Western Asset Mortgage Capital close to axing merger with TPT

Western Asset Mortgage Capital Corporation is considering dropping out of its merger agreement with real estate investment firm Terra Property Trust. The transaction was set to close during the fourth quarter of 2023.

AG Mortgage Investment Trust's competing acquisition proposal is superior, WMC announced Thursday. As such, Western Asset Mortgage Capital plans to terminate its planned merger with Terra Property Trust unless it receives a more preferable proposal from the REIT by Aug. 3. 

Specifically, WMC pointed out that the terms of AS Mortgage's proposal waived $2.4 million of management fees in the first year post-closing and that the conversion of WMC common stock into AG Mortgage common stock was advantageous.

The development comes after a duel unfolded between the two firms in early July over Western Asset Mortgage Capital.

Following the market reacting poorly to news of WMC and TPT merging, AG Mortgage expressed an interest in purchasing WMC for an implied value of $9.88 per share, representing an 18.2% premium to WMC's closing share price as of July 12, 2023.

The company in its proposal argued that combining two publicly traded REITS will "[create] significant business and cost synergies."

Analysts, including those at Keefe, Bruyette & Woods, seem to agree that AG Mortgage's proposal could be beneficial.

"Given the benefits of increased scale [if AG Mortgage acquires WMC], it could be quite accretive to earnings," a Keefe, Bruyette & Woods research note from mid-July said.

In response, Terra Property Trust urged WMC to "consider its fiduciary duty and its contractual rights under the TPT merger agreement and enter into discussions with us to finalize the terms of our proposed superior transaction." It included in its public announcement that if the merger is completed the implied per share consideration to WMC shareholders is $15.40, an 84% premium to WMC's share price as of July 12.

For now, the merger agreement between WMC and TPT "remains in full force and effect, and the WMC board has not withdrawn or modified its recommendation regarding the pending transaction with TPT," Western Asset Mortgage Capital said in its press release. 

"There can be no assurance that the proposal from MITT will result in a transaction," the company added.

AG Mortgage and Terra Property Trust did not respond to requests for comment.