The Oaktree Capital and Brookfield Marriage

I had the pleasure to be back on The Intelligent Investing Podcast with Eric Schleien to discuss the Brookfield-Oaktree transaction. Below are some notes on the transaction.

Bruce Flatt from Brookfield Asset Management and Howard Marks from Oaktree Capital Management are getting tie up. Two of the brightest investment mind are coming together. This is a deal where best in class meets best in class. It’s a win-win situation for both Oaktree and Brookfield.

Howard Marks doesn’t need an introduction. Marks built a reputation for making sharp bets on undervalued assets and in the process becoming one of the most famous figures in investing. Marks is frequently seen sharing his wisdom on financial TV and is active on the public speaking circuit. His memos, full of insights, are must read material. His first book, The Most Important Thing, is outstanding and has been endorsed by Warren Buffett. Read it. Marks has a new book out, Mastering the Market Cycle, but I haven’t read it yet. As for Bruce Flatt, I’ve covered him in the past here, here, and here. Flatt might not be as well known as  Marks, but his investment record speaks for itself. You can read the latest shareholder letter here. Here are BAM’s performance:

BAM Performance
Brookfield Asset Management Performance. Source: BAM 2018 Shareholder Letter

The Deal

  • Here’s the press release.
  • BAM is buying 62% of OAK for $4.7b.
  • 38% will remain with current management
  • Brookfield will acquire all of Oaktree’s publicly traded A shares for either $49 per share or 1.077 Brookfield shares. This is a 16% premium over the 30-day value weighted average price. Or a 12.4% premium over the closing price before the announcement.
  • It is also buying 20% of the privately held B shares for a total of 62 per cent of the business.
  • Total consideration paid by BAM will be 50% and 50% shares.
  • BAM can be a total owner at the earliest in 2029, pursuant to a liquidation plan that starts in 2022.
  • OAK employees has 92% voting power.
  • The combined entity will have $475 billion in assets (BAM $355b + OAK $120b). The deal will put it in the same region as Stephen Schwarzman’s Blackstone (BX).
  • BAM is expected to earn $2.5b in fee related earnings.
  • Both firms are expected to stay independent.
  • BAM will have 2 board seats on OAK.
  • Howard Marks will have a board seat on BAM.
  • The entities can’t be fully integrated because they want it that way, but also for regulatory reasons.
  • OAK will keep their brand, management, and investment teams.

Why?

Continue reading “The Oaktree Capital and Brookfield Marriage”

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