CreXus Nixes Sternlicht’s Buyout Bid

NEW YORK CITY-The board of locally based CreXus Investment Corp. said late Monday afternoon it has voted against Starwood Property Trust’s unsolicited offer to acquire all of its outstanding shares of common stock at $14 per share, and Starwood Property Trust in a counter-statement said the offer would be withdrawn if CreXus went ahead with pricing a planned stock offering. The deal would have been worth approximately $250 million, based on the 18.1 million shares indicated in CreXus’ 2010 annual report.

“We intend to implement the proposed transaction so that CreXus would become a wholly owned subsidiary of Starwood,” Starwood Property Trust CEO Barry Sternlicht wrote in a letter to the CreXus board that was made public Monday. He wrote that such an acquisition would create the largest US commercial mortgage REIT by equity market capitalization, while for CreXus stockholders it would represent a 17% premium over the closing price on CreXus stock as of this past Friday and a 20% premium on the stock’s $11.68 trading price as of Monday morning.

Although Sternlicht wrote that his Greenwich, CT-based company’s offer was “unconditional,” in fact it would be contingent upon the CreXus board suspending its current equity offering to finance a buy of $586 million of debt backed by commercial property assets from Barclays Capital announced last week. Suspending that common stock offering “would prevent CreXus from fulfilling one of the conditions to the Barclays transaction,” the CreXus board of directors said in a statement before Monday afternoon's vote. Later, the board announced that it's going ahead with the stock offering, and Starwood Property Trust announced that its offer would be terminated if the stock offering were priced. Late Monday afternoon, CreXus announced pricing of $11.50 per share.

In a release issued when the letter to the CreXus board was made public, Sternlicht details his company’s qualms about the Barclays portfolio. It’s unusual, he says, in that approximately $419 million of the $739 million face value of the loans will reach maturity before the end of 2011. “Based on the scale of CreXus’ asset base, we would be concerned that the maturity of these loans would cause CreXus’ dividend to fall, perhaps significantly, until new investments could be acquired or made,” he says.  

The letter to the CreXus board noted that Starwood Property Trust was “potentially supportive” of the Barclays deal and intended to help CreXus honor its obligations, “if possible.” However, Sternlicht wrote that his company believes “there are alternative financing options that would not take the form of a dilutive issuance of CreXus stock. With respect to the Barclays transaction, we could complete diligence in less than five business days. However, our offer for CreXus is not contingent upon the consummation of the Barclays transaction.”

As reported last week by GlobeSt.com, the Barclays portfolio consists of 30 commercial assets including mortgage loans, subordinate notes and mezzanine loans. The stock offering entails approximately 50 million common shares, with a 30-day option for underwriters to buy up to 7.5 million additional shares of common stock to cover overallotments.

CreXus’ board said earlier Monday that it was evaluating Sternlicht’s offer both in terms of whether there’s any interest in pursuing it and “in light of the issues the Starwood proposal would pose with regard to the Barclays transaction.” For his part, Sternlicht in his letter to the CreXus board added that CreXus’ scale and its “orientation to purchasing debt, as opposed to having an origination platform, have caused its shares to historically trade at a discount to book value. Starwood has increased dividends to its shareholders in every quarter since its formation in August 2009.”