BETHESDA, Md., May 23, 2016 /PRNewswire/ -- American Capital
Agency Corp. ("AGNC" or the "Company") (Nasdaq: AGNC) today
announced that it has entered into a definitive transaction
agreement to acquire American Capital Mortgage Management, LLC
("ACMM") from American Capital Asset Management, LLC ("ACAM"), a
wholly-owned portfolio company of American Capital, Ltd. ("ACAS")
(Nasdaq: ACAS). ACMM is the parent company of both American
Capital AGNC Management, LLC ("AGNC Manager"), the external manager
of AGNC, and American Capital MTGE Management, LLC ("MTGE
Manager"), the external manager of American Capital Mortgage
Investment Corp. ("MTGE") (Nasdaq: MTGE). The transaction was
approved by a committee of AGNC's Board of Directors comprised of
its independent directors (the "Special Committee").
Following the transaction, AGNC will be an internally-managed
residential mortgage REIT. MTGE Manager will be an indirect
subsidiary of AGNC and will continue to provide investment
management services to MTGE on an external basis under the existing
fee structure.
AGNC expects to pay total consideration of $562 million from cash on hand in connection with
the transaction, which is expected to close in the third quarter of
2016, subject to the satisfaction of closing conditions. No
termination fee will be payable by AGNC. ACAS and AGNC will
also enter into a transition services agreement at the closing,
pursuant to which ACAS will provide AGNC with certain services for
a period of approximately one year in exchange for certain payments
thereunder. AGNC intends to retain ACMM's current employee
base, including agency and non-agency investment, operations,
accounting, and treasury personnel, and to add additional headcount
as services previously provided by ACAS are internalized. In
addition, AGNC will earn management fees associated with its
management of MTGE post-closing.
Following the closing of the transaction, AGNC will no longer
pay management fees, which totaled $27
million in the first quarter of 2016 (or $108 million on an annualized basis), to
ACAS. AGNC expects to incur ongoing compensation and benefits
expenses associated with ACMM employees in the range of
$40-45 million on an annualized basis
upon the completion of its transition to a stand-alone company, as
well as potential modest increases in general and administrative
expenses, excluding non-cash amortization charges associated with
the transaction. These costs are expected to be partially
offset by the fee income payable by MTGE in accordance with its
management contract. In aggregate, excluding one-time charges
and other expenses associated with the transaction, the Company
would expect the transaction to provide a net cash economic benefit
of approximately $80 million per
year, assuming no change to the current equity bases of AGNC or
MTGE.
"We are very excited to be acquiring the investment management
function of AGNC and MTGE," said Gary
Kain, AGNC's Chief Executive Officer and President.
"On behalf of the entire senior investment team, we look forward to
continuing to deliver industry-leading performance for AGNC
shareholders. This transaction enhances AGNC's overall value
proposition for shareholders through the substantial cost savings
that will be realized over time from the elimination of the
management fee, net of incremental operating costs. Following
the consummation of the transaction and over the longer term, we
anticipate that AGNC will have one of the lowest run rate operating
cost structures as a percentage of shareholders' equity of any
residential mortgage REIT."
In connection with the transaction, the Company today also
announced changes to the composition of its Board of
Directors. Prior to the execution of the transaction
agreement, Robert M. Couch,
Randy E. Dobbs, John R. Erickson, Samuel
A. Flax and Alvin N. Puryear
resigned as directors of the Company. Following the
resignations, AGNC's Board is comprised of Gary Kain, Morris A.
Davis, Larry K. Harvey and
Prue B. Larocca, with Ms. Larocca
and Messrs. Davis and Harvey serving as independent
directors. In addition, AGNC's board has elected Ms. Larocca
as Chair of the Board. It is anticipated that Messrs.
Erickson and Flax will remain in their capacities as Executive Vice
President and Chief Financial Officer and Executive Vice President
and Secretary, respectively, of the Company through the closing
date of the transaction.
"AGNC's Board is very pleased about the acquisition of its
external manager and believes that this transaction positions the
Company to generate greater value for our shareholders over the
long term," commented Prue Larocca,
Chair of the Company's Board. "In the end, the ACAS strategic
review process provided us the opportunity to take this
transformative step to internalize the Company's management
function. Importantly, the transaction preserves the
continuity of our investment team, which will continue to be led by
Chief Executive Officer and President Gary
Kain, Senior Vice President and Chief Risk Officer
Peter J. Federico and Senior Vice
President, Agency Investments, Christopher
J. Kuehl, while significantly reducing AGNC's operating cost
structure. Together, these factors form a very strong foundation
for the Company, which we believe will continue to drive strong
risk-adjusted returns for our shareholders over the long
term."
Separately, ACAS and Ares Capital Corporation (NASDAQ:ARCC)
announced today that they have entered into a definitive merger
agreement under which Ares Capital will acquire ACAS.
In connection with the transaction, J.P. Morgan Securities LLC
acted as financial advisor to the Special Committee, and
Jones Day acted as legal counsel to
the Special Committee. Goldman Sachs & Co. and Credit
Suisse Securities (USA) LLC served
as financial advisors to ACAS. Skadden, Arps, Slate, Meagher
& Flom LLP served as legal counsel to ACAS and ACAM.
For further information, please contact Investor Relations at
(301) 968-9300 or IR@AGNC.com.
FORWARD LOOKING STATEMENTS
This press release contains
forward-looking statements, including statements regarding the
expected timing of completion of the proposed transaction, the
expected benefits of the proposed transaction, and management's
plans, projections and objectives for future operations.
Forward-looking statements are based on estimates, projections,
beliefs and assumptions of management of the Company at the time of
such statements and are not guarantees of future performance or
results. Forward-looking statements involve risks and
uncertainties in predicting future results and conditions.
Actual results could differ materially from those projected in
these forward-looking statements due to a variety of important
factors, including, without limitation, changes in interest rates,
changes in the yield curve, changes in prepayment rates, the
availability and terms of financing, changes in the market value of
the Company's assets, the occurrence of any event or change of
circumstances that could give rise to the termination of the
transaction agreement, the risk that the proposed transaction will
not be consummated in a timely manner or at all, the receipt of
regulatory approval or other closing conditions for the proposed
transaction, risks related to the disruption of management time
from ongoing business operations due to the proposed transaction,
the failure to realize the expected benefits from the proposed
transaction, general economic conditions, market conditions,
conditions in the market for agency securities, and legislative and
regulatory changes that could adversely affect the business of the
Company. Certain important factors that could cause actual
results to differ materially from those contained in the
forward-looking statements, are included in the Company's periodic
reports filed with the Securities and Exchange Commission
("SEC"). Copies are available on the SEC's website,
www.sec.gov. The Company disclaims any obligation to update
or revise any forward-looking statements based on the occurrence of
future events, the receipt or new information, or otherwise.
CONTACT:
Investors - (301) 968-9300
Media - (301) 968-9400
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SOURCE American Capital Agency Corp.