Shares of Oaktree Capital Group (NYSE:OAK) climbed 12% on Wednesday morning after Brookfield Asset Management (NYSE:BAM) announced a $4.8 billion deal to acquire a majority stake in Oaktree, creating an entity with $475 billion of assets under management and $2.5 billion in annual fee-related revenue.
The terms of the deal give Oaktree shareholders the choice of receiving either $49 in cash or 1.0770 class A shares of Brookfield for each share held. The cash offer is a premium of about 12% over Oaktree's Tuesday closing price.
The deal combines two of the leading names in asset management, an industry that tends to do well in a bull market but face issues when there is market turbulence. Oaktree's fourth-quarter results reflect the broader market tumble in late 2018, with adjusted revenue down 11% and adjusted net income down by one-third.
Post-deal, both Brookfield and Oaktree will continue to operate their businesses independently and led by existing management and investment teams, partnering when appropriate. At close, Brookfield will own about 62% of the Oaktree business, with Oaktree founders and certain other employees owning the remaining 38%.
Brookfield also has the right to match any unsolicited superior proposal Oaktree might receive, and the agreement provides for the payment by Oaktree of a $225 million fee if the agreement is terminated under certain circumstances.
The deal structure allows investors with shorter time horizons who might fear continued market volatility a chance to cash out at a premium, or those with a longer-term view a stake in a premier asset management firm.
That's a tough choice best made based on individual circumstances. But given the outstanding long-term track records of both Oaktree and Brookfield, the combination is likely to be a powerhouse in the asset management business for years to come.