RBC Capital Markets analyst Bulent Ozcan rates Fortress Investment Group LLC (NYSE:FIG) as a Buy as the company announces public offering of Class A Shares.

Fortress

Fortress Investment: First impression

Fortress Investment Group LLC (NYSE:FIG) filed a form 424B with the SEC last night. The firm is offering 28.3 million Class A shares. The shares have not been priced yet. While there could be some short term volatility in the share price given this announcement and potential concerns as why principals are monetizing some of their investments when the shares seem undervalued, we view this event as a long term positive.

The offering will have no impact on the weighted average shares outstanding used for the calculation of distributable earnings per share, and hence on our earnings estimates. In essence, principals are converting their Class B shares into Class A shares and monetizing some of their ownership in Fortress Investment Group LLC (NYSE:FIG).

This transaction reduces the principals’ ownership to levels that existed prior to the purchase of Class A shares from Nomura Holdings, Inc. (ADR) (NYSE:NMR) (TYO:8604), which was about 52%. This represents the first sale of shares by the principals since the IPO in February 2007. While investors could be concerned about the timing of this monetization event, we must note that this is the first time principals have been selling shares in over 7 years.

To summarize:

  • Principals have the same ownership they had in Fortress Investment Group LLC (NYSE:FIG) prior to the Nomura transaction;
  • The issuance of Class A shares has no impact on distributable earnings;
  • And liquidity in Fortress shares will increase to the tune of 18% excluding the green shoe.