NexPoint's Update on UDF IV Proposal and Special Meeting Amid Ready Capital's Earnings Concerns

NexPoint Real Estate Opportunities (NexPoint) has provided an update on its proposal for United Development Funding IV (UDF IV) and the upcoming Special Meeting, following the release of ready capital Corporation's (Ready Capital) Q4 2024 earnings report. The earnings report has raised concerns about the proposed merger between UDF IV and Ready Capital, with Ready Capital's stock price plummeting by over 25% and trading as low as $4.78 per share.

NexPoint's Update

NexPoint has issued an urgent update regarding the proposed merger between UDF IV and Ready Capital, scheduled for shareholder vote on March 4, 2025. Following Ready Capital's concerning Q4 2024 earnings report, RC's stock price plummeted by over 25%, trading as low as $4.78 per share, which translates to $1.99 per UDF IV share under the merger terms. This decline potentially erases more than $30 million in value for UDF IV shareholders.

The significant decline in Ready Capital's stock price has a substantial impact on the economics of the proposed merger with UDF IV, making NexPoint's competing proposal more attractive on a relative basis. This situation highlights the inherent risks in stock-based merger transactions, where value can evaporate quickly due to earnings disappointments or other market developments. In this case, Ready Capital's earnings problems likely signal deeper operational challenges that could further erode value during post-merger integration.

For UDF IV shareholders, the decline in RC's stock price raises serious concerns about the proposed merger's value proposition. The original deal thesis may no longer be valid, and the UDF IV Board has a fiduciary responsibility to thoroughly evaluate all viable alternatives, especially when market developments materially impact transaction values. Postponing the shareholder vote would provide necessary time to properly evaluate the competing offers against Ready Capital's deteriorating financial position.

Key Corporate Governance Concerns and Addressing Them

NexPoint has raised several key corporate governance concerns regarding the UDF IV Board's handling of the merger process with Ready Capital. These concerns can be addressed by taking the following steps:

1. Lack of Transparency and Engagement: NexPoint criticized the UDF IV Board for not engaging with them regarding their competing proposal and for rejecting it without substantive evaluation. To address this, the Board should engage with all potential acquirers, including NexPoint, to understand their proposals and assess their merits.
2. Timing of the Merger Announcement: The announcement of the Ready Merger just days before the Annual Meeting raises concerns about the Board's strategic intentions and commitment to shareholder interests. To address this, the Board should provide a clear explanation for the timing of the announcement and demonstrate how it aligns with shareholder interests.
3. Board Independence and Conflicts of Interest: NexPoint has questioned the independence of the UDF IV Board and the potential conflicts of interest in the merger process. To address this, the Board should ensure that its members are independent and that any potential conflicts of interest are properly disclosed and managed.
4. Evaluation of Alternatives: NexPoint has criticized the Board for not properly evaluating alternative proposals, such as their own. To address this, the Board should conduct a thorough evaluation of all viable alternatives, including NexPoint's proposal, and provide a clear explanation for their decision-making process.
5. Shareholder Engagement and Voting Rights: NexPoint has encouraged shareholders to withhold or withdraw their votes to compel the Board to properly review competing proposals. To address this, the Board should engage with shareholders, provide clear information about the merger process, and respect shareholders' voting rights.

Proposed Postponement of the Special Meeting

NexPoint has proposed postponing the Special Meeting by 30 days, from March 4, 2025 to April 4, 2025. This postponement balances the need for thorough evaluation of competing proposals with the existing merger deadline by providing adequate time for review, maintaining the April 15 merger deadline, encouraging shareholder engagement, and addressing corporate governance concerns. By postponing the meeting, UDF IV shareholders and the Board can properly evaluate NexPoint's competing proposal and compare it with the Ready Capital merger, ensuring that shareholders have sufficient information to make an informed decision about the future of the company.

In conclusion, NexPoint's update on the UDF IV proposal and the upcoming Special Meeting highlights the importance of thorough evaluation of competing proposals, especially when market developments materially impact transaction values. By addressing key corporate governance concerns and proposing a postponement of the Special Meeting, NexPoint demonstrates its commitment to maximizing shareholder value while respecting the existing merger process. UDF IV shareholders should carefully consider the implications of the proposed merger and the competing offers, and engage with the Board to ensure that their interests are properly represented.