SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest even reported): June 17, 1998
J.C. NICHOLS COMPANY
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(Exact name of registrant specified in its charter)
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Missouri 00-06181 47-0371610
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(State of Incorporation) (Commission File Number) (IRS Employer Identification No.)
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310 Ward Parkway, Kansas City, Missouri 64112
(Address of prinicpal exeuctive offices, zip code)
Registrant's telephone number, including area code: (816) 561-3456
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Item 5. OTHER EVENTS
As previously reported, Highwoods Properties, Inc., ("Highwoods") has
entered into an Agreement and Plan of Merger (as amended, the "Merger
Agreement") with J.C. Nichols company ("JCN"). The merger (the "Merger") is
subject to the approval of the shareholders of JCN at its special meeting
scheduled for July 1, 1998. On June 17, 1998, the Board of Directors of JCN
received a letter from Blackacre Capital Management, LLC ("Blackacre") which
indicated that Blackacre would like to acquire JCN at $70.00 per share in a cash
merger, subject to (i) the completion of due diligence, (ii) the termination of
the Merger Agreement by the Board of Directors of JCN under circumstances that
would not cause the break-up fee and expense reimbursement payable to Highwoods
to exceed $2.5 million, and (iii) "certain structuring for tax advantages" to
the JCN shareholders. Blackacre requested access to the books and records of JCN
and indicated that if such information establishes a higher valuation for JCN,
Blackacre would be willing to consider increasing its offer. A copy of the
letter is attached hereto as an exhibit.
JCN responded to Blackacre's letter with a request for additional
information regarding Blackacre's purported offer, including a list of the
information Blackacre desired to review and a more detailed description of the
structure of the proposed transaction. In a letter dated June 19, 1998,
Blackacre provided some of the information requested by JCN, and indicated its
intention not to commence its due diligence until the Merger Agreement is
terminated. A copy of that letter is attached hereto as an exhibit.
The JCN Board of Directors has expressed concern about certain aspects
of Blackacre's offer, including that (a) the transaction structure Blackacre
contemplates should not be attempted without IRS approval, and (b) Blackacre
will not commence its due diligence until after the Merger Agreement is
terminated, meaning that Blackacre would not be obligated to make any offer in
the event the Merger is not approved by JCN shareholders. The JCN Board of
Directors has expressed its belief that the Merger serves the best interests of
JCN shareholders.
Blackacre, which owns approximately 14% of the outstanding shares of
the common stock of JCN, also indicated that it currently intends to vote
against the Merger Agreement at the upcoming JCN special meeting and to exercise
its appraisal rights for its shares of JCN common stock. Under the Merger
Agreement, up to 40% of the shares of JCN common stock may be exchanged for cash
in the Merger; the other shares of JCN would be exchanged for shares of
Highwoods common stock. Blackacre has suggested that its exercise of appraisal
rights could reduce the amount of cash available to other JCN shareholders by
approximately 36%. However, holders of approximately 29% of the outstanding
shares of JCN have informed JCN that they intend to receive Highwoods common
stock for their shares of JCN common stock. This would mean that anyone making a
100% cash election would receive at least 45% cash, even if Blackacre exercises
appraisal rights. It is possible that other JCN shareholders could exercise
appraisal rights, and that shareholders, including Blackacre, could change their
elections before 5:00 p.m. on June 26. Therefore, if the Merger is effected and
Blackacre does in fact perfect its dissenters' rights, it would reduce the
amount of cash available to shareholders who elect to receive cash for some or
all of their
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shares. Shareholders of JCN are urged to see the discussion of the impact of the
perfection of appraisal rights on the components of the Merger consideration
under the caption "The Merger -- Terms of the Merger" in the Proxy
Statement/Prospectus dated June 2, 1998.
Item 7. EXHIBITS
(c) Exhibits
99.1 Letter from Blackacre to JCN Board of Directors, dated June 17,
1998.
99.2 Letter from Blackacre to Mr. Barrett Brady, dated June 19,
1998.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
J.C. NICHOLS COMPANY
By: /s/ Barrett Brady
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Chief Executive Officer and President
Date: June 22, 1998
BLACKACRE
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CAPITAL MANAGEMENT LLC
June 17, 1998
The Board of Directors
J.C. Nichols Company
310 Ward Parkway
Kansas City, Missouri 64112
Attention: Chairman of the Board
Ladies and Gentlemen:
As you know, affiliates of Blackacre Capital Management LLC
("Blackacre") own approximately 14% of the outstanding shares of Common Stock of
J.C. Nichols Company (the "Company"). We have been carefully following the
proposed transaction between Highwoods Properties Inc. and the Company (the
"Proposed Highwoods Transaction"). After reviewing the proxy materials and
meeting with Company representatives, we strongly believe that the Proposed
Highwoods Transaction is inadequate from a financial point of view, does not
reflect the values inherent in the Company, would subject the Company's
stockholders to significant downside equity risk in the Highwoods stock and
provides for an above market breakup fee. We believe that the Company and its
Board are not taking the best interests of all shareholders into account in
recommending this transaction. The proxy materials do not provide compelling
evidence that this transaction maximizes value for all shareholders, and in fact
we believe, given certain dynamics in the marketplace, there is significant
financial risk to any shareholder who takes Highwoods stock.
Consistent with our views of the Proposed Highwoods Transaction, we and
our affiliates intend to vote against approval of the Proposed Highwoods
Transaction and, if it is nonetheless approved, to exercise appraisal rights for
our shares of Common Stock. As you know and as we believe should be conveyed to
the Company's stockholders in supplemental proxy materials, this would have the
effect, among other things, of reducing by over 35% the amount of cash that
would otherwise be available to the Company's stockholders in the Proposed
Highwoods
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Transaction, thereby forcing stockholders who prefer to take cash to take
additional Highwoods shares instead.
