Brookfield Plans to Buy Majority of Oaktree Capital -- WSJ

By Miriam Gottfried

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 14, 2019).

Brookfield Asset Management Inc. is buying a majority stake in Oaktree Capital Management, bringing an end to the credit-investment firm's six-year run as a public company.

Brookfield will buy about 62% of the Oaktree business, acquiring all outstanding shares of its publicly traded common stock for $49 in cash, or 1.077 Brookfield shares. The deal represents a 12% premium to Oaktree's closing price on Tuesday, the companies said.

Oaktree's preferred shareholders, which primarily consist of its co-chairmen, Howard Marks and Bruce Karsh, their fellow co-founders and other management and employees, will also sell 20% of their nonpublicly traded preferred shares to Brookfield for the same price. After the deal is complete, Oaktree's preferred shareholders will own about 38% of the firm.

The two businesses will continue to operate independently, with each remaining under its current brand and leadership. Two representatives from Brookfield will join Oaktree's board, and Mr. Marks will join Brookfield's board.

The deal will bolster the credit business of Brookfield, which has more than $350 billion in assets spread over real estate, infrastructure and private equity.

Oaktree is known for its distressed-investing expertise, but its time as a public company has clashed with the longest bull market in history. Its stock, including dividends, has climbed 61% from its 2012 initial public offering through Tuesday's close, compared with a 133% rise for the S&P 500.

"Because we're so countercyclical, we weren't adding assets," Mr. Marks said in an interview. "With public ownership, if you can't produce a steady stream of assets and growth, it's not an interesting story."

Oaktree's assets were $120 billion in December 2018, up only 5% since 2015 as markets soared. By comparison, assets for Blackstone Group LP, the largest publicly traded private-equity firm by assets, have climbed by around 40% over that period.

"If you aspire to be a multiclass asset manager, you need to have private credit, as well as private equity, real estate and infrastructure," said Jeff Hammer, co-head of illiquid financial assets at investment bank Houlihan Lokey.

Oaktree founders and senior management will be able to sell their remaining units in equal parts between 2022 and 2026, with other preferred shareholders having until 2029 to sell. The earliest Brookfield could own 100% of Oaktree is 2029.

Before co-founding Oaktree in 1995, Mr. Marks, 72 years old, led the distressed-debt, high-yield bond and convertible-securities groups at TCW Group Inc. Known for his regular missives on the market, he has been warning since 2011 about excessive risk taking by investors, high asset prices and the potential for another credit bubble to pop.

"I've written so many cautionary memos, you might conclude that I'm just a born worrier who eventually is made to be right by the operation of the cycle," he said in a 2017 letter.

--Matt Wirz, Soma Biswas and Colin Kellaher contributed to this article.

Write to Miriam Gottfried at Miriam.Gottfried@wsj.com

(END) Dow Jones Newswires

March 14, 2019 02:47 ET (06:47 GMT)

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