Ellington Financial to acquire Arlington Investment to boost scale, liquidity

cagkansayin

Mortgage REIT Ellington Financial (NYSE:EFC) has agreed to acquire Arlington Asset Investment (NYSE:AAIC), another mortgage REIT, in a deal that should increase scale and liquidity, the companies said Tuesday.

In addition, Arlington's (AAIC) portfolio aligns well with Ellington Financial's and its relatively low leverage should offer the opportunity to enhance returns by deploying additional capital in EFC's targeted asset classes, they said.

"We believe that the benefits of this acquisition include greater operating efficiencies, a larger market capitalization, and attractive long-term unsecured debt and preferred equity capital," said Ellington Financial (EFC) CEO Laurence Penn.

Under terms of the agreement, Ellington (EFC) will issue 0.3619 share of EFC for each share of Arlington (AAIC) common stock held, or ~11.7M EFC shares in total. Arlington stockholders will also get $3M in cash, or $0.09 per share, to be contributed by Ellington Financial's external manager.

The closing stock prices for Ellington Financial and Arlington on May 26, 2023 imply an offer price of $4.77 per share, representing a 73% premium to Arlington's share price on Friday, and a 15% discount to diluted tangible book value per share as of March 31, 2023.

Arlington Asset (AAIC) stock surged 50% Tuesday premarket trading and Ellington Financial (EFC) stock dipped 3.7%.

The acquisition is expected to add to Ellington Financial's (EFC) earnings in 2023 and to its book value within a year of closing. They also expect to improve operating expense efficiency by spreading fixed expenses over a larger equity base.

Upon completion of the deal, expected in Q4 2023, Ellington Financial (EFC) is expected to have pro forma equity capital base of more than $1.5B. Based on the closing price of EFC's common stock on May 26, the stimated pro forma market capitalization of the combined company would exceed $1.0B.

In March, SA analyst Pacifica Yield considered Ellington Financial's 16.7% yield paid monthly as risky.

Comments

[Keep it Country]

Thank you Scott and Colorado. Stayed long a strong for the duration on this call.

[parity]

@Keep it Country definitely the best outcome available in a bad situation. I wonder what happens with the preferreds with their cumulative unpaid dividends post acquisition?

[Topcat1]

@parity AAIC has been paying all dividends on the preferreds. They only stopped for the commons which they do not owe

[parity]

@Topcat1 Thanks. I am getting this confused with some other company.

[JackieDan]

YEAH! finally a good news

[elvisbeatlesfan2]

Congratulations to Scott Kennedy and members of The REIT Forum that followed Scott’s AAIC trades. It took awhile but finally a great payday.

[Ludicrous Speed]

@elvisbeatlesfan2 Definitely kicking myself for not hanging on but I got out slightly above even--- after the shareholder vote failed a while back, I just couldn't take it anymore and wanted to free up some cash.

[elvisbeatlesfan2]

@Ludicrous Speed I also sold most of my common shares but held all of my notes and preferred shares. I plan to hold my common through the closing and receive the cash and EFC shares but that’s subject to change. It will be interesting to see what Scott does with his shares.

[Ralco]

Congratulations to all that didn’t capitulate.

[Ralco]

Sigh of relief!

Holding AAIC was the ultimate pain trade.

[petergo007]

well, in the meantime until the deal closes, we earn interest on our AIC notes.

Expect them to redeem them at par $25

cheers

[User 58475577]

@petergo007 I bought a boatload on Friday... Really lucked out there

[Jb25]

@petergo007 i thought it acted off on friday. i was actually looking at adding more early last week. oh well.

[Citadel West]

@petergo007 there's nothing in the 'description of notes' section of the AIC prospectus about change of control requiring a redemption. While this acquisition is generally good news for note investors, I would not be expecting an early call

[Anthonyhai2003]

Finally, I can get rid of my AAIC shares….. 😭

[diy88888]

My AAIC.B, C will be early redeemed?

[AnimeSnoopy]

@diy88888
Doubt it. Probably you get a tender for $17 or so and after the deal finalizes they delist it for those who didn't accept.
If they are real rockstars like at BAM, they spin off the delisted pfd's into an over-levered entity which they then bankrupt to dispose of the debt.

Such is the life of a pfd investor ; )

[valueinvestor43]

@AnimeSnoopy I don't own PFDs here but I doubt EFC delists the PFD and does all that shady stuff. Some people care about their reputation, and top guys running Ellington have earned it over a few decades.

[AnimeSnoopy]

@valueinvestor43
Good luck buddy.

BAM is a bunch of nobodies for sure.
They definitely don't manage $800 billion or anything lol.

But seriously good luck... You're gonna need it.
Unfortunately I say this as someone who has obviously been screwed.
The regulators are to blame for making 90% of pfd's uninvestable due to such loopholes.
You just have no recourse and they have no reason not to do it.

[AnimeSnoopy]

You can buy AAIC for $4.20 right now.. hehe...