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American Capital's Shareholders Approve Merger with Ares

The Maryland-based private equity firm and asset manager, American Capital, Ltd.ACAS has announced that a majority of its shareholders have approved the merger agreement with Ares Capital Corporation ARCC , at the company's annual meeting. Holders of more than 96% of the American Capital shares that participated in the voting, cast their votes in favor of the acquisition by Ares Capital. They represented nearly 55% of American Capital's outstanding common shares, as of the record date for the shareholder meeting, held on Thursday.

Separately, Ares Capital also declared the approval by its shareholders in a special meeting, held on the same day.

The acquisition by Ares capital will be made through a series of transactions. Notably, shareholders of American Capital also supported all other matters contained in the meeting agenda. This included advisory vote on certain payments related to the merger transactions to be made to the company's executive officers and the re-election of each of the members of its board of directors.

The deal is expected to close by the first week of Jan 2017, upon fulfillment of certain consents and customary closing conditions.

Background

In Nov 2015, American Capital announced the strategic review process, stating that it will fully review alternatives, including the sale of the company or partial sale of various business lines, along with review of its spin-off plans. Interestingly, the announcement came in less than two weeks after billionaire investor, Paul Singer's hedge fund - Elliott Management Corporation - expressed concerns over the proposed spin-off plans of the company.

Apart from proposing the withdrawal of the spin-off plan, Elliott Management proposed several recommendations, including setting up of a Strategic Review Committee, to look for all available options, in order to maximize stockholder value.

In May 2016, American Capital announced the sale of its operations for $4 billion through two separate deals. Further, in Jul 2016, American Capital Mortgage Management, LLC was sold to American Capital Agency Corp., in a transaction for $562 million.

The second transaction involved the acquisition by the New York-based specialty finance company, Ares Capital. The deal was set at $3.43 billion, in cash and stock. Further, upon closure of the transaction, shareholders of Ares Capital are likely to own around 73.9%, while shareholders of American Capital will own the remaining 26.1% of the combined entity.

Notably, Elliott Management now "strongly supports" the latest deals of American Capital. In a statement, portfolio managers of the hedge fund - Jesse Cohn and Pat Frayne - mentioned, "ACAS's streamlined portfolio will benefit from management by an Ares team that has a stellar track record of delivering shareholder value."

Moreover, following the announcement of the deals, rating firm - Moody's Investors Service - placed American Capital's B2 Corporate Family, B2 Senior Secured and B3 Senior Unsecured ratings, on review for potential upgrade. Moody's expects the transaction to reduce the possibility of default for American Capital's creditors, considering the relatively stronger credit profile of Ares Capital. Also, Ares Capital anticipates repaying the outstanding debt of American Capital at the transaction's closure.

American Capital shares have gained more than 24% so far, this year, outperforming the 11.3% growth for the Zacks categorized SBIC & Commercial industry.

Two stocks in the same space that are worth considering, include CM Finance Inc. CMFN sporting a Zacks Rank #1 (Strong Buy) and NewStar Financial, Inc. NEWS , carrying a Zacks Rank #2 (Buy). Over the last 60 days, the Zacks Consensus Estimate for the current year has moved up by 2.6% to $1.17 per share for CM Finance and by 18.6% to 51 cents per share for NewStar.

You can see the complete list of today's Zacks #1 Rank stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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