The firms both deal in distressed assets and have worked together since the 1990s.
Värde Partners, a major Minnesota hedge fund, is buying publicly traded FirstCity Financial Corp. in Waco, Texas, and taking it private.
Funds managed by Värde are paying $224.9 million, including debt, for FirstCity Financial in an all-cash deal that's expected to close by mid-2013, the companies said Friday. The Värde funds are paying $10 per share, a 20 percent premium over FirstCity's closing price Thursday.
Meanwhile, two law firms said publicly Friday that they are looking into the sale because they think it undervalues FirstCity's stock and isn't fair to its shareholders. The $10 price values FirstCity at only 78 percent of FirstCity's June 2012 reported book value of $12.88 per share, according to the New York law firm Newman Ferrara.
Värde, based in Bloomington, and FirstCity both deal in distressed debt and assets and have worked together since the early 1990s. Värde and its affiliates have co-invested in a substantial majority of the acquisitions FirstCity has made in U.S. distressed assets since 2009, the companies said Friday.
FirstCity President and CEO James Sartain said in a brief conference call Friday that the sale was recommended by a special committee of independent directors that FirstCity's board of directors had appointed earlier this year "to look for strategic alternatives for the company, given the company was shrinking in size, as reported, and the company's inability to raise new capital and/or new financing to continue investing on its balance sheet."
Sartain said he supports the transaction and the board unanimously approved it.
"I think it is good for our shareholders, I think it is good for our employees, and last but not least, it allows me the opportunity to move on," he said.
Sartain, 64, will retire from FirstCity and join Värde as a consultant. Mark Horrell, senior vice president and FirstCity's head of U.S. acquisitions, will become FirstCity's CEO. FirstCity will retain its headquarters in Waco and office in Dallas.
In a joint news release Friday, Värde managing partner Jason Spaeth described FirstCity as "a best-in-class commercial loan servicing company that also holds an attractive portfolio of distressed commercial real estate assets."
The transaction is subject to the approval of FirstCity stockholders, antitrust clearances and other customary closing conditions, the companies said. Värde said it's not obtaining debt financing for the deal.
Värde, founded in 1993, invests in distressed assets and does special situation investing in a wide range of assets including corporate securities, consumer loans, structured securities, real estate and capital equipment. It has more than $7.5 billion in assets under management.
David Shaffer 612-673-7090 Jennifer Bjorhus 612-673-4683