An activist shareholder is doubling down on its opposition to the proposed $7.4 billion merger of Sabra Health Care REIT, Inc. (Nasdaq: SBRA) and Care Capital Properties, Inc. (NYSE: CCP)—this time arguing that, rather than purchasing CCP, Sabra should actually consider putting itself up for sale to maximize shareholder value.
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 others, wrote in a July 31 open letter to Sabra shareholders.
Sabra, for its part, disagrees, claiming that what Hudson Bay said in the July 31 letter is “completely erroneous… [and] just incorrect,” Sabra CEO Rick Matros told Senior Housing News. CCP had not returned SHN’s requests for comment as of press time; Hudson Bay declined to make additional comment.
The New York-based hedge fund and its affiliated investment funds are 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.
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 in its press release that the interests of its management team are directly aligned with every Sabra shareholder—but Hudson Bay alleges that the compensation structure of Sabra CEO Rick Matros “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 SHN.
“They just put out something that wasn’t true, that’s all,” he added.
Still, Hudson Bay says, Sabra has “wildly overpaid” for CCP.
“Sabra’s management team admits that they overpaid for CCP by over 20%,” the letter says. “We believe they overpaid by over 30%.”
Meanwhile, the August 15 vote on the CCP merger is essentially “a shareholder referendum on whether Sabra should continue with the prior strategy of steadily diversifying its [skilled nursing facility] exposure,” according to Hudson Bay. If Sabra shareholders do vote down the deal, Sabra “must” continue to diversity ifs SNF exposure—as well as replace Matros.
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 says. “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