It has been just over a year since Prospect Capital's attempted acquisition of Allied was denied by Allied's management in one of the most eviscerating letters you will see written by a public company . Let us review some of the highlights:
- As a result of this review, Allied’s Board of Directors has unanimously concluded that this revised offer does not constitute, and is not reasonably likely to result in, a “Superior Proposal” as defined under our merger agreement with Ares Capital Corporation (“Ares” or “ARCC”). Allied’s Board of Directors has unanimously reaffirmed its recommendation that Allied shareholders vote for the transaction with Ares announced on October 26, 2009.
- During our discussions, Prospect made claims to have access to a significant amount of third party capital. While we were intrigued by these references, Prospect was unwilling to disclose any details, including the identity of the mysterious capital source, nor was Prospect willing to provide any information regarding the financial outline of a potential transaction.
- We believe Prospect’s unsolicited offer does NOT provide Allied shareholders “Superior Value” as compared to the Ares transaction.
- We believe a merger with Allied would put Prospect’s dividend at risk, resulting in a near term dividend cut, which would reduce Prospect’s stock price and imply a lower value for Allied’s shareholders
- We believe Prospect lacks the managerial expertise to run the combined company.
- There is no assurance that any agreement with Prospect could be reached or closed
- We believe Prospect has limited liquidity to operate the combined business
- We believe the Prospect management platform is inferior to the Ares management platform, providing weaker long term growth opportunities for Allied’s shareholders. Allied’s Board has no confidence in Prospect’s ability to manage the assets in Allied’s portfolio.
- We believe the acquisition of Patriot Capital further weakens Prospect’s platform, making Prospect a less attractive merger partner.
- Prospect has a track record of highly dilutive equity capital raises which we do not believe provides responsible growth to shareholders.
- We believe, by combining with Prospect, Allied shareholders would be inheriting a much riskier portfolio.
Allied management closed the letter with a unanimous "No" against PSEC and the ARCC merger went through as of April 1st 2010.