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Brookfield (BAM) Agrees to Buy 62% Stake in Oaktree Capital

Zacks Equity Research
Companies In The News Are: UTX, HAS, PHM, JBLU

Brookfield Asset Management Inc BAM recently announced that it has entered into a deal to buy nearly 62% stake in Oaktree Capital Group, LLC OAK. The transaction, subject to customary closing conditions as well as regulatory and unitholder approvals, is expected to be closed in third-quarter 2019.

Brookfield and Oaktree will together have nearly $475 billion in assets under management (AUM) and $2.5 billion of annual fee-related revenues, post acquisition. Both companies will benefit from each other’s strengths while continuing their operations independently, under their current brands.

Further, the companies will be headed by their existing management and investment teams, after the deal’s closure. In addition, Howard Marks will continue as Oaktree’s co-chairman, as well as join Brookfield’s board of directors.

Terms of the Deal

Per the deal, Oaktree Class A unitholders can opt to receive either $49 in cash or 1.0770 Brookfield Class A shares, for each Oaktree Class A unit. This reflects a 12.4% premium for every Oaktree Class A unit, as per the closing price of Class A shares of both companies, on Mar 12. This also represents a 15.9% premium based on the 30-day volume-weighted average price of Oaktree Class A units.

The option to elect for Brookfield Class A shares will enable stakeholders to remain afloat in the business. This apart, these elections are subject to pro-ration, such that Brookfield pays 50% of the consideration in cash and the remaining in shares.

Moreover, according to the press release, "the founders, senior management, and current employee-unitholders of Oaktree Capital Group Holdings, L.P. (OCGH), the holder of all outstanding Class B units of Oaktree as well as a direct interest in certain of Oaktree’s operating entities, will sell to Brookfield 20% of their units for the same consideration as the Oaktree Class A unitholders."

The cash portion of the total consideration will be paid by Brookfield from its available liquidity. On completion of the transaction, the company will own nearly 62% of Oaktree business, while the remaining 38% will be held by OCGH unitholders, primarily consisting of its founders, and certain other members of management and other employees.

Beginning 2022, the former Oaktree employee-unitholders will be able to sell their remaining units to Brookfield, per an agreed-upon-liquidity schedule and approach to valuing such units at the time of liquidation. Further, Oaktree founders, senior management and current employee-unitholders may also opt to do the same. Thus, Brookfield can own Oaktree’s business in 2029, at the earliest.

Nevertheless, if the above-mentioned agreement is aborted under certain conditions, Oaktree will have to pay $225 million as termination fee.

Over the past six months, this Zacks #2 (Buy) Ranked stock has gained 9.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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