American Capital Selling Operations for $4 Billion

American Capital Ltd. on Monday unveiled plans to break itself up, selling its operations in two deals worth a combined $4 billion.

Ares Capital Corp. agreed to buy most of the operations in a cash-and-stock deal worth about $3.43 billion, while American Capital Agency Corp. will buy the mortgage arm for $562 million.

The deals together value American Capital, a business-development company and asset manager, at $17.40 a share, a 22% premium to its November share price before activist Elliott Management Corp. took a stake in the company.

Elliott, which holds a 14.4% position in American Capital, said it "strongly supports the transactions" and will vote accordingly. The activist had initially opposed American Capital's previous plan to separate its business-development operations from its asset-management arm, calling it a "poison pill" meant to entrench management.

The companies said the deal will strengthen Ares Capital's position as a direct lender to middle-market companies.

"The growing demand for capital from middle market borrowers has created the need for flexible capital providers like us to fill the financing gap as banks continue to retrench from the market," said Ares Capital board co-chairman Michael Arougheti. "We believe this transaction materially enhances our presence as a market leading direct lender with the size and scale to capitalize on the attractive competitive dynamics in the market today and for the foreseeable future."

The transaction is expected to close within 12 months and immediately add to Ares Capital's earnings.

Shares of American Capital rose 5.4% premarket to $16.46. Shares of Ares Capital were inactive.

Write to Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

May 23, 2016 09:25 ET (13:25 GMT)

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