8-K: Ares Management Issues $1.5 Billion in Mandatory Convertible Preferred Stock to Fund Acquisition and General Purposes

Ares Management Corporation has successfully issued 30 million shares of its new 6.75% Series B Mandatory Convertible Preferred Stock, raising $1.5 billion to finance a major acquisition and for general corporate needs.

Summary

• Ares Management Corporation issued 30 million shares of 6.75% Series B Mandatory Convertible Preferred Stock, raising $1.5 billion.
• The offering included an underwriter option for an additional 3 million shares, which was fully exercised.
• The preferred stock ranks senior to the company's Class A common stock in terms of dividend payments and asset distribution upon liquidation.
• Dividends on the preferred stock will accumulate at an annual rate of 6.75% and will be paid quarterly, starting January 1, 2025, and ending October 1, 2027.
• The company has the option to pay dividends in cash, shares of common stock, or a combination of both.
• Each share of preferred stock will automatically convert into between 0.2717 and 0.3260 shares of common stock on or about October 1, 2027.
• The conversion rate will be determined based on the average stock price over the 20 trading days before the conversion date.
• The net proceeds from the offering will be used to fund a portion of the cash consideration for the acquisition of GLP Capital Partners' international business and for general corporate purposes.
• Ares may invest the net proceeds in short-term investments or repay borrowings under its subsidiaries revolving credit facility pending their use.

Sentiment

Score: 7

Explanation: The document is generally positive, detailing a successful capital raise and strategic acquisition. However, there are some risks associated with the conversion and integration of the acquired business.

Positives

• The offering successfully raised $1.5 billion, providing substantial capital for the company.
• The preferred stock offering provides a flexible financing option with a fixed dividend rate and potential for conversion to common stock.
• The funds will support a strategic acquisition and general corporate growth initiatives.
• The company has the flexibility to pay dividends in cash, shares, or a combination of both.

Negatives

• The preferred stock ranks senior to common stock, potentially diluting the value of existing common shares.
• The conversion rate is subject to market fluctuations, which could impact the value of the preferred stock at conversion.
• The company is subject to certain restrictions on declaring dividends on or repurchasing common stock if accumulated dividends on the preferred stock are not paid in full.

Risks

• The company's ability to successfully integrate the acquired business and achieve expected benefits is subject to various risks and uncertainties.
• The conversion rate of the preferred stock is dependent on the future performance of the company's common stock.
• The company's ability to pay dividends on the preferred stock is subject to the availability of legally available funds.
• The company may not be able to use the proceeds from the offering as intended if the acquisition is terminated or the board determines it will not occur.

Future Outlook

The company intends to use the net proceeds from the offering for the acquisition of GLP Capital Partners' international business and for general corporate purposes, including repayment of debt, other strategic acquisitions and growth initiatives. The company may also invest the net proceeds in short-term investments or repay borrowings under its subsidiaries revolving credit facility pending their use.

Industry Context

This offering is part of a broader trend of alternative asset managers seeking capital to fund acquisitions and growth. The use of mandatory convertible preferred stock allows Ares to raise capital while providing investors with a fixed income component and the potential for equity upside.

Comparison to Industry Standards

• The 6.75% dividend rate is within the typical range for preferred stock offerings by financial institutions.
• The mandatory conversion feature is a common structure for preferred stock offerings, providing a clear path to equity conversion.
• The use of proceeds for acquisitions and general corporate purposes is consistent with industry practices for capital raises.
• Comparable companies such as Blackstone, Apollo, and KKR have also utilized similar financing strategies to fund growth and acquisitions.

Stakeholder Impact

• Shareholders will see potential dilution from the conversion of the preferred stock.
• Employees may see changes related to the acquisition of GLP Capital Partners' international business.
• Customers may see changes in services or products as a result of the acquisition.
• Creditors may see changes in the company's debt structure.

Next Steps

• The company will use the net proceeds from the offering for the acquisition of GLP Capital Partners' international business and for general corporate purposes.
• The company will list the preferred stock on the New York Stock Exchange.
• The company will monitor the performance of its common stock in relation to the conversion rate of the preferred stock.

Key Dates

Keywords

Mandatory Convertible Preferred Stock, Ares Management Corporation, Capital Raise, Acquisition, GLP Capital Partners, Preferred Stock, Dividend, Conversion, Underwriting, Public Offering