− Transaction Provides Increased Scale and
Enhanced Access to Capital Markets –
− Aligned Platforms and Capital Expected to
Drive Earnings Accretion and Sustained Long-Term Growth −
Ellington Financial Inc. (NYSE: EFC) (“Ellington
Financial”), a real estate investment trust investing in a
diverse array of financial assets including residential and
commercial mortgage loans, and Arlington Asset Investment Corp.
(NYSE: AAIC) (“Arlington”), a real estate investment trust that
invests primarily in mortgage-related and other assets, announced
today that they have entered into a definitive merger agreement
pursuant to which Ellington Financial will acquire Arlington. Upon
completion of the acquisition, Ellington Financial is expected to
have a pro forma equity capital base of over $1.5 billion.
Under the terms of the merger agreement, (i) each share of
Arlington common stock will be converted into 0.3619 shares1 of
Ellington Financial common stock, or approximately 11.7 million
shares of Ellington Financial common stock in the aggregate, and
(ii) Arlington common stockholders will also receive $3 million in
cash in the aggregate (or $0.09 per share) to be contributed by
Ellington Financial’s external manager. The respective closing
stock prices for Ellington Financial and Arlington on May 26, 2023
imply an offer price of $4.77 per Arlington share, representing a
73% premium to Arlington’s share price on May 26, 2023, and a 15%
discount to diluted tangible book value per share2 as of March 31,
2023. Upon the closing of the acquisition, Ellington Financial
stockholders are expected to own approximately 85% of the combined
company’s stock, while Arlington stockholders are expected to own
approximately 15% of the combined company’s stock. In addition,
Ellington Financial will assume Arlington’s outstanding preferred
equity, senior unsecured notes and trust preferred securities.
Based on the closing price of Ellington Financial’s common stock
on May 26, 2023, the estimated pro forma market capitalization of
the combined company would exceed $1.0 billion. The combined
company will operate under the name “Ellington Financial Inc.” and
its shares will continue to trade on the NYSE under the existing
ticker symbol “EFC”. Ellington Financial Management LLC, an
affiliate of Ellington Management Group, L.L.C., will continue to
manage the combined company.
“We are extremely excited about the opportunity to add a
significant portfolio of assets – particularly low-coupon mortgage
servicing rights – that align very well with our expertise and
existing management platform,” stated Laurence Penn, Ellington
Financial’s Chief Executive Officer. “We believe that the benefits
of this acquisition include greater operating efficiencies, a
larger market capitalization, and attractive long-term unsecured
debt and preferred equity capital. Upon closing, we believe that we
will be positioned well to drive accretive earnings growth and
provide strategic and financial benefits to our stockholders.”
“We are thrilled to combine AAIC with the Ellington Financial
team to make a combined company that we believe will be positioned
to take advantage of opportunities into the future,” said J. Rock
Tonkel, Jr., Arlington’s Chief Executive Officer. “This transaction
combines two complementary portfolios, and we look forward to
working closely with the Ellington Financial team to complete the
acquisition and deliver value for our stockholders.”
Anticipated Benefits to Ellington Financial and Arlington
Stockholders from the Acquisition:
- Capital to Fund Growth Going Forward: Increased scale
and liquidity to further capitalize on opportunistic investment
environment.
- Strategically Compelling: Arlington’s investment
portfolio aligns well with Ellington Financial’s portfolio, and its
relatively low leverage should provide meaningful opportunity to
enhance returns by deploying additional capital in EFC’s targeted
assets classes.
- Accretive to Earnings and Long-Term Growth: Anticipated
to be accretive to Ellington Financial’s earnings in 2023 and
accretive to Ellington Financial’s book value within one year of
closing, with enhanced long-term growth potential.
- Increases in Operational Efficiency: Anticipated
increase in operating expense efficiencies as a result of fixed
expenses spread over a larger equity base.
- Desirable Target Capital Structure: Arlington’s capital
structure includes unsecured debt and preferred equity with
attractive costs of capital.
- Increased Market Capitalization and Liquidity: Estimated
pro forma market capitalization of approximately $1 billion (based
on the closing price of EFC common stock on May 26, 2023) expected
to enhance liquidity of EFC common stock and provide more efficient
access to capital markets.
