Oaktree Capital co-chair Howard Marks. Picture: SUPPLIED
Oaktree Capital co-chair Howard Marks. Picture: SUPPLIED

New York/Bengaluru— Brookfield Asset Management said on Wednesday that it will buy most of Oaktree Capital Group in a roughly $4.8bn deal, creating an alternative asset manager that will rival industry leader Blackstone Group in size.

The decision by Oaktree, led by distressed-debt investor Howard Marks, to sell a majority stake of itself comes after a sustained period in which its stock has underperformed the broader market.

Oaktree’s stock is down about 13% over the past five years, even after a price bump on Wednesday following the deal’s announcement. By comparison, the S&P 500 Index is up more than 50% over the same time and Blackstone’s share price is up 4%.

Brookfield approached Oaktree about the deal some time during the autumn, a person familiar with the matter said.

The deal is also a bet by Brookfield, which currently focuses on private equity, real estate, infrastructure and renewable power, on the prospects for investing in debt, which makes up about 70% of Oaktree’s assets under management.

“This transaction enables us to broaden our product offering to include one of the finest credit platforms in the world, which has a value-driven, contrarian investment style, consistent with ours,” Brookfield CEO Bruce Flatt said in a statement.

The combined businesses will have about $475bn of assets under management, Brookfield said in a statement. Industry leader Blackstone had $472bn in assets under management at the end of 2018.

Oaktree shareholders can exchange each of their shares for either $49 in cash or 1.0770 Class A shares of Brookfield. However, Brookfield said the total amount will be paid in 50% stock and the rest in cash. The offer represents an 11.8% premium to Oaktree’s Tuesday closing price. The stock was up 11.8% in mid-day trading.

Both companies will continue to operate as independent businesses, while Marks, Oaktree’s co-chair, will join Brookfield’s board of directors.

Oaktree shareholders, consisting primarily of its founders, certain members of management and employees, will own the remaining 38% of the company.

Starting from 2022, Oaktree’s founders, senior management, as well as current and former employee shareholders, will be able to sell their remaining Oaktree units to Brookfield over time.

Reuters