Market holds few Avocent deal alarms; Harvest Energy bid on track; Allied Capital shares jump

By Cristal Cody

Tupelo, Miss., Oct. 26 - Emerson Electric Co. received U.S. antitrust approval for its $1.2 billion acquisition of Avocent Corp. that was announced earlier this month, and overseas regulatory clearances should be just as quick, an analyst told Prospect News.

Meanwhile, a market source said Monday that Korea National Oil Corp.'s C$1.8 billion buyout of Harvest Energy Trust should close in December, despite some initial questions.

In other situations, an analyst told Prospect News that investors are likely to approve Ares Capital Corp.'s $648 million stock acquisition of Allied Capital Corp.

On Wall Street, stocks faltered and sent the Dow Jones Industrial Average further below 10,000.

The Dow lost 104.22 points, or 1.05%, to close at 9,867.96.

The Standard & Poor's 500 index dropped 12.65 points, or 1.17%, to 1,066.95. The Nasdaq Composite index fell 12.62 points, or 0.59%, to 2,141.85.

Emerson waits on overseas OKs

The Federal Trade Commission said Monday in a deal release that Emerson's $25.00-a-share cash buyout of Avocent received early termination of the federal antitrust waiting period.

Emerson said in its tender offer statement filed with the U.S. Securities and Exchange Commission that the deal also will require antitrust approvals in Austria, Germany, Hungary and Ireland.

Regulators should have few concerns with the buyout, Eli Lustgarten, an analyst with Longbow Research LLC, told Prospect News on Monday.

"It's relatively straightforward. There's no overlap issue which reduces competitiveness," he said. "There's not many issues one can spot that would account for any challenge to it."

St. Louis-based technology company Emerson Electric announced the offer on Oct. 6 for Huntsville, Ala.-based Avocent, which produces electronic remote switches to control data servers.

The companies expect the transaction to close by Jan. 1.

Avocent shares rose 3 cents, or 0.12%, to close at $24.92 on Monday.

Emerson shares lost 37 cents, or 0.93%, to end at $39.31.

South Korea secures Canadian deal

Korea National Oil said it must receive approval from its board of directors for the acquisition of Harvest Energy for C$10.00 a unit in cash and the assumption of C$2.3 billion of long-term debt by Thursday.

"Although this is likely to be a formality, it is notable that approval was not obtained prior to announcing the bid," a market source said Monday.

Korea National Oil, a state-owned South Korean oil and gas company, said on Wednesday it will buy out Canadian oil and gas producer Harvest Energy.

A special meeting of Harvest unitholders is expected to take place in December to vote on the deal, and investors are likely to accept the offer "given its large level of debt," the source said.

Calgary, Alta.-based Harvest's debt includes C$1.1 billion in bank debt, $250 million in senior notes and C$916 million in convertible debentures.

The takeover also is subject to court and regulatory approval.

"There is some timing risk due to the need to obtain Investment Canada approval," the source said. "Although Investment Canada is very unlikely, in our view, to oppose the transaction, it is not uncommon for a review to last longer than the initial 45-day review period."

The companies said the acquisition should close before the end of the year.

The deal includes a C$100 million non-completion fee.

Harvest Energy's units fell C$0.11, or 1.18%, to close Monday at C$9.20. The company's units have traded from C$3.00 to C$11.55 over the past year.

Finance firms take partnership route

New York-based middle market finance firm Ares Capital said Monday it will take over Allied Capital for $3.47 a share in a stock, a bid that represents a 27.3% premium to Allied Capital's closing stock price of $2.73 on Friday.

Washington, D.C.-based Allied Capital is a middle market private equity firm that has operated as a public company since 1960 and has investments in 92 companies across the country.

Under the terms, Allied Capital stockholders will receive 0.325 of a share of Ares Capital for each Allied Capital share.

The boards of directors of both companies have unanimously approved the transaction, which is expected to close by the end of the first quarter of 2010.

The deal must receive approval from Allied Capital and Ares Capital shareholders as well as lender consents from both companies and regulatory approvals.

Ares Capital spokesman Bill Mendel told Prospect News on Monday that the company did not have an immediate comment on additional regulatory information.

However, an analyst interviewed by Prospect News on Monday dismissed any antitrust concerns.

Shareholders also are likely to approve the offer, although they "might want a little bit more money given how attractive this deal is for Ares," the analyst said.

In fact, investors sent Ares Capital shares up $1.30, or 12.16%, to close at $11.99 on Monday.

Although the bid is well off Allied Capital's 52-week stock trading high of $16.22, it's also higher than the stock's annual low of 58 cents.

Allied Capital shares jumped 88 cents, or 32.23%, on Monday to close at $3.61.

"It's a good deal, just based on how low the stock price had gotten," the analyst said. "Sure, it's well off the year high but it's also way above the year low. It's a fair value given how high the interest costs are on Allied's debt. Their profitability was suffering just because of how expensive their debt was."

Ares Capital said it expects to reposition Allied Capital's portfolio into higher yielding assets and to seek to lower financing costs. Ares Capital also said it will pay $165 million in cash for Allied Capital's stake in the Senior Secured Loan Fund LLC.

"Our stockholders should benefit through resumed receipt of dividends and ownership in a company with a stronger balance sheet and proven access to the capital markets," John Scheurer, chief executive officer of Allied Capital, said in a statement.

The combined company will be based in New York, and one member of Allied Capital's board is expected to be nominated to join Ares Capital's board.

"This transformative transaction creates a middle-market capital provider with leading market coverage, access to capital, scale and diversification," Michael Arougheti, president of Ares Capital, said in the statement. "We believe that our portfolio composition and prudent balance sheet management throughout the current cycle have positioned us to deliver value for our stockholders and to be an industry consolidator."

Mentioned in this article:

Allied Capital Corp. NYSE: ALD

Ares Capital Corp. Nasdaq: ARCC

Avocent Corp. Nasdaq: AVCT

Emerson Electric Co. NYSE: EMR

Harvest Energy Trust NYSE: THE

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