425: Blue Owl Capital Corporation (OBDC) to Merge with Blue Owl Capital Corporation III (OBDE) in Stock-for-Stock Transaction

Blue Owl Capital Corporation (OBDC) and Blue Owl Capital Corporation III (OBDE) have announced a definitive merger agreement to create the second-largest publicly traded BDC with over $18 billion in assets.

Summary

• Blue Owl Capital Corporation (OBDC) and Blue Owl Capital Corporation III (OBDE) have agreed to merge in a stock-for-stock transaction.
• The combined company will operate as Blue Owl Capital Corporation and trade under the ticker OBDC.
• The merger is expected to close in the first quarter of 2025, pending shareholder approval and customary closing conditions.
• OBDE shareholders will receive newly issued shares of OBDC based on an exchange ratio determined by the NAV per share of both companies and the market price of OBDC shares prior to closing.
• Prior to the merger, OBDE will declare a dividend to its shareholders equal to any undistributed net investment income.
• OBDC's advisor will reimburse up to $4.25 million in fees and expenses associated with the merger, only if the merger is completed.
• The merger is expected to streamline the direct lending platform, increase OBDC's scale and diversification, improve secondary market liquidity, and optimize capital structure.
• The transaction is expected to be accretive to net investment income over time, with potential for NAV per share accretion to OBDC.
• The combined company is expected to realize over $5 million in operational savings in the first year due to the elimination of duplicative expenses.
• Pro forma for the transaction, OBDC will be even larger, which could potentially enhance liquidity available to both sets of shareholders even further.
• OBDC's existing $150 million share repurchase program will remain in place post-closing.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook on the merger, highlighting potential benefits such as increased scale, diversification, and cost savings. The transaction appears strategically sound and is expected to be accretive to net investment income.

Positives

• The merger streamlines the direct lending platform and increases OBDC's scale and diversification.
• It is expected to improve secondary market liquidity and optimize the capital structure.
• The transaction is anticipated to be accretive to net investment income over time.
• There is an opportunity for net asset value accretion to OBDC.
• OBDE shareholders will receive a dividend equal to any undistributed net investment income prior to closing, including $0.24 per share of unpaid special dividends and an estimated $0.19 per share of additional undistributed income as of June 30, 2024.
• The combined company will benefit from OBDC's better credit ratings profile.
• OBDC's existing $150 million share repurchase program will remain in place.

Negatives

• The merger is subject to shareholder approval, which introduces uncertainty.
• The exchange ratio is dependent on the NAV and market price of OBDC shares close to the closing date, which could fluctuate.
• There are risks associated with integrating the two companies and realizing the expected synergies.
• Shareholder litigation in connection with the Mergers may result in significant costs of defense and liability.

Risks

• The timing or likelihood of the merger closing is uncertain.
• The expected synergies and savings associated with the merger may not be fully realized.
• The percentage of OBDC and OBDE shareholders voting in favor of the proposals is uncertain.
• Competing offers or acquisition proposals could be made.
• Any or all of the various conditions to the consummation of the merger may not be satisfied or waived.
• Diverting management's attention from ongoing business operations poses a risk.
• Changes in the economy, financial markets, and political environment could impact the merger.
• Geo-political conditions, including the war between Russia and Ukraine and the Israel-Hamas conflict, could affect the merger.
• An economic downturn, elevated interest and inflation rates, and ongoing supply chain and labor market disruptions could impact the merger.
• The ability of Blue Owl Credit Advisors LLC to locate suitable investments for the combined company and to monitor and administer its investments is a risk.
• The ability of Blue Owl Credit Advisors LLC to attract and retain highly talented professionals is a risk.

Future Outlook

The merger is expected to close in the first quarter of 2025, subject to shareholder approval and customary closing conditions, and is anticipated to be accretive to net investment income over time.

Management Comments

• There will be no change to either the management team or the investment strategy following the completion of the proposed merger.

Industry Context

This merger reflects a trend towards consolidation in the BDC sector, aiming to achieve greater scale, diversification, and access to capital. The combined entity will be a significant player in the direct lending market.

Comparison to Industry Standards

• The document states that the combined company is expected to be the second largest publicly traded BDC by total assets.
• Comparable companies in the BDC sector include Ares Capital Corporation (ARCC) and Main Street Capital Corporation (MAIN).
• The merger aims to achieve similar benefits to other BDC consolidations, such as increased operational efficiency and improved access to capital markets.

Stakeholder Impact

• Shareholders of both OBDC and OBDE are expected to benefit from the increased scale, diversification, and potential for NAV accretion.
• Employees are not expected to be impacted as there will be no change to the management team.
• The combined company is expected to have improved access to long-term, low-cost, flexible debt capital, benefiting creditors.

Next Steps

• OBDC and OBDE shareholders will receive instructions on how to vote on the merger proposals.
• A joint proxy statement/prospectus will be filed with the SEC and mailed to shareholders.
• Special shareholder meetings will be held in the fourth quarter of 2024 or the first quarter of 2025 to vote on the merger.

Key Dates