First Union common shareholders will receive either $2.55 per share in cash or $2.20 per share plus a pro-rata share of notes backed by the REIT's remaining real estate assets. The notes will be secured by a pledge of two loans, one on each of First Union's two remaining properties. One is a $3.5 million first leasehold mortgage on the Circle Tower office building in Indianapolis. The other is an approximate $16.5 million mezzanine loan on the Park Plaza mall in Little Rock, Arkansas. Both loans will bear interest at 11% payable in cash semi-annually in arrears.

Each note will have a face amount of $100, which is approximately $0.575 per share, and will bear interest at 11% per annum on its face amount. As a result, shareholders who elect to keep the note rather than the $0.35 cash alternative will in effect be paying approximately 60.9% of the face amount of the note. The notes will mature on May 31, 2010 concurrently with the underlying loans that secure them.

The $88.7 million transaction value is based on 100% of the company's common shareholders electing to receive $2.55 per share rather than $2.20 per share plus a share of the notes. In either case, dividends received prior to closing will be deducted from shareholder totals on a penny-for-penny basis. If the deal fails to close by Aug. 31 because of noncompliance issues on GGP's part, the share price will increase by 6% per annum.

Hershey, PA-based GGP, a subsidiary of Wall Street hedge fund Gotham Partners LP, and its affiliates will contribute their interests to the new company in exchange for stock. Gotham Golf will own 92.5% of the equity in GGP, and GGP management will own the remaining 7.5% under limited partnership agreements.

GGP was founded in 1996 with the acquisition of its first golf course. Today, the company owns and operates 25 courses, with 21 clustered within 250-miles of its Hershey headquarters. The Company primarily operates moderately priced daily-fee golf courses.

First Union, which previously held a portfolio of shopping centers, parking lots and office buildings, sold off most of its holdings to former CEO Daniel Friedman prior to the Gotham deal.

Representatives of Gotham and First Union were unavailable for comment regarding the transaction.

Instant Insights /

First Union REIT Inks $88.7M Merger With Gotham Partners

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