Dyal's $12 Billion SPAC Merger With Owl Rock Clears Legal Hurdle

Golub Capital was denied a court order it sought to temporarily bar its part-owner Dyal Capital Partners from merging with a rival in the direct-lending business, a deal that has spurred a legal backlash against Dyal.

New York State Supreme Court Justice Joel Cohen made the ruling from the bench on Friday, saying Golub was unlikely to succeed on the merits of its case. He called Golub’s contention that Dyal had given up its right to make such deals when it bought a stake in Golub in 2018 “wildly implausible.”

Dyal and Owl Rock Capital Partners announced in December that they would combine and go public in a $12 billion deal through a special purpose acquisition company, or SPAC, marking hot Wall Street trends such as listing via a blank-check firm and a new ebullience over direct lending. The merged company, Blue Owl, would have $45 billion in assets.

Dyal, a Neuberger Berman subsidiary, has prospered over the past decade buying up passive stakes in money managers. Now some of those relationships are under strain from the Owl Rock deal, which could see Dyal emerge as a rival to some of the very investment firms in which it holds ownership interests. On top of it all, the blank-check company effecting the merger is Altimar Acquisition Corp., a SPAC backed by HPS Investment Partners, which also competes with firms Dyal has backed.

Two Lawsuits

Sixth Street Partners sued to block the merger in February, arguing the deal would place it in competition with its part-owner, since it competes with Owl Rock, and Dyal took a stake of about 10% in Sixth Street in 2017. Days later, Golub, a $35 billion credit specialist, sued on similar grounds. Dyal bought a stake in Golub in 2018 for about $1 billion, according to people with knowledge of the matter.

“It seems wildly implausible that the Neuberger entities, all the way to the top, bargained away their right to make transactions at the corporate level in connection with a single fund,” the judge said at Friday’s hearing. “The Golub investment, which is certainly a substantial one, is small if not immaterial against the backdrop of Neuberger in its entirety.”

A spokesperson for Dyal said in a statement: “We’re pleased with the court’s ruling and remain confident we will prevail in what we believe are similarly meritless claims. We continue to work towards a close of our strategic combination as planned.”

A spokesperson for Golub said the firm may appeal.

“Because the court could only consider preliminary relief, we remain focused on the expedited arbitration proceeding where the merits of our position will be heard and decided and where we will have the ability to develop a full evidentiary record,” according to a statement. “We continue to explore all legal options available to protect our rights, including a possible appeal of today’s decision.”

Golub, as part of its suit, alleges that while seeking to raise funds for a new investment vehicle last year, Dyal improperly disclosed confidential information about Golub that it had gleaned in buying its stake. On Friday, Cohen said the contract for the 2018 deal has a provision that imposes restrictions on the use of confidential information. If those protections are insufficient, the judge said, Golub can buy back the interest if a competitor owns 50% or more of Dyal.

“They have that right. It’s spelled out very specifically,” Cohen said. “If they intended to create a veto right, that’s where they would have put it. The notion that somehow there was not a clear provision inserted to deal with this is hard to believe.”

‘Beyond the Breaking Point’

Earlier in the hearing, Stephen R. DiPrima, an attorney for Dyal, said “the idea that in negotiating a passive stake in one of 17 partner managers, belonging to one of five funds, that Dyal gave over to Golub essentially the right to veto corporate transactions at the Neuberger level stretches things beyond the breaking point.”

Andrew J. Rossman, a lawyer for Golub, said Dyal had invested in partners like Golub through various funds and was selling the control rights over those interests, along with the management fees it gets paid for being general partners. Rossman said Dyal had sought consent from two similar managers.

“This isn’t some flea on the back of a dog,” Rossman said. “It’s extremely valuable, and there were robust protections that went along with it.” He said “this was a deal where everything is a restriction” and “there cannot be a transfer unless our consent is given or it’s a permitted transfer.”

Sixth Street has asked a judge in Delaware to put the combination on hold until she can determine whether its 2017 agreement with Dyal gives it the power to kill the merger.

The case is GCDM Holdings v. Dyal Capital Partners Mirror Aggregator (A), 651226/2021, New York State Supreme Court (Manhattan).

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