Blue Owl Capital Corp and Blue Owl Capital Corp II scrap merger amid market volatility

What happened

Blue Owl Capital Corp (OBDC) and Blue Owl Capital Corp II have jointly terminated their previously proposed merger, citing current market volatility and a desire to re‑evaluate strategic alternatives. Management and the boards continue to believe a combination could create long-term value but judged that proceeding now would not be in shareholders’ best interests. This comes on the heels of OBDC’s completed January 2025 merger with Blue Owl Capital Corp III, which already increased scale and reinforced its first‑lien, senior-secured portfolio profile. The decision removes near-term integration and execution risk for OBDC, whose balance sheet leverage, asset coverage (181% as of June 30, 2025), and credit quality metrics remain intact. Near term, investor focus should shift back to core drivers—credit performance, funding costs, and deployment conditions in private credit—rather than merger-related synergies.

Implication

For investors, the end of the OBDC–OBDC II merger means OBDC will not gain the additional scale, fee efficiencies, and portfolio diversification that a second consolidation could have delivered on top of the completed OBDC III merger. However, it also avoids the risk of executing a sizable stock-for-stock transaction into volatile markets, which could have raised concerns about NAV dilution, leverage, or asset quality timing. In the near term, this should simplify the story and keep attention on OBDC’s existing portfolio, where first‑lien dominance, low non‑accruals, and solid asset coverage underpin downside protection at a discounted valuation. The market may initially interpret the decision as a signal of management caution or of choppier private credit conditions, which could add to volatility around the stock. Overall, long-term return potential continues to hinge more on credit outcomes and spread dynamics than on further M&A, so position sizing should still be driven by one’s view on the cycle and private credit valuations rather than this specific merger outcome.

Thesis delta

The termination of the OBDC–OBDC II merger slightly reduces our optionality around further scale and synergy realization but also removes a non-trivial integration and execution overhang. Given OBDC’s already enhanced scale from the completed OBDC III merger and unchanged core credit/funding profile, we maintain the BUY thesis with only a modestly lower contribution from M&A-driven upside and a small positive for risk management discipline. Net-net, our risk/reward view is essentially unchanged, with near-term trading driven more by macro and credit sentiment than by this deal shift.