A combination of Wheeler Real Estate Investment Trust Inc. and Cedar Realty Trust Inc. is off the table for now, but the former's CEO vowed to revisit the prospect in the coming weeks and months, after the dust has settled.
Relations between the two companies after a very brief, failed courtship appear to be cool. In an interview, Wheeler REIT's chairman and CEO, Jon Wheeler, said he was disappointed and surprised by the Cedar Realty board's outright rejection of his approach, which Cedar interpreted as an "unsolicited and unrealistic" merger proposal.
"If somebody calls, then I return the phone call. If somebody wants to meet with me, then I meet with them," Wheeler said.
"It was really just a 40,000-foot-level, 'Let's get together and talk about alternatives for the benefit of both of our shareholders,'" Wheeler said. Wheeler REIT has not made public the letter that it sent initially to Cedar Realty's board, but Wheeler described it as a "genuine" appeal to discuss avenues for enhancing shareholder value — avenues that could include "a relationship, an alliance or an acquisition," he said — rather than a hostile or "activist" play. No formal offer detailing financial terms and specifying managerial changes was made, he said.
Cedar Realty also is fending off an activist campaign by hedge fund Snow Park Capital Partners LP and grappling with a sexual harassment lawsuit against CEO Bruce Schanzer by the company's former COO. Cedar Realty's leadership declined requests for comment, but a spokesperson characterized Wheeler REIT's overtures as more aggressive than did Wheeler. "The letter made abundantly clear that the transaction under consideration was an acquisition of Cedar by Wheeler REIT, and left no room for any good faith interpretation otherwise," a Cedar spokesperson said in an email.
Cedar Realty and Wheeler REIT also disagree about the extent to which Snow Park, which recently has criticized Cedar Realty's leadership for, among other things, exorbitant executive pay, is pulling the strings.
In its Nov. 27 release, Cedar Realty alleged that Snow Park "encouraged" Wheeler REIT's approach — a claim Wheeler REIT denied. "We're not working with them," Wheeler said of Snow Park. "This is not a collaboration."
Snow Park declined to comment, but a source familiar with the hedge fund's thinking said Snow Park was not involved with Wheeler REIT's proposal to meet with Cedar.
In the interview, Wheeler cited prospective cost savings, an improved tenant profile, geographic diversification and scale as the benefits of a hypothetical combination of the companies. Wheeler REIT's portfolio spans the Mid-Atlantic and Southeast, while Cedar Realty's holdings are clustered in the Northeast.
Whether Wheeler REIT could pull off an acquisition of such size, were its courtship more productive, is an open question. Boenning & Scattergood analyst Floris van Dijkum called Wheeler REIT and Cedar Realty "the two most indebted strip companies." In a research note, van Dijkum said that "until CDR reduces its leverage substantially and cuts its exposure to secondary and tertiary markets, no credible bidder is likely to emerge."
Wheeler acknowledged that securing and executing a deal of such size would be "laborious" and require substantial time, effort and money. But he was optimistic about attempting another meeting sometime in the coming weeks or months.
"We are the minnow. They are the fish. ... I'd like to have the opportunity to meet with them and then quickly ascertain, is there something to talk about here or not?" he said. "And if there's not, then we'll move on."