Sixth Street Says Merger Would Put It in ‘Unhappy Marriage’

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Sixth Street Partners contends Dyal Capital Partners’ proposed merger with a rival investment fund would leave Sixth Street mired in an “unwanted marriage” and argues the combination should be temporarily put on hold.

Sixth Street, which manages more than $50 billion, wants a Delaware judge to tap the brakes on Dyal’s merger with Owl Rock Capital Partners until she can decide whether a 2017 agreement gives the New York-based investment firm the right to kill the deal.

“If consummated, this transaction would force Sixth Street into an unwanted marriage with a direct competitor in clear breach of Sixth Street’s contractual rights,” the fund said in an unsealed court filing. Delaware Chancery Court Judge Morgan Zurn is set to hold a March 24 hearing on the matter.

Under the 2017 deal, Dyal bought a 10% stake in Sixth Street. Then, in December, Dyal and Owl Rock announced they’d join forces. It would allow the combined company to go public with $45 billion in assets and a new name, Blue Owl, through a special purpose acquisition company.

David Wells, a Dyal spokesman, said Friday the fund remains “confident that we will prevail in this case and also remain on track to close our strategic combination in the first half of this year.”

Dyal’s strategy is to take stakes in investment 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. Sixth Street alleges the deal changes its relationship with Dyal.

The transaction represents an “about-face for defendants, whose investment in Sixth Street was predicated on a promise to be Sixth Street’s trusted partner -- not its competitor,” the fund’s lawyers said in the filing. Golub Capital, a $35 billion credit specialist, also sued last month, asking a New York judge to block the combination. A Dyal unit bought a stake in Golub in 2018 for about $1 billion.

While Dyal contends the 2017 investment agreement doesn’t give its erstwhile partner a say over deals, the fund has sought Sixth Street’s consent in other transactions, according to court filings. In May 2020, Dyal officials sent a letter to Sixth Street requesting “consent for a financing transaction pursuant to which the Dyal Funds would issue notes” backed by Sixth Street’s contributions to those funds, according to the filing. Sixth Street consented to the deal, the filing shows.

Dyal’s “prior conduct shows their own recognition” of Sixth Street’s rights, Sixth Street’s lawyers argued.

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

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