Transaction Increases Scale and Enhances Access to Securitization Markets
Ellington Financial Inc., a real estate investment trust investing in a diverse array of financial assets including residential and commercial mortgage loans, and Great Ajax Corp., a real estate investment trust that invests primarily in residential mortgage loans, announced that they have entered into a definitive merger agreement pursuant to which Ellington Financial will acquire Great Ajax. The transaction is expected to close by year-end 2023.
Pursuant to the merger agreement terms, each share of Great Ajax common stock will be converted into 0.5308 shares1 of Ellington Financial common stock, or approximately 12.5 million shares of Ellington Financial common stock in the aggregate.2 Ellington Financial’s common stock closing price on the New York Stock Exchange on June 30, 2023 implies an offer price of $7.33 per share of Great Ajax common stock, representing an approximate 19% premium to the Great Ajax common stock closing price on the NYSE on June 30, 2023. Upon the closing of the transaction, Ellington Financial stockholders are expected to own approximately 84% of the combined company’s stock, while Great Ajax stockholders are expected to own approximately 16% of the combined company’s stock.3 In addition, Ellington Financial will assume Great Ajax’s outstanding senior unsecured notes and convertible senior notes.
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The combined company will operate as “Ellington Financial Inc.” and its shares will continue to trade on the NYSE under Ellington Financial’s current ticker symbol, “EFC.” Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C., will continue to manage the combined company.
“We are extremely excited about the opportunity to add a significant portfolio of strategic assets, including over $1 billion of highly creditworthy first-lien residential RPL and NPL investments at attractive prices, which complement our existing investment portfolio nicely and align with our expertise and existing management platform,” stated Laurence Penn, Ellington Financial’s Chief Executive Officer. “We believe that the benefits of this acquisition also include greater operating efficiencies, a larger market capitalization, and a closer relationship with Gregory Funding, Great Ajax’s highly respected affiliated mortgage servicer. We believe that this transaction will position us well to drive accretive earnings growth and provide strategic and financial benefits to our stockholders.”
“We are pleased to combine our investment portfolios and create a company that we believe will be well positioned for growth and value creation,” said Lawrence Mendelsohn, Great Ajax’s Chairman and Chief Executive Officer. “We look forward to working closely with the Ellington Financial team to complete the transaction and deliver value for our stockholders.”
Anticipated Benefits to Ellington Financial and Great Ajax Stockholders from the Acquisition:
- Synergistic Expansion of Existing Business Lines: Great Ajax’s investment portfolio includes over $1 billion of first-lien residential re-performing loans (“RPLs”) and non-performing loans (“NPLs”), most of which are financed through term, non-mark-to-market, non-recourse securitizations, which would significantly expand Ellington Financial’s current RPL/NPL strategy. Combining Ellington Financial’s hedging, trading, and structuring capabilities with Great Ajax’s whole loan asset management resolution expertise is expected to create a unique platform that will optimize Great Ajax’s portfolio and deliver greater returns to shareholders.
- Strategically Compelling: Great Ajax’s strategic equity investment in Gregory Funding LLC, its affiliated servicer, is expected to unlock multiple synergies and operating efficiencies across Ellington Financial’s investment portfolio.
- Significant Increase to Scale: Estimated pro forma market capitalization in excess of $1 billion, which is expected to enhance liquidity for both Ellington Financial and Great Ajax shareholders. Anticipated increase in operating expense efficiencies resulting from fixed expenses spread over a larger equity base.
- Strong Financial Rationale: Ellington Financial expects to rotate out of selected lower-yielding Great Ajax assets and redeploy capital in higher-yielding strategies. The transaction is expected to be accretive to earnings within one year of closing.
- Enhanced Portfolio Diversification: Great Ajax’s NPL investment portfolio would enhance Ellington Financial’s portfolio diversification with assets that complement Ellington Financial’s existing investment strategy and align with Ellington’s expertise.
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Additional information on the transaction and the anticipated effects on Ellington Financial can be found in Ellington Financial’s investor deck relating to the transaction posted on Ellington Financial’s website. The investor deck is also being furnished by Ellington Financial in a Current Report on Form 8-K being filed by Ellington Financial with the Securities and Exchange Commission (the “SEC”) on the date hereof.
Management, Governance and Corporate Headquarters
Upon completion of the transaction, Ellington Financial’s Chief Executive Officer and President, Laurence Penn, will continue to lead the combined company, and Ellington Financial executives Michael Vranos, Mark Tecotzky, and JR Herlihy will remain in their current roles. The combined company will remain headquartered in Old Greenwich, Connecticut.
Timing and Approvals
The transaction has been unanimously approved by the Boards of Directors of Ellington Financial and Great Ajax. The Board of Directors of Great Ajax formed a Special Committee comprised of independent directors (the “Special Committee”) to review the transaction and make a recommendation to the Board of Directors of Great Ajax. The transaction was unanimously recommended by the Special Committee. The transaction is expected to close by the end of 2023, subject to approval by Great Ajax’s stockholders and other closing conditions set forth in the merger agreement.
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