− Transaction Provides Increased Scale and
Enhanced Access to Capital Markets –
− Aligned Platforms and Capital Expected to Drive
Earnings Accretion and Sustained Long-Term Growth −
OLD
GREENWICH, Conn., May 30, 2023
/PRNewswire/ -- 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
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SOURCE Arlington Asset Investment Corp.