Och-Ziff Capital Management has laid out a plan to revamp its corporate structure that will allow chairman Daniel Och to step back from the firm he founded and transfer more equity to its current executives.
The publicly traded hedge fund firm announced Thursday that Och and several of the firm’s former executive managing directors will sell their class A company shares to current executives. The firm also announced a series of steps it says will provide the firm with more liquidity and help it to repay some debts more quickly.
“I think it’s on the whole a net positive and works to stabilize the investment professionals that are core to the future success of OZ Management,” said Jerry O’Hara, a Jefferies analyst who covers Och-Ziff, by phone.
The announcement comes after a year of executive shakeups at Och-Ziff. The firm appointed a new chief executive officer, Robert Shafir, in January. Co-founder David Windreich stepped down from his role in June, and in April, chief financial officer Alesia Haas stepped down.
“We believe the suite of strategic actions we are announcing today solidifies Oz’s future, providing long-term stability and setting the firm on a path for continued success,” Shafir said in a statement. “By materially increasing equity ownership by the current partners and taking steps to enhance our capital structure, we expect to be better positioned to serve our clients.”
Och and other class A shareholders will reallocate 35 percent of their shares to current executive managing directors as a new class of shares, according to Och-Ziff’s announcement. These shares will be fully vested over a few years to ensure that the executive team remains stable, the announcement said.
The remaining class A shares will undergo a 1-for-10 reverse stock split on January 3, which will reduce the number of class A shares from 192 million to 19.2 million, according to Och-Ziff’s announcement.
Och-Ziff’s stock jumped 25.3 percent on Thursday, to $1.20 per share. The firm’s shares have fallen 55 percent since January 2, when they were trading at $2.69 apiece.
Over the past 30 days, the firm’s shares have hovered just above the $1 mark. Companies that trade on the New York Stock Exchange, as Och-Ziff does, risk being de-listed if their stock is priced under $1 for one month.
Och-Ziff also announced that it plans to convert its structure from a partnership to a corporation by the end of the year. Doing so simplifies tax reporting and broadens the pool of potential investors in the company, which could increase liquidity, according to a shareholder presentation from the firm.
“KKR is the early indication that this move has been positive,” O’Hara said, referencing the private-equity giant’s decision to transition to a c-corp. earlier this year. “The potential for index inclusion is going to vary based on how their legal structure evolves.”
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In addition to these moves, the firm has created a distribution holiday for its current and former executive managing directors, according to its announcement. The directors will forgo distributions on the Och-Ziff shares they own until either the firm has accumulated $600 million in cash to pay down its debt or until April 1, 2026, whichever comes first.
“I think it’s a fairly shareholder-friendly move to take a distribution holiday to pay down the debt,” O’Hara said, noting that this will further motivate Och-Ziff employees to pay the debts sooner.
The firm will further deleverage by changing its tax receivable agreements, restructuring some of its debt, and including a cash sweep arrangement in its distribution holiday provisions.
Och-Ziff expects to have these changes completed on or before January 15, its announcement said. As of December 1, Och-Ziff managed $32.3 billion in assets.