American Realty Capital Properties has settled with Nicholas Schorsch’s RCS Capital over its lawsuit related to RCAP’s termination of the deal to acquire Cole Capital. RCAP will pay a break-up fee of $32.7 million in cash and a two-year promissory note in the amount o $15.3 million.
“We believe the negotiation of a fixed-cost settlement clearly outweighs the potential expense and distraction of a drawn-out litigation process, enabling us to focus on the execution of our proven business strategy,” said Michael Weil, CEO of RCS Capital, in a statement.
As of 8:50 a.m. eastern time, RCAP’s stock price was up 7.7 percent in pre-market trading, while ARCP shares were down 0.43 percent in pre-market trading.
ARCP filed the lawsuit against RCAP last month, after RCAP called off the deal to purchase non-traded REIT sponsor Cole Capital from its sister company for $700 million. The deal was called off shortly after ARCP announced a $23 million accounting error.
As part of the settlement, ARCP will drop the lawsuit against RCAP, and the acquisition of Cole Capital won’t go through. In addition, ARCP will keep the $10 million payment related to the first closing, and the REIT provider will no longer be on the hook for a $2 million payment owed to RCAP subsidiary Realty Capital Securities. The payment was related to structuring services for ARCP’s May 2014 equity offering.
Schorsch, executive chairman of RCAP, jumped into the independent broker/dealer space with his purchase of First Allied Securities and The Legend Group, with 1,500 advisors, in June 2013. But since then, Schorsch has been on an acquisition tear, shocking the industry with the number of deals he’s penned. Today, his empire consists of 11 broker/dealers and 9,700 advisors, Girard Securities being the most recent acquisition.