Market Overview

Ares Capital To Buy American Capital For $3.43 Billion


Ares Capital Corporation (NASDAQ: ARCC) and American Capital, Ltd. (NASDAQ: ACAS) struck a definitive merger deal. Accordingly, Ares Capital will buy American Capital, excluding American Capital Mortgage Management, LLC. The terms of the agreement indicated that the acquisition price would be $14.95 in cash and stock and the overall transaction is worth about $3.43 billion.

Ares Capital said this transaction improved its position as the leading business development company and a direct lender to middle market companies in the United States. The merged entity would have on a pro forma basis over $13 billion of investments at fair value as of March. The deal has got the approval of both the companies' Boards of Directors.

The acquiring company indicated that American Capital shareholders would get $1.470 billion in cash or $6.41 per share, plus 0.483 Ares Capital shares for each American Capital share, resulting in approximately 110.8 million Ares Capital shares, or $1.682 billion in value or $7.34 per share based on Ares Capital's closing stock price of $15.19 as of Friday, May 20. Once the transaction is completed, Ares Capital shareholders would own approximately 73.9% while American Capital shareholders would have the remaining 26.1% of the merged company.

In a separate transaction, American Capital revealed that it was divesting American Capital Mortgage Management, LLC to American Capital Agency Corp. (NASDAQ: AGNC) for $562 million or $2.45 per fully diluted share. As a result, the transactions disclosed Monday represented total value for American Capital shareholders of $4.0 billion or approximately $17.40 per fully diluted share collectively. That represented a premium of 11.4 percent to American Capital's closing price on May 20, 2016 and a premium of 21.6 percnet to American Capital's unaffected closing price on November 13 last year.

Commenting about the transaction, Ares Capital's Co-Chairman, Michael Arougheti, said, "The growing demand for capital from middle market borrowers has created the need for flexible capital providers like us to fill the financing gap as banks continue to retrench from the market. We believe this transaction materially enhances our presence as a market leading direct lender with the size and scale to capitalize on the attractive competitive dynamics in the market today and for the foreseeable future."

Its CEO, Kipp deVeer also commented, "Similar to the strategy we successfully utilized in our acquisition of Allied Capital in 2010, we plan to leverage our robust origination platform to redeploy American Capital's portfolio into directly-originated investments generating a higher level of current income and ultimately improved risk-adjusted returns. We are confident in our ability to maximize long-term value for both Ares Capital and American Capital shareholders."

For his part, American Capital CEO, Malon Wilkus, reacted to say, "We are excited to have entered into this mutually beneficial combination with Ares Capital. Our shareholders should benefit immediately from the stable dividend offered by Ares Capital and the fee waiver support provided by Ares Management. Moreover, we expect the combined company to have a more diversified portfolio and a stronger balance sheet that will position it well for future growth."

In the pre-market trading on Monday, ARCC gained 1.45 percent while ACAS advanced 5.95 percent.

Posted-In: M&A News


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