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American Realty Capital Sues RCS Over $700M Deal

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American Realty Capital Properties (ARCP), the biggest U.S. owner of single-tenant buildings, sued investment partner RCS Capital Corp., alleging it wrongly terminated an agreement to buy a business.

RCS agreed to buy American Realty’s private-capital management business, Cole Capital, for at least $700 million then reneged on the deal, the real estate investment trust said in a complaint filed yesterday in Delaware Chancery Court in Wilmington.

“Under the circumstances, the independent members of the ARCP board of directors and ARCP had no choice but to file this litigation in order to preserve and protect the interests of ARCP’s shareholders under the purchase agreement,” the New York-based company said today in a statement.

American Realty lost almost a fifth of its market value on Oct. 29 after saying an accounting error was intentionally concealed. The company, owner of more than 4,000 properties such as banks, restaurants and drugstores, is facing an investigation by prosecutors and the Federal Bureau of Investigation, a person familiar with the matter said.

The dispute sets up a battle between two companies that have the same chairman, Nicholas Schorsch. RCS may have scuttled the deal because the scandal at American Realty might spill over to Cole, tainting efforts to sell shares of Cole’s nontraded REITs, Paul Adornato, an analyst with BMO Capital Markets, said last week.

Stock Plunge

Jonathan Keehner, an RCS spokesman with Joele Frank, Wilkinson Brimmer Katcher, didn’t immediately reply to phone and e-mail messages seeking comment on the lawsuit.

American Realty rose 1.5 percent today to $8.79, while RCS climbed 3.8 percent to $11.59. RCS shares have lost 41 percent since the disclosure of the errors on Oct. 29, compared with a 29 percent drop for American Realty.

RCS’s “deliberate, precipitous and improper actions in attempting to improperly terminate the purchase agreement appear to be the product of a concerted effort by RCAP to distance itself from ARCP in order to prop up its own flagging stock price,” according to the lawsuit.

The deal termination “had everything to do with curbing the price decline in RCAP’s stock (in which Mr. Schorsch owns a significant interest), and not with the breach of any representation or warranty made by ARCP in the purchase agreement concerning the acquired companies,” American Realty said in its complaint.

Schorsch beneficially owns about 40 percent of RCS’s Class A common stock and, through his beneficial ownership of its Class B common stock, has majority voting control of the company, according to the complaint.

The case is American Realty Capital Properties Inc. v. RCS Capital Corp. (RCAP), CA10339, Delaware Chancery Court (Wilmington).