Ellington Financial, the parent company of major reverse mortgage lender Longbridge Financial, announced last week that its acquisition of real estate investment trust (REIT) Great Ajax Corp. will not proceed as both companies have “mutually terminated” the proposed deal.
The agreement was first announced in July, but both companies have re-assessed the deal in the subsequent months, according to a joint statement.
“The termination was approved by both companies’ boards of directors after careful consideration of the proposed merger and the progress made towards completing the proposed merger,” the statement said. “In addition, Ellington Financial has agreed to pay Great Ajax $16 million of which $5 million is payable in cash and $11 million was paid as consideration for 1,666,666 shares of Great Ajax common stock, which were purchased at a per share price of $6.60.”
Ellington will still carry a stake in Great Ajax of approximately 6.1% based on stock holdings, and “an affiliate of the external manager of Ellington Financial owned 273,983 shares of Great Ajax common stock as of June 30, 2023.”
Despite the merger deal no longer moving forward, Ellington will remain a securitization joint venture partner with Great Ajax, according to the announcement.
“The two companies intend to continue to work together on mortgage loan opportunities,” the statement said.
An analyst from BTIG Mortgage Finance thought that the deal would be positive overall, but does not anticipate a significant impact from the breakup.
“We liked the merger for [Ellington], and think it may have only received partial credit for the deal in its valuation since initially announced in July, yet we don’t see a lot of downside from it breaking apart,” BTIG said in a statement. “From [Ajax]’s perspective we consider the breakup more material, because it could take even longer for the stock to revisit a competitive valuation, especially given some concentration risk with [Ellington as] a major shareholder.”
Ellington acquired a different REIT, Arlington Asset Investment Corp. (AAIC) in May in a deal that is seen as a potential boost for the company’s liquidity and scale, according to a joint statement from the companies.
That deal is valued at over $150 million to be facilitated with stock options and a cash payment to current Arlington shareholders.
Longbridge has originated 3,163 HECMs in the 12-month period ending in September 2023, according to Reverse Market Insight (RMI). Ellington announced it would acquire Longbridge in February 2022 and closed the deal the following October.