In a significant development from the real estate investment trust sector, Ellington Financial Inc. (NYSE: EFC), recognized for its diverse financial asset investments, and Great Ajax Corp. (NYSE: AJX), known for its residential mortgage loan focus, have mutually decided to terminate their merger agreement set forth on July 3, 2023.

Why The Deal Fell Through

The decision for termination garnered approval from the boards of both entities. They reached this decision after a meticulous evaluation of the merger’s implications and the strides made towards its culmination. Additionally, as part of the termination agreement, Ellington Financial will compensate Great Ajax with a sum of $16 million. This amount comprises a $5 million cash payment and the remaining $11 million paid for roughly 1.666 million shares of Great Ajax common stock. With this transaction, Ellington Financial’s stake in Great Ajax’s stock rises to an approximate 6.1%. Furthermore, as of June 30, 2023, an affiliate of Ellington Financial’s external manager possessed 273,983 shares of Great Ajax common stock. Despite this setback in the merger, the firms will sustain their partnership in the securitization joint venture and jointly explore mortgage loan opportunities.

Insight into the Initial Deal

Previously announced in July 2023, the merger was slated for closure by the end of that year. The merger’s terms dictated that each share of Great Ajax common stock was to be exchanged for 0.5308 shares of Ellington Financial common stock. This would have resulted in a rough total of 12.5 million shares of Ellington Financial common stock. With Ellington Financial’s common stock’s closing price on the NYSE as of June 30, 2023, the offer price per Great Ajax common stock share would have been $7.33. This was a 19% premium from the Great Ajax common stock closing price on the same date. Had the merger reached fruition, Ellington Financial stockholders would have owned about 84% of the combined entity, leaving Great Ajax stockholders with an estimated 16%.

Future Projections

Despite the merger’s termination, the two companies emphasize their commitment to collaborative endeavors in the mortgage loan sector. They envision leveraging their unique strengths, with Ellington Financial’s expertise spanning across diverse financial assets, including residential and commercial mortgage loans and Great Ajax’s prowess in residential mortgage loans.

  Ellington Financial, Great Ajax, USA