An activist shareholder is once again coming out strong against the proposed $7.4 billion merger of Care Capital Properties, Inc. (NYSE: CCP) and Sabra Health Care REIT, Inc. (Nasdaq: SBRA) — now describing the August 15 vote on the matter as essentially “a shareholder referendum on whether Sabra should continue with the prior strategy of steadily diversifying its [skilled nursing facility] exposure.”
Though Sabra is deeming the CCP merger a “turnaround opportunity,” in reality it’s “just a nice way of saying they acquired troubled assets at inflated values,” Hudson Bay Capital Management CEO and Chief Investment Officer Sander Gerber and Portfolio Manager John Chen wrote in a July 31 open letter to Sabra shareholders.
The New York-based hedge fund and its affiliated investment funds currently own about 3.9% of Sabra. Earlier this month, Hudson Bay advised Sabra stakeholders to vote against the CCP merger because it had resulted in a drop in Sabra share prices.
Sabra, for its part, disagrees. CEO Rick Matros told Skilled Nursing News Monday that Hudson Bay’s letter is “completely erroneous” and “just incorrect.” Care Capital Properties did not respond to a request for comment by press time, and Hudson Bay declined to speak with SNN for this story.
More recently, Sabra put forth “highly misleading points” about the CCP merger in a press release and presentation about the transaction, Hudson Bay’s July 31 open letter says.
For instance, Sabra claimed that the interests of its management team are directly aligned with every Sabra shareholder — but Hudson Bay alleges that Matros’s compensation structure “raises serious conflicts of interest.”
“The company does not deny that this transaction causes Mr. Matros’s compensation to increase meaningfully – we think by 37%+,” the letter reads.
These claims Hudson Bay has made regarding compensation are “just incorrect,” Matros told SNN.
“They just put out something that wasn’t true, that’s all,” he added.
Still, Hudson Bay claimed that Sabra has “wildly overpaid” for CCP.
“Sabra’s management team admits that they overpaid for CCP by over 20%,” the letter reads. “We believe they overpaid by over 30%.”
A call to diversify
If Sabra shareholders do vote down the deal, Hudson Bay claimed, Sabra “must” continue to diversity ifs SNF exposure — as well as replace Matros. Back in June, Matros told SNN that Sabra would indeed continue to diversify its portfolio after the merger, aided by a lower cost of capital. He also described SNFs as “necessary,” and expressed optimism for the industry’s future.
All things considered, it makes sense for Sabra to put itself up for sale rather than purchase CCP, Hudson Bay believes. The REIT would likely have plenty of potential suitors.
“We believe SBRA would be a compellingly accretive and logical acquisition target to a wide range of potential acquirers,” Hudson Bay said. “And, in recent conversations with industry participants, we believe there is interest in standalone Sabra as a potential acquisition target.”
Written by Mary Kate Nelson