Ellington Financial Inc. (NYSE:EFC) entered into a definitive Agreement to acquire Arlington Asset Investment Corp. (NYSE:AAIC) for approximately $150 million on May 29, 2023. Under the terms of the merger agreement, (i) each share of Arlington common stock will be converted into 0.3619 shares of Ellington Financial common stock, or approximately 11.7 million shares of Ellington Financial common stock in the aggregate, and (ii) Arlington common stockholders will also receive $3 million in cash in the aggregate (or $0.09 per share) to be contributed by Ellington Financial?s external manager. The respective closing stock prices for Ellington Financial and Arlington on May 26, 2023 imply an offer price of $4.77 per Arlington share. In addition, each share of Arlington Asset?s 7.00% Series B Cumulative Perpetual Redeemable Preferred Stock issued and outstanding immediately prior to the Effective Time will be automatically converted into the right to receive one newly issued share of 7.00% Series D Cumulative Perpetual Redeemable Preferred Stock and each share of Arlington Asset?s 8.250% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock issued and outstanding immediately prior to the Effective Time will be automatically converted into the right to receive one newly issued share of 8.250% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock. Upon completion of the acquisition, Ellington Financial is expected to have a pro forma equity capital base of over $1.5 billion. Upon the closing of the acquisition, Ellington Financial stockholders are expected to own approximately 85% of the combined company?s stock, while Arlington stockholders are expected to own approximately 15% of the combined company?s stock. In addition, Ellington Financial will assume Arlington?s outstanding preferred equity, senior unsecured notes and trust preferred securities. The combined company will operate under the name ?Ellington Financial Inc.? and its shares will continue to trade on the NYSE under the existing ticker symbol ?EFC?. Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C., will continue to manage the combined company. If transaction is terminated by Arlington, then Arlington would be required to pay EFC a termination fee of $5,015,050. Upon completion of the acquisition, Ellington Financial?s Chief Executive Officer and President, Laurence Penn, will continue to lead the combined company, and Ellington Financial executives Michael Vranos, Mark Tecotzky, and JR Herlihy will remain in their current roles. The combined company will remain headquartered in Old Greenwich, Connecticut. The Board of the combined company is expected to expand to six directors through the addition of one Arlington-designated director.

The transaction is subject to the approval by Arlington?s stockholders and other customary closing conditions, the effectiveness of a registration statement on Form S-4 to register the issuance of EFC Common Stock, EFC Series D Preferred Stock and EFC Series E Preferred Stock in connection with the Merger, the approval for listing on the New York Stock Exchange, the certificates of designations classifying the EFC Series D Preferred Stock and the EFC Series E Preferred Stock having been filed with and accepted for record by the Secretary of State of the State of Delaware, REIT Opinion, Section 368 Opinion, Arlington Director Designee to be appointed to Ellington Board and Series D Cumulative Redeemable Preferred Stock and the Parent Series E Cumulative Redeemable Preferred Stock shall have been approved for listing on the NYSE. The transaction has been unanimously approved by the Boards of Directors of Ellington Financial and Arlington. As of December 12, 2023 Arlington Asset Investment Corp voted to approve the proposed merger transaction. On November 2, 2023, the registration statement of Ellington declared effective by the SEC. The transaction is expected to close in the fourth quarter of 2023. As of December 12, 2023 The Merger is expected to close on December 14, 2023, subject to the satisfaction of the remaining closing conditions. Upon closing, the transaction will be positioned well to drive accretive earnings growth and provide strategic and financial benefits to our stockholders. Stephen Pollock and Keith Meyers of Keefe, Bruyette & Woods acted as exclusive financial advisor and Daniel LeBey, Stancell Haigwood, Zach Swartz, Chris Mangin, Paige Anderson, Lina Dimachkieh, Dario Mendoza, Sean Becker, Carter Olson, Ramey Layne of Vinson & Elkins acted as legal advisor to Ellington Financial. Wells Fargo Securities acted as exclusive financial advisor and Steven Haas, Robert K. Smith and James Kennedy of Hunton Andrews Kurth LLP acted as legal advisors to Arlington. Wells Fargo Securities, LLC acted as fairness opinion provider to Arlington. Chris Gavin, Taylor Speers, William Lang, Stephanie Hines acted as legal advisor to Ellington Financial Inc. Alliance Advisors, LLC acted as proxy solicitor to Arlington and will receive a fee of approximately $27,300. Deloitte & Touche LLP acted as financial and tax due diligence provider, and Winston & Strawn LLP acted as due diligence provider to EFC. Arlington has agreed to pay Wells Fargo Securities an aggregate fee of approximately $2.7 million, $0.25 million of which became payable to Wells Fargo Securities at the time the transaction was publicly announced on May 30, 2023, and the remainder of which is contingent and payable upon the consummation of the merger. Equiniti Trust Company, LLC acted as transfer agent to Arlington and EFC.

Ellington Financial Inc. (NYSE:EFC) completed the acquisition of Arlington Asset Investment Corp. (NYSE:AAIC) on December 14, 2023.