Blue Owl Backs Off: Market Conditions Send the Merger Flying South

Blue Owl Capital Corporation OBDC has officially withdrawn from its planned merger with Blue Owl Capital Corporation II ("OBDC II"), pointing to market conditions that made the transaction increasingly unattractive. The decision follows growing investor unease, highlighted by reports that OBDC II shareholders were temporarily restricted from redeeming their stakes while the deal was pending, even though the one-for-one exchange could have translated into notable losses.

The merger aimed to fold the nontraded fund into OBDC, but this year’s sharp selloff in private credit stocks pushed its shares well below net asset value, intensifying concerns that investors would be disadvantaged. Despite scrapping the deal, both companies emphasized that they still believe a merger could deliver long-term strategic value under more favorable conditions. Management expects to revisit potential paths forward in the coming days.

OBDC II, launched in 2017, has delivered a cumulative net return of nearly 80% and an annualized net return of 9.3% since inception, underscoring its strong track record. As of Sept. 30, 2025, it had positions in 190 companies totaling $1.7 billion in fair value.

OBDC’s previously announced $200 million share repurchase program remains active, providing ongoing support for its stock. As of Sept. 30, 2025, it held investments in 238 portfolio companies with a combined fair value of $17.1 billion. OBDC’s third-quarter 2025 adjusted EPS of 36 cents missed the Zacks Consensus Estimate by 7.7% and decreased 23.4% year over year. Elevated expense level and lower prepayment-related income and interest income from debt investments affected the results.

How Did Other Companies Fare?

Ares Capital Corporation’s ARCC third-quarter 2025 core earnings of 50 cents per share met the Zacks Consensus Estimate, supported by higher total investment income. Also, the company’s robust portfolio activities aided its results. However, higher expenses acted as a spoilsport. Ares Capital Corporation’s bottom line fell 13.8% from the prior-year quarter.

Blackstone Secured Lending Fund BXSL reported the September-quarter EPS of 82 cents, which beat the consensus mark by 2.5%, but declined from 91 cents a year ago. Although BXSL’s interest income and payment-in-kind interest income increased in the quarter, higher operating expenses affected earnings.

OBDC’s Price Performance, Valuation and Estimates

Shares of OBDC have lost 20.8% year to date compared with the industry’s decline of 9.5%.

From a valuation standpoint, OBDC trades at a forward price-to-earnings ratio of 8.23X, much lower than the industry average. OBDC carries a Value Score of C.

The Zacks Consensus Estimate for OBDC’s 2025 and 2026 earnings implies 19% and 7.8% declines year over year, respectively.

The stock currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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