Business Context and Reporting Period
This Form 8-K, dated January 3, 2017, reports the completion of Ares Capital Corporation's acquisition of American Capital, Ltd. The transaction was executed pursuant to a Merger Agreement dated May 23, 2016. Following the merger, American Capital became a wholly owned subsidiary of Ares Capital and converted into a Delaware limited liability company, withdrawing its election as a business development company.
Key Financial Metrics and Transaction Terms
The filing details the specific merger consideration paid to American Capital stockholders per share of common stock:
- Cash from Registrant: $6.48 per share (including a $0.07 make-up dividend).
- Stock Consideration: 0.483 shares of Ares Capital common stock.
- Cash from Prior Sale: $2.45 per share representing proceeds from the sale of American Capital Mortgage Management, LLC.
- Cash from Investment Adviser: Approximately $1.20 per share from Ares Capital Management.
Fee Waiver: Ares Capital Management agreed to waive up to $100 million in income-based fees over the first ten calendar quarters beginning in Q2 2017. The waiver is capped at $10 million per quarter or the actual fees earned, whichever is less.
Financial Statements: The filing incorporates by reference American Capital's unaudited consolidated financial statements as of September 30, 2016, and December 31, 2015, as well as unaudited pro forma condensed consolidated financial information for the combined entity. Specific revenue, profit, or cash flow figures for the combined entity are not provided in the text of this report.
Material Changes
The primary material change is the structural consolidation of American Capital into Ares Capital Corporation. This includes:
- The merger of Orion Acquisition Sub, Inc. with American Capital.
- The merger of American Capital Asset Management, LLC with Ivy Hill Asset Management L.P.
- The conversion of American Capital from a corporation to a limited liability company.
Guidance, Outlook, and Risks
The filing does not contain forward-looking guidance, management commentary on future performance, or specific risk factors beyond the standard incorporation of the Merger Agreement and Transaction Support Agreement by reference. The document notes that the press release issued on January 3, 2017, is furnished under Regulation FD but is not deemed "filed" for purposes of Section 18 of the Exchange Act.
Investor Verification Checklist
- Verify the total aggregate consideration paid by reviewing the number of American Capital shares outstanding at the time of the merger.
- Review Exhibit 99.3 for the unaudited pro forma financial information to assess the combined entity's financial position.
- Confirm the specific terms of the $100 million fee waiver in the Investment Advisory and Management Agreement.
- Examine the press release (Exhibit 99.1) for additional context on the strategic rationale and immediate impact.