George S. May Business Blog

Ares Capital buys Allied Capital for $648 million

Allied Capital has agreed to sell itself for $648 million in stock to Ares Capital, a NY investment management company. Allied’s shareholders will receive 0.325 Ares shares as a result of the sale, valuing the company at $3.47 per share, a 27 percent premium to the closing price on Oct. 23. Ares stockholders will hold on to 65 percent of the merged company and Allied Capital shareholders will control 35 percent.

Allied Capital was audited earlier this year. One of the auditors admitted to having “doubt about the company’s ability to continue”.

Greg Mason, an analyst at Stifel Nicolaus, said that “this is the end of the Allied story” dubbing Allied’s balance sheet at “broken”.

In reality, the Allied story has been over for sometime. Swirling concerns about financing has helped Allied to drop 60 percent in the past 12 months.

The transaction is subject to approval by Allied and Ares shareholders, as well as regulators and some lenders, and is scheduled to close by the end of the first quarter, the two companies said.

As for Ares’ plans moving forward, the company says it plans to move Allied’s portfolio into higher-yielding assets and aims to limit the need for divestments by lowering financing costs.

“This transformative transaction creates a middle-market capital provider with leading market coverage, access to capital, scale and diversification,” said Michael Arougheti, president of Ares Capital.

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