A recent report released by The Wall Street Journal on Thursday revealed that Oaktree Capital Group LLC (NYSE:OAK) is building towards acquiring Fifth Street Asset Management Inc (NASDAQ:FSAM).
According to the WSJ, the deal might be announced soon and Oaktree is expected to pay roughly $350 million as part of the transaction. Fifth Street stock surged by a significant margin following the announcement. The stock price went up to $6.15 from $3.75, thus showing that investors were pleased about the upcoming acquisition. The stock however dropped to $5 per share but still retained significant gains from the previous close on Wednesday, marking a 33% up move.
The massive stock surge might have something to do with the fact that Oaktree is managed by Howard Marks, who is an esteemed debt investor while Fifth Street is headed by Leonard Tannenbaum who is far less esteemed. The positive response by investors could thus be because Fifth Tree will be in better hands once the acquisition is complete. There have been numerous instances where the company’s management has applied policies that were not in line with the interests of the shareholders. The firm has recently been trying to uphold a better reputation with investors by reducing fees but that has not yielded significant success.
“The BDC paid down balances on debt obligations that carry change-of-control provisions, while pushing off the renewal of its credit facilities, one of which will no longer allow Fifth Street Finance to make new borrowings as soon as August 2017,” stated a Motley Fool report.
Prior to the announcement, there had been numerous counts where Fifth Street was rumored to be on the verge of an acquisition. However, the latest announcement is the only one with a named buyer as well as the potential price of the acquisition. This is as close to a confirmation of the acquisition as it has gotten so far and the investor response clearly outlines sentiments about such a deal.
Fifth Street stock closed the latest trading session on Thursday at $4.90 after a 28.95 percent compared to the value of the stock during the previous close.