Additional information on the transaction and the anticipated
effects on Ellington Financial can be found in Ellington
Financial’s investor deck relating to the acquisition posted on
Ellington Financial’s website. The investor deck is also being
furnished by Ellington Financial in a Current Report on Form 8-K
being filed by Ellington Financial with the Securities and Exchange
Commission (the “SEC”) on the date hereof.
Management, Governance and Corporate Headquarters
Upon completion of the acquisition, Ellington Financial’s Chief
Executive Officer and President, Laurence Penn, will continue to
lead the combined company, and Ellington Financial executives
Michael Vranos, Mark Tecotzky, and JR Herlihy will remain in their
current roles. The combined company will remain headquartered in
Old Greenwich, Connecticut. The Board of the combined company is
expected to expand to six directors through the addition of one
Arlington-designated director.
Timing and Approvals
The transaction has been unanimously approved by the Boards of
Directors of Ellington Financial and Arlington. The transaction is
expected to close in the fourth quarter of 2023, subject to the
approval by Arlington’s stockholders and other customary closing
conditions.
Advisors
Keefe, Bruyette & Woods, A Stifel Company is acting as
exclusive financial advisor and Vinson & Elkins is acting as
legal advisor to Ellington Financial. Wells Fargo Securities is
acting as exclusive financial advisor and Hunton Andrews Kurth LLP
is acting as legal advisor to Arlington.
ADDITIONAL INFORMATION ABOUT THE MERGER
In connection with the proposed merger, Ellington Financial
intends to file a registration statement on Form S-4 with the SEC
that will include a proxy statement of Arlington and a prospectus
of Ellington Financial. This communication is not a substitute for
the registration statement, the proxy statement/prospectus or any
other documents that will be made available to the stockholders of
Arlington. In connection with the proposed merger, Ellington
Financial and Arlington also plan to file relevant materials with
the SEC. STOCKHOLDERS OF ARLINGTON ARE URGED TO READ ALL RELEVANT
DOCUMENTS FILED WITH THE SEC, INCLUDING THE RELEVANT PROXY
STATEMENT/PROSPECTUS, WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. A
definitive proxy statement/prospectus will be sent to Arlington’s
stockholders. Investors may obtain a copy of the proxy
statement/prospectus (if and when it becomes available) and other
relevant documents filed by Ellington Financial and Arlington free
of charge at the SEC’s website, www.sec.gov. Copies of the
documents filed by Ellington Financial with the SEC will be
available free of charge on Ellington Financial’s website at
http://www.ellingtonfinancial.com or by contacting Ellington
Financial’s Investor Relations at (203) 409-3575, as they become
available. Copies of the documents filed by Arlington with the SEC
will be available free of charge on Arlington’s website at
www.arlingtonasset.com or by contacting Arlington’s Investor
Relations at (703) 373-0200.
PARTICIPANTS IN SOLICITATION RELATING TO THE MERGER
Ellington Financial and Arlington and their respective directors
and executive officers and certain other affiliates of Ellington
Financial and Arlington may be deemed to be participants in the
solicitation of proxies from Arlington stockholders in connection
with the proposed merger.
Information about the directors and executive officers of
Arlington is available in its Form 10-K/A, which was filed with the
SEC on May 1, 2023. Information about the directors and executive
officers of Ellington Financial is available in the proxy statement
for its 2023 annual meeting of stockholders, which was filed with
the SEC on April 6, 2023. Other information regarding the
participants in the proxy solicitation and a description of their
direct and indirect interests, by security holdings or otherwise,
will be contained in the proxy statement/prospectus and other
relevant materials filed with the SEC regarding the proposed merger
when they become available. Stockholders of Arlington should read
the proxy statement/prospectus carefully when it becomes available
before making any voting or investment decisions. Investors may
obtain free copies of these documents from Ellington Financial or
Arlington using the sources indicated above.
NO OFFER OR SOLICITATION
This communication and the information contained herein does not
constitute an offer to sell or the solicitation of an offer to buy
or sell any securities or a solicitation of a proxy or of any vote
or approval, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offering of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as
amended. This communication may be deemed to be solicitation
material in respect of the proposed merger.
