SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
DIVALL INSURED INCOME PROPERTIES 2
LIMITED PARTNERSHIP
(Name of Subject Company)
DIVALL INSURED INCOME PROPERTIES 2
LIMITED PARTNERSHIP
(Name of Person(s) Filing Statement)
UNITS OF INTEREST
(Title of Class of Securities)
255017105
(CUSIP Number of Class of Securities)
Bruce A. Provo
The Provo Group, Inc.
101 W. 11th St., Ste. 1110
Kansas City, MO 64105
(816) 421-7444
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communication a on Behalf of the Person(s) Filing Statement)
Copy to:
Robert T. Schendel, Esq.
Shughart Thomson & Kilroy, P.C.
12 Wyandotte Plaza
120 W. 12th Street, Suite 1800
Kansas City, Missouri 64105
(816) 421-3355
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is DiVall Insured Income Properties 2
Limited Partnership, a Wisconsin limited partnership (the "Partnership"). The
address of the Partnership's principal executive offices is 101 W. 11th Street,
Suite 1110, Kansas City, Missouri 64105. The title of the class of equity
securities to which this Statement relates is units of limited partnership
interest in the Partnership (the "Units").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to a tender offer by U.S. Restaurant Properties,
Inc., a Maryland corporation (the "Bidder"), to purchase up to 49.9% of the
Units at a purchase price of $400 per Unit, less the amount per Unit of any
distributions of cash or assets of the Partnership (other than a $45 per Unit
return of capital distribution) made between March 27, 1998 and the Expiration
Date (as defined in the Offer to Purchase referred to below). The Units are
being solicited for tender upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated March 27, 1998 (the "Offer to Purchase"),
and the related letter of transmittal ( the "Letter of Transmittal,") which,
together with the Offer to Purchase, constitute the "Offer". The address of the
Bidder's principal executive office, according to the Offer to Purchase, is 5310
Harvest Hill Road, Suite 270, Dallas, Texas 75230.
ITEM 3. IDENTITY AND BACKGROUND.
(a) Name and Business Address. This Statement is being filed by the
Partnership and The Provo Group, Inc., an Illinois corporation (the "General
Partner"). The address of the principal executive office of the General Partner
is 101 W. 11th Street, Suite 1110, Kansas City, Missouri 64105. The name and
address of the Partnership are set forth in Item 1 above.
(b)(1) Arrangements with Executive Officers, Directors or Affiliates. The
Partnership is a limited partnership and has no executive officers or directors.
There are no material contracts, agreements, arrangements or understandings or
any actual or potential conflicts of interest between the Partnership and the
General Partner, including the directors and officers of the General Partner,
with respect to the Offer.
(b)(2) Arrangements with the Bidder or Affiliate. There are no material
contracts, agreements, arrangements or understandings or any actual or potential
conflicts of interest between the Partnership or its General Partner, including
the officers and directors of the General Partner, and the Bidder or its
executive officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) This Statement relates to the recommendation by the Partnership that
Limited Partners reject the Offer. A letter to the Limited Partners
communicating the Partnership's recommendation is filed as an exhibit hereto and
is incorporated herein by reference.
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(b) The General Partner recommends rejecting the Offer because of its
belief that the Offer price does not reflect the true value of the Partnership's
properties. The General Partner has retained Valuation Associates to conduct
appraisals of the properties, which appraisals should be completed by April 15,
1998. However, the General Partner estimates the Partnership's net asset value
to be approximately $500 per Unit at December 31, 1997. The net asset value was
determined by reducing the estimated fair market value of the Partnership's
properties and other assets by (i) estimated transaction costs which would be
incurred upon the sale of all the properties, including commissions, title
costs, surveys, legal fees and transfer taxes, and (ii) estimated expenses
relating to the liquidation of the Partnership.
Even the Offer to Purchase (page ii) specifically acknowledges that the
$400 purchase price "could be substantially less than the net proceeds that
would be realized on a per [Unit] basis from a current sale of the properties or
that may be realized upon a future liquidation of the Partnership." The General
Partner strongly believes that this is the case.
Furthermore, the Bidder has no interest in making an adequate offer for
the Partnership. In establishing the purchase price of $400 per Unit, the Bidder
was motivated to establish the lowest price which might be acceptable to Limited
Partners. The Bidder's acquisition strategy, as defined in its prospectus dated
October 30, 1997, is "to identify prospective acquisition opportunities and to
consummate favorable acquisitions prior to the active marketing of the subject
properties." As a consequence, the Offer is not based on a competitive bid
process, but is rather a low price that is based on the best interests of the
Bidder's shareholders. By accepting the Offer, Limited Partners may not
recognize the full value of the Units.
