Dyal-Owl Rock $12 Billion Merger Can Proceed, Judge Rules

Dyal Capital Partners and Owl Rock Capital Corp. can proceed with their $12 billion merger after a judge found a 2017 agreement didn’t give Sixth Street Partners the right to put the deal on hold.

Delaware Chancery Court Judge Morgan Zurn on Tuesday said Sixth Street couldn’t temporarily halt the combination while the funds develop their arguments over the reach of the 2017 pact, under which Dyal bought a 10% stake in Sixth Street. Dyal is a subsidiary of Neuberger Berman.

Sixth Street wanted Zurn to forbid Dyal from transferring its interests, including confidential information and consent rights obtained in the 2017 deal, to Owl Rock. Earlier this month, a judge in New York rejected a similar request for delaying the deal made by Golub Capital, another fund manager in which Dyal had acquired a minority stake.

“The record indicates that this litigation and the parallel action in New York were part and parcel of a calculated effort to ‘muck up’ the transaction to force a buyback,” Zurn said in the opinion. “After admitting the transaction was not concerning, Sixth Street saw opportunity in it.”

Sixth Street is “disappointed Dyal’s and Neuberger’s unreliable narrative was the basis of today’s decision, and we will consider appropriate options,” Sixth Street spokesman Patrick Clifford said. “We entered into our agreement with the understanding that Dyal would be our partner and not our competitor.”

Dyal and Owl Rock announced last year they’d join forces in a complex merger designed to let the funds go public with $45 billion in assets through a special-purpose acquisition company, better known as a SPAC. It’s the convergence of Wall Street’s hottest fads -- a firm buying minority stakes, ebullience in direct-lending markets and utilization of a blank-check company. The SPAC will go by the name Blue Owl.

Direct-Lending Market

Dyal takes stakes in firms, some of which compete for the same business as Owl Rock, which has fast grown into a dominant player in the direct-lending market. In court filings, Dyal had previously said Sixth Street is misinterpreting the pact and seeking to create leverage “for its own financial gain.”

“We’re pleased with this resounding victory,” said Josh Clarkson, a spokesman for Dyal.

At a hearing last month, Dyal’s lawyers produced internal Sixth Street files showing officials saying they weren’t concerned about the loss of confidential information when the rival funds made their combination public in December.

However, according to Zorn, Sixth Street executives sought to turn the deal to their advantage a month later by demanding Dyal sell back its 10% stake for the $417 million it originally paid in 2017. Dyal officials rejected that low-ball price, saying the stake was worth at least $700 million based on Sixth Street’s financial performance, the judge wrote in a 27-page ruling. “Sixth Street declined to negotiate,” Zurn said.

Sixth Street then sought to derail the deal by filing antitrust complaints to the U.S. Justice Department and suing in Delaware, according to Zurn’s opinion. The investment fund then pushed the judge to recognize its consent rights and temporarily block the deal, which it said would leave it in an “unhappy marriage.”

After reviewing the evidence, Zurn concluded “Sixth Street has failed to make a clear showing of imminent irreparable harm to support” its request to temporary halt the deal.

The case is Sixth Street Partners Management Co. v. Dyal Capital Partners, 2021-0127, Delaware Chancery Court (Wilmington).

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