Ares Capital Moves to Acquire American Capital, Excluding Mortgage Management

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Both Ares Capital Corp. (NASDAQ: ARCC) and American Capital Ltd. (NASDAQ: ACAS) announced that they have entered into a definitive merger agreement. According to the agreement, Ares Capital will acquire American Capital, excluding American Capital Mortgage Management. The boards of directors of both companies have unanimously approved the transaction, but it is still subject to regulatory and shareholder approval.

This transaction is expected to enhance Ares Capital’s position as the leading business development company in the United States and a leading direct lender to middle market companies. The combined company would have on a pro forma basis more than $13 billion of investments at fair value as of March 31, 2016.

Under the terms of the deal, American Capital shareholders will receive roughly $3.43 billion in total cash and stock consideration, or $14.95 per fully diluted share. Separately, American Capital also announced that it is selling American Capital Mortgage to American Capital Agency Corp. (NASDAQ: AGNC) for $562 million, or $2.45 per fully diluted share.

Collectively, the transactions announced Monday represent total value for American Capital shareholders of $4.0 billion, or roughly $17.40 per fully diluted share, representing a premium of 11.4% to American Capital’s closing price on Friday.

According to the release put out by the companies:

American Capital shareholders will receive $1.470 billion in cash from Ares Capital, 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, 2016, issued in exchange for approximately 229.3 million American Capital shares. Following the transaction, Ares Capital shareholders are expected to own approximately 73.9% and American Capital shareholders are expected to own approximately 26.1% of the combined company.

Shares of Ares traded down 2.6% to $14.79 Monday morning, with a consensus analyst price target of $16.42 and a 52-week trading range of $11.01 to $16.80.

American Capital was trading up 1% to$15.77. The consensus price target is $16.83, and the 52-week range is $11.92 to $16.13.

American Capital Agency shares were last seen up 0.6% to $18.89, within a 52-week range of $15.69 to $20.93. The consensus price target is $19.45.