Shares of Medley Management Inc (NYSE:MDLY) rocketed Friday after it announced it would merge with Sierra Income Corp and Medley Capital Corp (NYSE:MCC) to create one of America’s largest business development companies on the New York Stock Exchange.
Investors latched onto the news of the powerhouse in the making and sent Medley Management shares zooming 42% to US$4.90, while Medley Capital rose nearly 8% to US$3.65.
The three companies said they had entered into an agreement for Sierra to acquire Medley Management and Medley Capital. Their existing asset management businesses will operate as Sierra’s wholly-owned subsidiary.
As a condition to closing the transaction, Sierra stock will be listed to trade on the New York Stock Exchange.
“We are excited to bring together these three complementary entities to create a single, large-scale business development company and credit manager,” Medley Capital CEO Brook Taube said in a statement.
There’s been a lot of buzz about business development companies of late as they provide crucial financing to small and mid-sized businesses. BDCs are set up essentially as closed-end funds that make investments in private, or in some cases public companies, typically with lower trading volumes.
The company said the new BDC will have over US$5bn of assets under management, including US$2bn of internally managed assets. The transaction would “add scale to the BDC platform, increase operational efficiencies,” create a stronger balance sheet and improve portfolio diversification.
Medley Capital shareholders will receive 0.8050 shares of Sierra stock for each existing share they currently hold.
Similarly, Medley Management shareholders will receive 0.3836 shares of Sierra stock for each Medley Class A share, and US$3.44 per share of cash consideration and US$0.65 per share of special cash dividends. the company said.
Current Sierra shareholders will continue to own shares of Sierra common stock.
The mergers are cross-conditioned on each other and subject to approval by Sierra, Medley Management and Medley Capital shareholders. The merger is expected to close in the fourth quarter of 2018 or early next year.