Because we see values in the Company not reflected in the Prosposed
Highwoods Transaction, we are submitting an offer to acquire the Company at
$70.00 per share in an all cash merger, subject to certain structuring for tax
advantages to shareholders as described below. If the Company furnishes us
information which establishes a higher valuation for the Company, we are
prepared to consider increasing our offer. We believe that this offer would
result in value to the Company's shareholders that is more certain and
significantly above those realizable through the Proposed Highwoods Transaction.
Although we have conducted an extensive analysis of the Company based
on publicly available information, our offer is subject to, among other things,
satisfactory completion of our due diligence of the Company. Our offer is also
subject to the Company's Board of Directors terminating the merger agreement
relating to the Proposed Highwoods Transaction under circumstances in which the
break-up fee and expense reimbursement payable to Highwoods does not exceed
$2,500,000.
It is intended that the transaction would be structured so as to
provide to the Company's long-term stockholders with an ability to transfer
their stock on a tax-free basis. In order to facilitate this, we believe that
the Company's Employee Stock Onwership Plan and Trust (the "ESOT") would agree
to purchase (on a pro rata basis in the event of oversubscription) up to
approximately 15% of the outstanding shares of Common Stock from shareholders
desiring to effectuate a Section 1042 transaction under the Internal Revenue
Code. We believe that the ESOT would also agree to retain approximately 15%
interest in the surviving corporation following the merger.
Blackacre and its affiliates have sufficient equity capital to complete
the transaction and Blackacre is highly confident that it can secure the debt
financing necessary to refinance the existing debt of the Company.
Blackacre stands ready to commence negotiations and due diligence. Once
the Company has provided to Blackacre information and access which are
equivalent to that received by Highwoods, we believe that a definitive agreement
could be achieved expeditiously. Representatives of Blackacre and the Company
would then prepare proxy materials necessary to obtain approvals from the
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Company's shareholders, which we believe would be quickly received given the
significant premium to the current Proposed Highwoods Transaction being offered
to the Company's shareholders.
Following consummation of the transaction, we intend on maintaining the
Company's corporate identity including owning and operating the Country Club
Plaza. In addition, we will honor all current employment contracts and other
related agreements with management.
We firmly believe that our all cash proposal provides shareholders of
the Company with immediate superior value over the Proposed Highwoods
Transaction as well as certainty. Highwoods common stock, a significant
component of the value in the Proposed Highwoods Transaction, is a volatile
security which will expose Company shareholders to significant market risk after
consummation of the Proposed Highwoods Transaction. In the Registration
Statement filed in connection with the Proposed Highwoods Transaction, Highwoods
has identified a number of disturbing risk factors relating to ownership of
Highwoods common stock, including, but not limited to, the following:
o the potential adverse impact on share price and dilution in
ownership resulting from subsequent offerings of Highwoods
common stock;
o possible difficulties in integrating Highwoods and the
Company;
o the fact that Highwoods' management and its board of
directors have divergent interests from those of Highwoods
stockholders regarding the sale or refinancing of Highwoods'
properties; and
o the fact that Highwoods has no expertise in retail
apartments and homebuilding.
Moreover, since the execution of the Highwoods merger agreement, there
has been a significant decline in the Highwoods stock price as well as a
contraction in the average multiple at which larger public REITs have been
trading in the marketplace, reflecting the market's increased concern over the
inherent riskiness of such entities.
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In summary, we strongly believe that our proposal represents an
extraordinary opportunity for the Company and its shareholders. Because time is
of the essence, this offer will remain open until July 2, 1998 or its earlier
termination by Blackacre upon written notice to the Company. We look forward to
meeting with the Company's Board of Directors to discuss our proposal in greater
detail at your earliest convenience. Blackacre is determined to take every
appropriate action to consummate this transaction.
Sincerely,
BLACKACRE CAPITAL MANAGEMENT LLC
By /s/ Ronald Kravit
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BLACKACRE
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CAPITAL MANAGEMENT, LLC
June 19, 1998
Mr. Barrett Brady
J.C. Nichols Company
310 Ward Parkway
on the Country Club Plaza
Kansas City, Missouri 64112
Dear Barry,
Pursuant to your letter dated 6/18/98 requesting certain additional information
in preparation for your board meeting the following addresses many of your
questions. The other items not responded to will follow shortly.
We have attached an initial list of due diligence items we would like to review.
We would anticipate completing our reviews on an expeditious basis. However,
once we review the information we can provide you with a better indication of
specific timing. We believe this could be accomplished within 2-4 weeks
depending on the findings of our work. Nonetheless, we are concerned that doing
any work which would trigger any breakup fees in excess of $2.5 million is not
in the best interest of the shareholders. Therefore, the exact timing and
commencement of work should occur upon termination of the existing merger
agreement.
With regard to our financial capacity, let us reiterate Blackacre and its
affiliates including Cerberus Capital Management, LP, manage over $4.0 billion
of discretionary investment capital including over $700 million in current
available capital. In addition, Blackacre has the ability to arrange any
financing to replace existing debt if necessary from its existing stable of
lenders. Obviously, until we complete our due diligence we cannot ascertain the
accrual amount required. We believe we are eminently capable to perform.
Sincerely,
/s/ Ronald Kravit
Ronald Kravit
KK/mad
cc: R. Doud
