Orange Capital Expresses Concern Regarding ACAS’s Capital Allocation Program & Seeks
Assurances on Spin Off Governance

  • Disappointed that management continues to shun share repurchases in favor of funding new, higher risk investments.
  • Believes in order to obtain high multiple on fee income at ACAM, investors need to have confidence in the company’s approach to capital allocation.
  • Propose that management earmark at least one-third of the $600 to $800mm allocated for ACAM growth to share repurchases.
  • Highly confident that shareholders share our views with respect to share repurchases and governance.

NEW YORK--()--Orange Capital, LLC (“Orange Capital”) holder of approximately 2.4% of the stock of American Capital Ltd. (NASDAQ:ACAS) (“ACAS” or the “Company”), today announced it has issued the following letter to Mr. Malon Wilkus, Chairman and Chief Executive Officer of ACAS:

March 5, 2015

Mr. Malon Wilkus
Chairman and Chief Executive Officer
American Capital, Ltd.
2 Bethesda Metro Center, 14th Floor
Bethesda, Maryland 20814

Dear Mr. Wilkus,

Orange Capital, LLC, a New York based investment firm, is the beneficial owner of 6,377,555 shares of American Capital, Ltd. (“ACAS” or the “Company”) representing approximately 2.4% of outstanding common stock.

We are supportive of the Company’s November 5, 2014 announcement to separate the asset management business from the investment portfolio (the “Spin Off”). Despite this positive announcement, ACAS’s shares continue to trade at a depressed 73% of reported NAV.

We believe that the Spin Off should ultimately unlock significant shareholder value. However, we are concerned about management’s stance on capital allocation and seek assurances with respect to the governance of the newly separated companies after giving effect to the Spin Off.

Capital Allocation

We are disappointed that management continues to shun accretive share repurchases in favor of funding new, higher risk investments.

Management has communicated to us that after preparing the business development companies (“BDCs”) for the Spin Off, funding growth at American Capital Asset Management, LLC (“ACAM”) is its single best use of capital because it believes the market will assign a high multiple to ACAM’s fee management income.

We believe that in order to obtain a high multiple on both the fee income at ACAM and price to NAV at the BDCs, investors need to have confidence in the company’s approach to capital allocation. This should include consistently repurchasing shares when they are meaningfully undervalued.

We believe management’s failure to repurchase shares at the current price sends a very negative signal about capital allocation. In weighing the choice to repurchase shares against funding growth investments, we believe management has not appropriately recognized that uncertain future income streams, and the multiple assigned to them, should have a higher discount rate than immediately accretive share repurchases. A balanced combination of growth investments and capital returns would build immediate credibility and demonstrate that management is a good steward of capital. We are confident that this would help the future trading multiple of ACAM and the BDCs.

We urge management to reconsider its stance on share repurchases and earmark at least one-third of the $600 to $800 million allocated for ACAM growth in the Fourth Quarter 2014 earnings presentation for share repurchases. We believe that a share repurchase program will have a limited impact on the current yield generated by the BDC portfolios, and their valuations post the Spin Off.


We believe that governance, noteablely compensation, shareholder rights, and voting practices, will have a meaningful impact on the future valuation of ACAM and the new BDCs. We urge the company to ensure that shareholders have a fair and equal voice on these matters.

We eagerly await the proxy and registration statements of the newly separated companies. Given the sparse details released to date, we are concerned that any proposal to effect the Spin Off will require shareholders to accept governance and compensation practices that may not be in the best interests of shareholders as part of an “all-or-none” vote. We encourage the company to place the interests of shareholders first by allowing them to evaluate all compensation and governance proposals separately from the Spin Off itself.

We urge management to reconsider its capital allocation strategy and to institute sound corporate goverance in the newly separated companies. We are highly confident that many of ACAS’s shareholders share our views.


Daniel Lewis
Managing Partner
Orange Capital, LLC


Mr. Paul J. Brown
Mr. William C. Cobb
Mr. Marvin R. Ellison
Mr. Robert A. Gerard
Mr. David Baker Lewis
Ms. Victoria J. Reich
Mr. Bruce C. Rohde
Mr. Tom D. Seip
Ms. Christianna Wood
Mr. James F. Wright
Mr. John M. Scheurer


Orange Capital, LLC, is an alternative asset management firm focused on event-driven opportunities. Orange Capital was founded in 2005 by Daniel Lewis and Russell Hoffman and is headquartered in New York.


Bayfield Strategy, Inc.
Riyaz Lalani, 416-907-9365

Release Summary

Orange Capital expresses concern regarding ACAS’s capital allocation program & seeks assurances on spin off governance


Bayfield Strategy, Inc.
Riyaz Lalani, 416-907-9365