Finally, the Offer to Purchase only applies to 49.9% (or less) of the
outstanding Units. If more Units are tendered under the Offer to Purchase, the
Bidder will only accept Units on a pro rata basis, meaning that Limited Partners
who wish to sell all of their Units may not be able to do so. However, as the
Offer to Purchase acknowledges (page 12), if the Bidder acquires 49.9% of the
Units, the Bidder may "be able to directly influence certain matters affecting
the governance of the Partnership, including approving removal of the General
Partner . . .; a Combination Transaction [a merger or similar transaction
between the Partnership and Bidder or a sale of the Partnership's assets to
Bidder]; and most types of amendments to the Partnership Agreement." For
practical purposes, if the Bidder acquires a sizeable (even though a minority)
position in the Units, the Partnership may not be able to take action requiring
a Limited Partner vote (such as liquidation or sale of substantially all of its
assets) without the approval of the Bidder. Since the Bidder's expressed intent
is to cause a Combination Transaction to occur at "a purchase price per Interest
no greater than the Purchase Price paid pursuant to the Offer" (see page 1 of
the Offer to Purchase), it is likely that the Bidder will exercise such voting
power to block any transaction which would liquidate the Partnership's assets
under a competitive bid process, as is proposed by the General Partner in order
to maximize value for all Limited Partners.
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The General Partner continuously reviews various alternatives for the
maximization of Partnership value. Upon considering these alternatives, as well
as the current real estate market, the General Partner believes that value can
best be maximized by selling the properties under a competitive bid process. To
that end, the Partnership intends to file an Information Statement with the
Securities and Exchange Commission, and solicit the Limited Partners' consent to
a sale of the Partnership properties and subsequent liquidation of the
Partnership. Such a sale would be conducted through a competitive sealed bid
process, designed to elicit each bidder's best offer for an immediate cash sale.
While there can be no assurance at this time that a sale will be consummated, or
that a sale will result in distributions greater than the Offer, the General
Partner believes that a net return to Limited Partners substantially in excess
of the Offer price of $400 per Unit is obtainable.
The General Partner urges all Limited Partners to take no action with
respect to the Offer to Purchase and to wait for the Partnership's Information
Statement. Limited Partners who tender their Units pursuant to the Offer to
Purchase will not be able to vote on, nor receive any distributions from a sale
of the Partnership's properties or subsequent liquidation. The General Partner
encourages any Limited Partner who has already tendered, to revoke such tender.
The General Partner urges all Limited Partners to carefully consider all
the information contained herein and consult with their own advisors, tax,
financial or otherwise, in evaluating the terms of the Offer before deciding
whether to tender Units. In particular, the General Partner has not taken into
account the tax consequences to individual Limited Partners as a result of
accepting or rejecting the Offer and those tax consequences could vary
significantly for each Limited Partner based on such Limited Partner's unique
tax situation or other circumstances. Other than the aforementioned appraisals
of individual properties, no independent person has been retained to evaluate or
render any opinion with respect to the fairness of the Offer price.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
No person or class of persons has been employed or retained or is to be
compensated by the Partnership or any person acting on its behalf to make
solicitations or recommendations to Limited Partners in connection with the
Offer. No director, executive officer or employee of the General Partner will be
additionally compensated for making solicitations or recommendations to Limited
Partners in connection with the Offer, but may be reimbursed for out-of-pocket
expenses incurred in connection therewith.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Units between the Partnership and the General
Partner have been effected during the 60-day period prior to the date of this
Statement. No executive officer, director or affiliate of the General Partner
has effected any
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transaction in the Units during the 60-day period prior to the date of this
Statement. The Partnership has no subsidiaries.
(b) Neither the General Partner, nor any executive officer, director or
affiliate of the General Partner is a beneficial owner of Partnership Units.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Other than planning for the consent solicitation and competitive bid
process discussed above at Item 4(b), the Partnership is not engaged in any
negotiation in response to the Offer which relates to or would result in: (1) An
extraordinary transaction such as a merger or reorganization, involving the
Partnership; (2) A purchase, sale or transfer of a material amount of assets by
the Partnership; (3) A tender offer for or other acquisition of securities by or
of the Partnership; or (4) Any material change in the present capitalization or
dividend policy of the Partnership.
(b) None.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) None.
ITEM 9. MATERIALS TO BE FILED AS EXHIBITS.
(a) Letter to Limited Partners, dated March 31, 1998
(b) None
(c) None
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
DIVALL INSURED INCOME PROPERTIES 2
LIMITED PARTNERSHIP
By: The Provo Group, Inc.
General Partner
By: /s/ Bruce A. Provo
-----------------------
Bruce A. Provo
President
Dated: March 30, 1998
EXHIBIT
March 31, 1998
Re: DiVall Insured Income Properties 2, L.P. (the "Partnership")
Offer of U.S. Restaurant Properties, Inc.
Dear Limited Partner:
You may have recently received an Offer to Purchase dated March 27, 1998 (the
"Tender Offer") from U.S. Restaurant Properties, Inc. ("USRP"), in which USRP
offered to purchase all of your units in the Partnership at a price of $400 per
unit (less certain adjustments and expenses).
As your General Partner, we have determined that their offer is inadequate, and
not in the best interest of the Partnership or its Limited Partners.
Accordingly, we recommend that you reject their offer and not tender your units
to USRP.