Forward-Looking Statements
This communication contains forward-looking statements within
the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are not
historical in nature and can be identified by words such as
“believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,”
“continue,” “intend,” “should,” “would,” “could,” “goal,”
“objective,” “will,” “may,” “seek” or similar expressions or their
negative forms. Such forward-looking statements may include or
relate to statements about the proposed merger, including its
financial and operational impact; the benefits of the proposed
merger; the pro forma market capitalization of the combined
company; the scale, market presence, market capitalization,
leverage, liquidity or earnings of the combined company;
anticipated synergies and operating expense efficiencies from the
proposed merger; investment opportunities and returns of the
combined company; future growth; access to capital markets; the
timing of future events; and other statements of management’s
beliefs, intentions or goals. These statements are based on
Ellington Financial’s and Arlington’s current expectations and
beliefs and are subject to a number of trends and uncertainties
that could cause actual results to differ materially from those
described in the forward-looking statements. Ellington Financial
and Arlington can give no assurance that their expectations will be
attained. Factors that could cause actual results to differ
materially from Ellington Financial’s or Arlington’s expectations
include, but are not limited to, the risk that the proposed merger
will not be consummated within the expected time period or at all;
the occurrence of any event, change or other circumstance that
could give rise to the termination of the merger agreement; the
failure to satisfy the conditions to the consummation of the
proposed merger, including the approval of the stockholders of
Arlington; risks related to the disruption of management’s
attention from ongoing business operations due to the proposed
merger; the effect of the announcement of the proposed merger on
the operating results and businesses generally of Ellington
Financial and Arlington; the outcome of any legal proceedings
relating to the proposed merger; the ability to successfully
integrate the businesses following the proposed merger; changes in
interest rates or the market value of Ellington Financial’s or
Arlington’s investments; market volatility; changes in mortgage
default rates and prepayment rates; the availability and terms of
financing; changes in government regulations affecting the business
of Ellington Financial or Arlington; the ability of Ellington
Financial and Arlington to maintain their exclusion from
registration under the Investment Company Act of 1940; the ability
of Ellington Financial and Arlington to maintain their
qualification as a REIT; changes in market conditions and economic
trends, such as changes to fiscal or monetary policy, heightened
inflation, slower growth or recession, and currency fluctuations;
and other factors, including those set forth in the section
entitled “Risk Factors” in Ellington Financial’s most recent Annual
Report on Form 10-K and Arlington’s most recent Annual Report on
Form 10-K, as amended, and Ellington Financial’s and Arlington’s
Quarterly Reports on Form 10-Q filed with the SEC, and other
reports filed by Ellington Financial and Arlington with the SEC,
copies of which are available on the SEC’s website, www.sec.gov.
Forward-looking statements are not guarantees of performance or
results and speak only as of the date such statements are made.
Except as required by law, neither Ellington Financial nor
Arlington undertakes any obligation to update or revise any
forward-looking statement in this communication, whether to reflect
new information, future events, changes in assumptions or
circumstances or otherwise.
About Ellington Financial
Ellington Financial invests in a diverse array of financial
assets, including residential and commercial mortgage loans,
reverse mortgage loans, residential and commercial mortgage-backed
securities, consumer loans and asset-backed securities backed by
consumer loans, collateralized loan obligations, non-mortgage and
mortgage-related derivatives, debt and equity investments in loan
origination companies, and other strategic investments. Ellington
Financial is externally managed and advised by Ellington Financial
Management LLC, an affiliate of Ellington Management Group,
LLC.
About Arlington Asset Investment Corp.
Arlington Asset Investment Corp. (NYSE: AAIC) currently invests
primarily in mortgage related assets and has elected to be taxed as
a REIT. The Company is headquartered in the Washington, D.C.
metropolitan area.
1 Subject to possible reduction based on an asset performance
provision
2 After giving effect to the vesting of equity awards as a
result of the transaction
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230530005243/en/
Ellington Financial Inc. Investor Relations (203)
409-3575 info@ellingtonfinancial.com
Arlington Asset Investment Corp. Investor Relations and
Media: Rich Konzmann (703) 373-0200 ir@arlingtonasset.com
Arlington Asset Investment (NYSE:AAIC)
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