American Capital, the Maryland-based alternative asset manager, has announced the proposed acquisition of its Guernsey-based subsidiary European Capital.

On 10 November, 2008 American Capital and European Capital entered into an implementation agreement regarding American Capital's proposal to acquire all of the ordinary shares of European Capital held by other investors by means of a scheme of arrangement provided for under Guernsey company law.

Terms of the agreement call for each European Capital shareholder to receive 0.333 American Capital shares of common stock for every one ordinary share of European Capital.

Based on the closing price of American Capital common stock on 7 November, 2008, this represents total consideration of USD158m for the 32.3 per cent of European Capital's outstanding ordinary shares not already owned by American Capital, or a price of USD4.59 per ordinary share of European Capital.

This implies a total market capitalization of USD490m and a total enterprise value of USD2bn.

American Capital currently owns 67.7 per cent of European Capital.

The proposed acquisition is subject to approval by a special majority of the shareholders of European Capital other than American Capital, and Guernsey court approval and other normal closing requirements.

In addition, American Capital's shareholders will be asked to approve the issuance of its common stock in connection with the transaction.

The proposed acquisition is expected to close in the first quarter of 2009.

The implementation agreement provides that prior to the closing of the transaction, European Capital will not declare additional dividends without the prior approval of American Capital.

Malon Wilkus, American Capital chairman and chief executive officer (photo), says: 'Since its formation in 2005, we have built European Capital into one of the leading middle market investment franchises in Europe. European Capital represents a core part of our global business platform. Unfortunately over the recent months, the share price of European Capital has traded at a significant discount to its net asset value, like most financial companies in the world, to the point that the benefits that we believed would be created by a separate listing are now negated. We believe this transaction will offer significant benefits to both the European Capital and American Capital shareholders.'