Owl Rock-Dyal Blockbuster Merger Stirs Sixth Street Backlash

A marquee merger between investing heavyweights Owl Rock Capital Partners and Dyal Capital Partners is descending into a brawl with a $50 billion rival investor.

Sixth Street Partners is seeking to block the Owl Rock-Dyal deal until concerns it has with the transaction are addressed, according to a letter sent to investors and seen by Bloomberg News. The Alan Waxman-led firm says the terms of its 2017 stake sale to Dyal prevent them from a tie-up with a competitor such as Owl Rock without its consent. Sixth Street wants its stake to be excluded from the deal.

In December, Dyal and Owl Rock caused a stir when they agreed to combine in a complex deal that would see them merge and go public with $45 billion in assets and a new name -- Blue Owl. Dyal’s business relies on taking stakes in other firms, some of whom compete for the same business as Owl Rock, which has fast grown into a dominant player in the direct-lending market.

“We cannot have Dyal as both a competitor and an owner in our business,” Sixth Street said in the letter. Dyal was allowed to invest in the firm because it claimed at the time they “would not directly compete with us.”

Sixth Street’s claims are “baseless” and Dyal and Owl Rock will vigorously defend against them, David Wells, a spokesman representing the firms in the merger, said.

“Sixth Street is attempting to assert the existence of a consent right that we believe simply does not exist,” Wells said.

Dyal’s merger announcement caught Sixth Street by surprise and Dyal hadn’t reached out to the firm to address the proposed deal, according to the letter. Sixth Street said it has tried to privately engage with Dyal and its current parent Neuberger Berman, but that they had been unable to reach a resolution to protect their interests. Sixth Street has filed a court complaint that it expects to become publicly available this week, the letter said.

While Sixth Street objects to the deal, it says its dispute is with Dyal and not Owl Rock.

Dyal has been at the forefront of a major trend reshaping the world of private investments. Firms that buy up companies or lend to them have seen rapid growth but much of the wealth their executives have amassed is illiquid. Dyal has helped unlock fortunes for founders by buying minority stakes in their firms or providing critical capital for growth as they seek to expand.

Owl Rock is an upstart in the world of direct lending with a significant pedigree. The New York-based firm was formed with the backing of three top dealmakers plucked from Wall Street titans Blackstone, Goldman Sachs and KKR.

Its decision to merge follows a 2019 stake sale to Dyal that ascribed a lofty valuation to Owl Rock and cemented its stature as a leading player in the private credit frenzy sweeping the market.

The tie-up of the two firms is wrapped up in another Wall Street fad. The duo is electing to simultaneously merge with a blank-check company. In this case, Altimar Acquisition Corp. a special purpose acquisition company, or SPAC, backed by HPS Investment Partners.

A regulatory filing by Altimar in January highlighted the risk that a firm in which Dyal has a stake may object. Such firms could seek remedies if they view Owl Rock as a competitor, including forcing Dyal to sell its interest.

San Francisco-based Sixth Street makes credit and equity investments across a range of strategies including specialty lending, infrastructure and structured credit. Its chief executive officer Waxman started out at Goldman Sachs in 1998, before making partner when he was just 31, betting the firm’s own cash for big gains before leaving to help start what was then called TPG Sixth Street Partners.

When Dyal bet on Sixth Street in 2017, it was the credit affiliate of buyout giant TPG. It has since more than doubled its assets and ended the partnership with TPG, freeing the firm to pursue a wider array of deals.

Sixth Street went on a fundraising blitz last year as it set to bolster its war chest to benefit from a prolonged period of market turmoil set off by the coronavirus pandemic.

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