Capital Senior Living (NYSE: CSU) has faced activist shareholder pressure over the terms of a deal with Conversant Capital, first announced in July 2021, intended to raise up to $152.5 million. Now, Capital and Conversant have entered into an amended and restated investment agreement, involving major shareholders Arbiter Partners and Silk Partners, to raise up to $154.8 million.
The “significantly improved terms and structure enhance alignment with shareholders,” Capital stated in a press release issued Friday.
The new agreement includes:
— An $82.5 million private placement to a Conversant affiliate, consisting of $41.25 million of common stock at $25 per share and $41.25 million of newly designated Series A Convertible Preferred Stock. Previously, this private placement was to be entirely preferred stock.
— A $72.3 million rights offering of common stock to existing shareholders, priced at $30 rather than the original $32, with Conversant committed to backstop $50.5 million through common stock purchase at $30 a share, Silk committed to purchasing 100% of its pro rata share of common stock, and Arbiter committed to purchasing at least $5 million in common stock in the rights offering and to backstop $5 million through the purchase of additional common stock shares at $30.
“We appreciate the feedback we have received from our shareholders throughout this process and the collaborative approach taken by Conversant. We also welcome the support and participation of two of our largest shareholders, Silk Partners and Arbiter, and are pleased that they have decided this transaction is in the best interest of all Capital Senior Living shareholders,” Capital Senior Living CEO Kimberly Lody stated.
The Dallas-based provider also postponed its special meeting of shareholders to vote on this transaction; the meeting will now be held on Oct. 22 rather than Oct. 12.
The original deal led to backlash from shareholder Ortelius Advisors, which has argued that the transaction undervalues Capital while turning over too much control of the company to Conversant. Recently, Invictus Global offered to provide $150 million of capital “at a significantly lower cost” than Conversant.
Capital Senior Living’s leadership has said that the deal with Conversant is urgently needed, as the provider has looming debt maturities and rising operating expenses, while occupancy has been eroded due to Covid-19.
“Although terms of the Conversant deal has improved, it is still hard to know which side will prevail since Silk, Arbiter and CEO Kim Lody combined own 32% of outstanding shares whereas opposing shareholder Ortelius owns about 13% (majority is needed to approve the deal),” Stifel analysts observed. “Regardless, both sides acknowledged the long term value of an operating platform and the underlying senior housing properties.”
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