Under the terms of the proposal made to TICC’s board of directors on 10 September, TICC stockholders would receive TSLX common stock equal to a 20 percent premium over TICC’s closing stock price yesterday (15 September).
TICC’s board has already rejected TSLX’s offer and said it plans to continue with the sale to Benefit Street Partners (BSP), which announced its plan to acquire TICC’s investment adviser in August. Though the sale has yet to be approved by TICC’s shareholders.
In a letter to the TICC’s board, TSLX co-chief executives Joshua Easterly and Michael Fishman said: “We are pleased to propose a transaction in which TICC would merge with a wholly owned subsidiary of TSLX, and each outstanding share of TICC common stock would be converted into the right to receive a number of shares of TSLX common stock that results in TICC stockholders receiving $7.50 in value per share as of the signing date of a definitive agreement, representing a 20 percent premium to the undisturbed trading price of TICC’s common stock as of 3 August.”
In announcement today (16 September) Easterly also said: “As TICC considers its future, we felt the timing was right to present our own proposal for a mutually beneficial transaction that would generate significant returns for stockholders of both organizations, as opposed to rewarding external managers. We believe that a core component of the value embedded in our offer is our industry-leading governance philosophy. We are among a select group of participants in the BDC sector that puts stockholders first and, as a result, we deliver best-in-class returns.” TSLX posted total returns of 14.7 percent in 2014, while the sector average was minus 7.5 percent, Easterly added.
He continued on to say he was disappointed that TICC’s special committee rejected the proposal so quickly but that TSLX will continue to pursue the merger.
A note on the proposal from Wells Fargo senior analyst Jonathan Bock said the merger would boost TSLX’s net asset value by 8 percent while increasing the firm’s equity earnings by $0.2 to $0.3 a share. Bock expressed surprise that TICC rejected the offer.
The BSP deal will provide cash compensation of about $60 million to TICC's external manager in favor of switching the contract to BSP, Bock noted, while no premium or share consideration was offered to TICC shareholders in that proposal.
“In our view, this rejection puts the board in a very tough predicament as the market may view this as a choice between paying substantial compensation to an underperforming external manager that is owned by two TICC board members or allowing TICC shareholders to receive an immediate return/ premium as well as NAV/NOI upside over the long term,” Bock wrote.
TSLX is now a 3 percent shareholder of TICC shares and will likely encourage TICC shareholders to vote against the BSP proposal in order to allow the TICC board to pick up discussions with TSLX, Bock added.
Goldman, Sachs is financial advisor to TSLX while Cleary Gottlieb Steen & Hamilton is acting as legal advisor.