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August 09, 2017  

Investor Split on SkyBridge Deal Still Hazy

Chinese conglomerate HNA Group has given itself the flexibility to buy a larger stake in Anthony Scaramucci’s SkyBridge Capital than it envisioned early this year.

Likewise, existing SkyBridge shareholder RON Transatlantic has the option to maintain its 9% interest in the New York fund-of-funds firm, as opposed to sticking with its plan to boost its ownership.

As recently as April, HNA planned to buy a 51% interest in the New York fund-of-funds firm, with Transatlantic intending to increase its stake to 38%. Management is slated to end up with 11% of the firm.

But ostensibly minor wording changes in the latest SEC filings on the deal leave open the option of Transatlantic not increasing its stake at all and HNA boosting its controlling interest to 80%.

The deal reportedly values SkyBridge at $180 million, which means Transatlantic, a diversified holding company, would have to invest an additional $52 million to amass a 38% stake. If it decided to forgo that investment and maintain its 9% share of the firm, HNA would presumably have to pick up slack and spend that amount to own 80% of SkyBridge’s stock.

The revised language allows for HNA to acquire “as much as” 80% of the firm and Transatlantic buy “as much as” 38%, leaving both the freedom to purchase smaller stakes.

The change might have been meant to leave the investors with options in case the appetites of HNA and Transatlantic change prior to closing. But according to an HNA spokesman, “Transatlantic is still expected to take 38%.”

The spokesman added: “The changes were simply a technical filing that clarified language preserving the parties’ flexibility to adjust exact ownership levels within the parameters of HNA owning no less than 51% and RON Transatlantic owning no more than 38%.”

Still, it’s unclar why the investors want that flexibility.

A mergers-and-acquisitions specialist who operates in the asset management arena said, “That language [of the SEC filings] is weird — I have never seen a deal proceeding to closing with the sources and uses [of capital] up in the air.” The M&A banker added: “Normally you have a deal agreed in detail, a binding agreement is signed and then announced. Then you have some contingencies before you close and when they are met, the deal closes. The cap table doesn’t typically move between signing and closing.”

Transatlantic might decide it no longer wants to make the additional investment. A number of observers have said that the $180 million valuation for the fund-of-funds is high.

SkyBridge has shrunk over the past year or so. It was managing $7.7 billion of discretionary assets on Jan. 31, down from $9.2 billion a year earlier. The firm’s largest fund, SkyBridge Multi-Advisor Hedge Fund Portfolios, suffered $1.6 billion of net redemptions in the year ending March 31, when it held $5.4 billion.

Also involved in the deal for Transatlantic is George Hornig, who heads the Transatlantic entity involved in the SkyBridge purchase. He previously was a top executive at PineBridge Investments and worked at Credit Suisse. SkyBridge has said he will join the firm’s board and work on product development when the deal closes.

The SkyBridge sale is scheduled to close by Sept. 30, which represents a postponement from the second-quarter closing that was originally targeted. The delay is at least partly tied to a review of the transaction by the Committee on Foreign Investment, a multi-agency panel led by the U.S. Treasury Department.

The committee, which has the ability to block foreign acquisitions of U.S. companies based on national security concerns, has been paying particularly close attention to deals involving Chinese companies. And China’s own regulators have been tightening up on prolific deal-making companies, including HNA, that have been deploying capital outside the country.

SkyBridge chief executive Scaramucci, who has been seeking to sell his 44% stake in SkyBridge, entered the deal anticipating that he would land a job in the Trump Administration. He was named to the U.S. Export-Import Bank in June, and then spent 10 tumultuous days as the White House communications director, until he was removed from the position on July 31, the first day on the job for White House chief of staff John Kelly.