PMC Commercial Trust (PCC) Interesting Merger

For a while, I have been meaning to write about interest sensitive stocks stocks. One of these stocks that I have had in my portfolio for quite a while is PMC Commercial Trust (PCC). PCC is a REIT that makes small business loans in the hospitality industry. The company focuses on SBA loans in which the government guarantees a substantial portion of the loan. The government portion is then sold at a profit to investors. PCC keeps the non-guaranteed portion of the loan.

PCC had been trading around $7-$8 for a long time and what made it a interesting investment was:

  • It gives a steady dividend. Currently, it is $.50 annually. In the past, it has been been above a $1. 
  • The majority of the loan the company keeps is variable interest rate loan (LIBOR based). With interest rates going up, it is an opportunity for the company to earn more money and increase dividend and stock price over the coming years.
  • It trades at a significant discount to its book value of $13+.

Before I could write this up, the company announced a merger with a private company, CIM Urban REIT last week. The stock shot up over a $1. Here is the press release, but here are the simplified details:

  • Existing shareholders will receive a special $5.50 dividend.
  • The merged company will have a implied valuation of $2.439 billion (based on CIM Urban equity) and pay a dividend of 3.5 after the merger.
  • PCC shares should trade at $10.50 (pre-dividend of $5.50) if the merged company trades at the implied valuation.

The stock is trading at $9.38 today. There are a couple ways to win here:

  • It is hard to say what the company will do post merger since we don’t have the specific financials of CIM, but if it trades near the implied valuation, there is upside here.
  • The deal undervalues PCC. CIM could come in with a better offer at shareholder dissent or a rival could make a better offer.
  • At 9.38, the merged company trades at over a 20% discount to the implied valuation and I don’t see it going down much further.

If the deal does not go through, the stock could fall, but this is a stock that would be to hold due to rising interest rates. For now, I am keeping my shares.

Disclosure: I own shares of PCC. 

2 thoughts on “PMC Commercial Trust (PCC) Interesting Merger

  1. PMC Commercial Trust

    Lifshitz Law Firm announces an investigation into possible breaches of fiduciary duty in connection with the proposed merger of PMC Commercial Trust (“PMC”) (PCC) and CIM Urban Reit, LLC (“CIM”). CIM and its affiliates will receive approximately 22.0 million newly-issued PMC common shares of beneficial interest and approximately 65.0 million newly-issued PMC preferred shares or approximately 97.8% of PMC’s outstanding common shares. All PMC shareholders of record at the close of the business day prior to the closing of the transactions will receive a special cash dividend of $5.50 per common share, to be paid shortly after closing.

    Lifshitz Law Firm’s investigation is focused on whether the proposed deal provides adequate value to PMC’s shareholders.

    For more information about our investigation, please contact Joshua M. Lifshitz, Esq. by telephone at (212) 213-6222 Ext. 18 or by sending an e-mail including your contact information to: info@jlclasslaw.com.

  2. Amitd, pls don’t let prasitic actors such as Lifshitz and other Law firms use your great blog to get free exposure to an audience. For these alledged investigations of merger announcemnts yield nothing to shareholders, procure a pitiful payout to the parasitic law firm and clog investors’ news screens with ridiculous press releases.

    Please join us in supporting the introduction of a bond to be posted by law firms initiating these useless investigations.

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