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Annaly Offers to Buy Crexus

By Rich Smith - Nov 13, 2012 at 8:54AM

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Move suggests a shift toward non-residential mortgages.

On Monday, Annaly Capital Management (NLY 1.04%) announced an $839 million bid to acquire the 87.6% of Crexus Investment (NYSE: CXS) shares that it doesn't currently own. Annaly is bidding $12.50 in cash for the shares, a 12.6% premium to the $11.10 that Crexus shares fetched on the NYSE at close of trading Friday, but a slight discount to the shares' current book value.

Perhaps in an attempt to fend off criticism that its bid is too low, however, Annaly management noted that its bid represents a small premium (5%) to Crexus' "common stock book value per share as reported in Crexus' earnings release for the third quarter of 2012."

Crexus' business is complementary to Annaly's focus on residential mortgages, inasmuch as Crexus operates primarily through investments in commercial mortgage loans and similar commercial real estate debt. Annaly noted that its interest in Crexus is in part an attempt to diversify away from investments in residential mortgages, in response to continued Federal Reserve bond-buying, which has reduced yields on Annaly's historically favorite investment. In a statement, Annaly CEO noted that in the future Annaly may allocate as much as 25% of its business to alternative, non-residential mortgage investments, and called taking Crexus in-house "a powerful step in this direction."


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