Key Takeaways
- Merger Canceled: Blue Owl has officially called off the planned merger of its two private-credit funds, Blue Owl Capital Corporation (OBDC) and Blue Owl Capital Corporation II (OBDC II).
- Investor Pressure: The decision follows significant investor concern and a sharp 6% drop in the parent company’s stock price after the merger was announced.
- Redemptions to Resume: Investors in the smaller OBDC II fund, who faced frozen redemptions, will now be able to access their funds in the first quarter.
- Market Reaction: Blue Owl’s stock saw a 2% jump in premarket trading after news of the cancellation, signaling market approval of the decision.
NEW YORK – Blue Owl is retracting its plan to merge two of its major private-credit funds following a potent backlash from investors that rattled the company’s stock, according to sources familiar with the matter.
The firm has decided to terminate the deal that would have combined its smaller, non-traded fund, Blue Owl Capital Corporation II (OBDC II), with its larger, publicly traded counterpart, Blue Owl Capital Corporation (OBDC). The reversal comes swiftly after the initial announcement caused significant market volatility and negative headlines.
Why the Deal Sparked Concern
The core of the investor “angst” stemmed from the terms of the proposed merger. Investors in the $1.7 billion OBDC II fund were informed that redemptions would be restricted until the deal closed.
Compounding the issue, the merger would have resulted in an estimated 20% paper loss for those investors, based on the recent trading price of the $17.1 billion OBDC fund.
The market’s reaction was immediate. Shares of the parent company, Blue Owl Capital, slumped by approximately 6% on Monday following the news. The move also fueled wider concerns about the stability of the private credit industry, which has been under scrutiny for its rapid growth.
A Swift Reversal
According to sources, the boards of both funds concluded that the potential benefits of the merger did not justify the market volatility and negative investor sentiment it generated. Acknowledging the backlash, they opted to reverse course to stabilize the situation and restore investor confidence.
The official announcement terminating the merger is expected to be made as soon as today.
What’s Next for Investors?
With the merger now off the table, investors in OBDC II are set to regain liquidity. The fund will resume its standard quarterly redemption process, with investors expected to be able to make withdrawals in the first quarter.
The market has already responded positively to the news. In a sign of relief, Blue Owl shares jumped 2% in premarket trading on Wednesday, indicating that investors support the decision to abandon the controversial deal.