Peter DeSorcy, founder and managing member of Ortelius Advisors, Monday issued a letter to the board of directors of Capital Senior Living, stating that Ortelius intends to block the company’s planned transactions with Conversant Capital and its affiliates.
Capital holds the No. 9 spot on the American Seniors Housing Association’s ranking of the top 50 list of operators for 2020. Ortelius has holdings equal to approximately 9% of the company’s outstanding common stock.
Dallas-based Capital announced plans on July 22 to raise up to $152.5 million through the private placement of convertible preferred stock to affiliates of Conversant, and that Conversant had agreed to backstop a rights offering and provide an incremental $25 million accordion for future investment.
At the time, Kimberly S. Lody, president and CEO, told the McKnight’s Business Daily that the transaction would allow the company to improve its liquidity with working capital.
“The transactions demonstrably fail to maximize the value of the company, which is now trading at a significant discount to its underlying assets. We find it alarming that the board, which owes fiduciary obligations to all stockholders, would effectively seek to sell control of the company to Conversant at what we believe is a material discount without at least conducting a more thorough review of strategic alternatives,” DeSorcy wrote.
According to yesterday’s letter from Ortelius, Capital’s stock price has dropped almost 50% since the transactions were announced.
“The market evidently recognizes that these highly questionable transactions include egregious terms, which effectively hand control of CSL to Conversant while punitively diluting existing stockholders and hindering the business with excessive costs,” DeSorcy wrote on behalf of Ortelius.
“Fundamentally, we believe there are other stockholders like Ortelius who not only oppose this transaction, but also stand ready, willing and able to assist the company with its near-term capital needs and other strategic initiatives in light of the company’s tremendous long-term potential,” he wrote.
DeSorcy argued that the deal would hurt existing shareholders. To that end, he wrote that not only does Ortelius oppose the transactions, but the firm “intends to vote its shares against their approval.”
From DeSorcy’s perspective, he said that Capital has breached its fiduciary responsibilities to stockholders. He said that Capital should explore other opportunities to fulfill its fiduciary responsibilities to stockholders, “including by credibly assessing alternative strategic and/or financing options which benefit, not impair, all equity holders.”
Capital did not respond to a request for comment from McKnight’s Business Daily before the publication deadline.
