Fortress starts $100m share buyback

The US alternative assets manager steps up programme of returning cash to shareholders through a modified “Dutch auction” share tender scheme.

US alternative assets manager Fortress Investment Group has initiated a $100 million share buyback, the latest move by the credit and private equity group to return cash to its public market shareholders.

NYSE-listed Fortress, which managed $74.3 billion in assets at end September 2015, said it started the $100 million buyback via a so-called modified “Dutch auction” process, which allows shareholders that want liquidity to tender shares in the group. Fortress plans to purchase the shares at prices within the range of $4.25 and $4.75 – above the 4 February closing price of $4.01 a share.

Under a modified “Dutch auction” process, shareholders indicate the price at which they are prepared to sell their shares, or agree more simply to be bound by the price set by the company for the share repurchase. Following the end of the tender period, the company then sets the lowest price within the purchase range that will it allow it to purchase the maximum number of shares defined in its programme. Shareholders all receive the same price for their stock, even if they were prepared to accept a lower offer.

“The company believes that the modified “Dutch auction” tender offer mechanism is a prudent use of the company’s financial resources and an efficient way to return capital to shareholders who wish to receive cash for all or a portion of their shares,” Fortress said in a statement. 

The tender offer will close on March 4.

The buyback follows a plan announced in October to buy back 56.8 million shares held by Fortress principal and CIO Michael Novogratz on his retirement at the end of 2015. His retirement coincided with Fortress’s decision to close its macro funds and separate accounts business following heavy losses and redemptions.

Fortress said it would repurchase Novogratz’s stock at $4.50 a share, below the market price at the time, resulting in a pay-out of more than $250 million, and reducing the group’s dividend paying share count by around 13 percent.

Fortress manages some $17.5 billion within credit strategies and continues to see strong demand from investors for its funds. The group reached its $1 billion hard-cap on its second Fortress Real Estate Opportunities fund in June last year, taking capital raised by its real estate credit funds to nearly $2 billion in a 12-month period.

Fellow alternative investor Apollo Global Management also announced last week that it will buy up to $250 million of its own shares. 

Apollo chairman and chief executive Leon Black told analysts that at around $13 a share, the firm was undervalued. Up to $150 million of the repurchase programme will be executed via the open market with the remaining $100 million recovered through a reduction in equity issued to staff to meet tax obligations related to equity-based payments.