Source Capital (NYSE: SOR), a closed-end fund (“Source”), is interested in discussing a potential merger with 180 Degree Capital Corp. (NASDAQ: TURN) (“TURN”). First Pacific Advisors, LP (“FPA”), is the adviser to Source and is a registered investment adviser. FPA currently manages $27 billion, which includes $350 million related to its management of Source. FPA has a long history of investment excellence – of the 150 largest mutual fund families in the United States, Morningstar recently ranked FPA #2 in terms of “Average Morningstar Rating.”

We propose that TURN merge into Source in an all-stock transaction valuing TURN at 101% of net asset value per share (“NAV”).

The benefits of Source’s offer are the following:

  • TURN shareholders to receive in excess of NAV.
  • Reduced discount to NAV: Source has recently traded at a discount to NAV of approximately ~1-4%. In addition, Source has various initiatives in place intended to reduce the likelihood it will trade at >10% discount to NAV for a prolonged period. These initiatives have been successful since implemented as evidenced by Source’s average annual discount remaining under 10% since March 2021.
  • Larger market cap and improved liquidity: Source and TURN would have an estimated market capitalization of approximately $390 million versus TURN’s current market capitalization of approximately $38 million.
  • Reduced total expenses and management fees: Source currently has an expense ratio of less than 1% (0.93%). TURN has an expense ratio of 8.3%, which is 8.9 times greater. Source’s management fee is 0.675% while TURN’s “salaries, bonus and benefits”, is approximately 4.9%, 7.2 times greater.
  • Attractive income: SOR pays a distribution rate equal to ~5.9% per annum while TURN does not distribute any income.
  • Potentially improved performance:SOR is rated 5-stars by Morningstar (its highest rating) and has increased NAV >8% per annum (>50% cumulatively) over the past five years.TURN has lost more than 51% of NAV over the same period.

The foregoing indicative terms are based solely on our review of publicly available information and are subject to completion of due diligence, approval by Source’s Board of Trustees and execution of definitive documentation acceptable to Source, and we reserve the right to withdraw this proposal or modify it in any manner at any time. Following the review of additional information pursuant to a mutually acceptable nondisclosure agreement, we expect that we would complete our work, including the negotiation of definitive documentation, expeditiously. We have engaged an experienced team of advisors, including Akin Gump Strauss Hauer & Feld LLP as legal counsel, and are prepared to commence work with respect to this proposed transaction immediately.

We are excited about the potential merger and are interested in working constructively with the Board of Directors with the goal of reaching agreement on a transaction that will provide all stakeholders with value, speed and certainty. We hope that the Board will work with us to maximize value and opportunities for all stockholders and other stakeholders, and we look forward to receiving a response to this non-binding proposal promptly.