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Ares Capital to acquire lender Allied Capital for $648M

By Robert J. Steiner for CEOWORLD Magazine Updated:October 27, 2009

Ares Capital Corp. (ARCC) announced plans to acquire fellow lender Allied Capital Corp. (ALD) for $648 million in stock as Ares plans to be a consolidator in the space.

Meanwhile, Ares projected third-quarter earnings of 35 cents to 36 cents a share; the average estimate of analysts surveyed by Thomson Reuters was 32 cents.

Allied, a leveraged-buyout financier, has struggled during the financial crisis, recording more than $1.6 billion of investment losses since the start of 2008. The company restructured its debt just before Labor Day in an effort to cut leverage levels, but the move meant increased capital costs. Fitch ratings added at the time that the move likely wouldn’t end the need for asset sales.

Allied holders will get 0.325 Ares share for each Allied share. That values each share of Allied at $3.47, a 27% premium to Friday’s closing price. The stock was briefly above $4 in late July. Allied holders would own 35% of the combined company.

The deal, which is set to close in the first quarter, “creates a middle-market capital provider with leading market coverage, access to capital, scale and diversification,” said Ares President Michael Arougheti. “We believe that our portfolio composition and prudent balance-sheet management throughout the current cycle have positioned us to deliver value for our stockholders and to be an industry consolidator.”

Shares of Allied Capital (ALD) were up 35% in afternoon trading Monday and reached as high as $3.76, which is above the price that Ares Capital Corp. (ARCC) said it would pay for the troubled lender.

Ares Capital before Monday’s opening bell announced an agreement to purchase Allied Capital for $648 million, or $3.47 a share, in an all-stock deal. Allied shares trading at a premium to the deal price suggests some investors expect a richer offer for the company.

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