Our recommendation is based on our belief that the amount offered by USRP does
not reflect the true value of the Partnership's underlying assets. We have
retained an independent appraiser, Valuation Associates, to conduct an appraisal
of the Partnership's properties (these appraisals are expected to be completed
by April 15, 1998). Our estimate of the Partnership's current net asset value,
as of December 31, 1997, is approximately $500 per unit. USRP's Tender Offer
provides for a purchase price of $400 per unit (less certain adjustments and
expenses). Neither valuation has benefited from "competitive" marketing.
Why is USRP targeting your units?
USRP's acquisition strategy (as stated in its prospectus dated October 30, 1997)
is "to identify prospective acquisition opportunities and to consummate
favorable acquisitions prior to the active marketing of the subject properties."
This means that USRP tries to find properties that are not "on the market" and
buy them from the owners at a low price, before the owner knows how much they
are worth. Unfortunately, this strategy is now being applied to your Partnership
... not for our partners' best interest but for the economic interest of the
shareholders of USRP.
USRP is attempting to acquire your properties more cheaply and cleverly by
gaining control of the Partnership through a Tender Offer. As their Tender Offer
discloses, if USRP obtains more than 50% of the units, they intend to merge or
liquidate the Partnership by transferring all of the Partnership properties to
USRP at a purchase price per unit no greater than $400. Could they do this? ...
Yes, because at that point they would control the Limited Partnership vote and
they could vote themselves in as the general partner.
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But isn't USRP only trying to acquire 49.9%?
No. The Tender Offer clearly states that USRP's ultimate intent is to acquire a
controlling voting interest (more than 50%) in the Partnership so they can
consummate their plan to acquire all of the Partnership's assets for not more
than $400 per unit. The only reason they are not trying to acquire all of the
units now is that the Partnership Agreement does not allow 50% or more of the
units to be transferred in any 12-month period.
If USRP won't control the Partnership after the
Tender Offer, what's the problem?
Even if USRP acquires less than 50% of the units in its Tender Offer, they would
still pose a future barrier to "competitive" marketing of your properties,
because any significant percentage of ownership would give them "voting power"
... raising an obstacle toward obtaining future liquidation approval. To secure
your opportunities to "maximize value," don't tender your units to USRP.
What does the General Partner propose?
We are constantly reviewing and observing the marketplace to identify trends and
opportunities. For over two years, TPG and your Advisory Board (comprised of
limited partners and a broker/dealer representative) have been evaluating
alternatives ranging from continuing operations to the sale of individual
properties to REIT roll-ups, all with the sole objective to maximize values for
the Limited Partners.
USRP's Tender Offer is one of the many indications that the real estate market
is "hot." Will it last? . . . No. Real estate values are cyclical and the
acquisition fever does eventually break. Accordingly, we have concluded that it
is a good time to sell the Partnership's assets.
How will the General Partner maximize our values?
We believe that values can be maximized by selling the properties through a
competitive bid process. To that end, the Partnership intends to forward you an
Information Statement to request your consent to sell the Partnership's assets,
followed by liquidation of the Partnership. This Information Statement will be
mailed as soon as possible once the appraisals are completed.
The sale will be conducted through a competitive sealed bid process, designed to
elicit each bidder's best (highest) offer. (While there can be no assurance at
this time that a sale will be consummated, the Partnership believes that a
return to the Limited Partners in excess of the USRP Tender Offer price is
obtainable.)
If you wish to sell your units, we urge you to postpone tendering units to USRP
and wait for the Information Statement. If you tender your units to USRP, you
will not able to vote on any future matter.
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What about the Tender Offer's proclaimed benefits?
USRP states that the Tender Offer provides Limited Partners with an opportunity
to dispose of an illiquid investment and reinvest the proceeds in other
investments. Our proposal will provide the same opportunity, with two
significant differences.
First, our proposal will provide liquidity for all Limited Partners, not less
than half as proposed by USRP.
Second, our proposal allows the marketplace to "value" your assets through a
competitive process. Even the Tender Offer acknowledged that the amount offered
by USRP "could be substantially less than the net proceeds that would be
realized on a per [unit] basis from a current sale of the properties or that may
be realized upon a future liquidation of the Partnership." The General Partner
says, "Let's find out."
USRP states that the Tender Offer is commensurate with the value of the
properties. If this is the case, they should have no problem substituting their
Tender Offer for your units with a "bid" for the assets of your partnership in a
"competitive" sales process.
USRP's risk is that a higher price might be offered for the Partnership and they
are not the highest bidder. We haven't fought all our battles together over the
last five years to sell to the first group that walks through the door thinking
they can "have it their way."
The attached Schedule 14d-9 has been filed with the S.E.C. and contains
additional information relating to the recommendation and other actions taken by
the General Partner. We urge you to carefully review the enclosed Schedule.
Please call me at (888)842-4058, ext. 231 or Investor Relations at (800)547-7686
or e-mail to [email protected] with any questions you may have
regarding the USRP Tender Offer, the information set forth in the enclosed
Schedule 14d-9, the status of your investments, or any other related matters.
Thank you.
Sincerely,
DIVALL INSURED INCOME PROPERTIES 2
LIMITED PARTNERSHIP
By: The Provo Group, Inc.,
its General Partner
By: /s/ Bruce A. Provo
Bruce A. Provo
Enclosure
