NEW YORK (
on Wednesday said that an acquisition by
could lead to a dividend cut.
Allied said in a statement that while Prospect may view buying Allied as a partial solution to the significant gap in Prospect's earnings relative to its current dividend levels, the market's growing perception of this gap and the risk that an acquisition of Allied won't close the gap could result in a dividend cut.
Allied said that any such reduction could place significant and immediate downward pressure on Prospect's stock price and eliminate the premium that its revised offer claims to provide. Allied is concerned that an acquisition would increase risk to Allied shareholders.
Allied says that one issue that is particularly concerning is what it thinks is Prospect's limited liquidity to operate the combined business.
Allied says based on Prospect's SEC (U.S. Securities and Exchange Commission) filings, Prospect's current available borrowings consist of a $250 million revolving credit facility lead arranged by Rabobank Nederland; and although the total facility size is $250 million, Prospect has received commitments totaling only $210 million -- despite this facility being announced in June 2009.
Allied points out that by contrast,
-- a buyer that Allied approves of -- has commitments from, and long-standing relationships with, many major banks, including
Bank of America
Bank of Montreal
UBS Loan Finance
Morgan Stanley Bank
City National Bank
Branch Banking and Trust Company
Allied was frank about rejecting Prospect's sweetened offer -- announced on Jan. 26 -- saying that the company believes Prospect's management platform is inferior to the Ares', providing weaker long-term growth opportunities for Allied's shareholders. "It is indicative that upon announcement of the revised offer, Prospect stock fell 5.1% during the course of the day's trading," Allied states.
The bottom line: Allied thinks Prospect's unsolicited offer doesn't provide Allied shareholders the superior value of the Ares transaction. The initial unsolicited letter was received on Jan. 14.
Ares and Allied announced on Oct. 26 that they had entered into a definitive agreement under which Ares Capital would acquire Allied Capital in an all-stock transaction at the time valued at $648 million, or about $3.47 per Allied share. Meanwhile rival bidder Prospect increased its offer to acquire Allied to 40 cents a share of Prospect common stock for each share of Allied common stock.
The company says the implied value of the offer is now more than 20% greater than the implied value of Ares'. On Jan. 29., Prospect filed with the SEC a preliminary proxy statement in opposition to the proposed merger between Allied and Ares.
Prospect, Ares and Allied are examples of financial services companies that focus on middle-market companies. Many of these types of companies have been facing problems raising capital, given that the financial crisis lowered the value of their portfolio companies.
Allied settled down 6.8% to $3.80 Thursday afternoon, while Prospect finished at $10.80, down 3.7%. Ares fell 6.5% to $11.80.
-- Reported by Andrea Tse in New York
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