Ares–MidCap merger: what MFIC shareholders would receive

Start with the payment attached to each MFIC share#

The agreement signed on 26 October sets the cash payment at $1.21 per eligible MFIC share, supplied by Ares Capital Management, ARCC's external adviser. The starting stock component is $9.67 per MFIC share. Together they produce the $10.88 headline, before the stock adjustment is worked through. MFIC's SEC filing, merger consideration and Exhibit 2.1, section 2.1.

If you hold 1,000 eligible MFIC shares through the merger, the stated cash component would be $1,210. The number of ARCC shares is determined separately, using values measured close to completion. Today's ARCC quote and its latest reported NAV cannot fix that future entitlement.

NAV per share is the portfolio's assets minus liabilities, divided by its share count. ARCC reported NAV of $19.31 per share at 30 September 2026. That is a dated balance-sheet measure, whereas its exchange-traded share price is what buyers and sellers will pay. The merger formula uses both. ARCC's third-quarter results, balance sheet.

Why the special dividend reduces the stock you receive#

MFIC expects to distribute its remaining undistributed taxable income before completion. The amount has not been fixed in the announcement. Qualifying tax dividends declared after signing, with a record date on or before closing, reduce the $9.67 stock-calculation amount dollar-for-dollar. Regular quarterly dividends are excluded from that adjustment. SEC filing, Tax Distribution and the definition of Post-Signing Tax Dividend Amount.

For example, a hypothetical $1 special dividend would leave $8.67 as the starting amount for the stock calculation: $9.67 minus $1. A holder of 1,000 MFIC shares entitled to that dividend would receive $1,000 from the distribution, alongside the $1,210 merger cash component and a smaller ARCC share entitlement. Adding $1 to the unchanged $10.88 headline would count the distribution twice.

The cash you receive and the market value of the shares you receive still need to be reconciled. That is where ARCC's price relative to NAV matters.

The three exchange-ratio cases#

Call ARCC's measured NAV per share N, its measured share price P, and the stock-calculation amount after qualifying tax dividends K. With the hypothetical $1 dividend above, K is $8.67.

When P is at or below N, each MFIC share receives K divided by N in ARCC shares. If those ARCC shares trade below NAV, their market value is below K. The agreement therefore does not turn a discount to NAV into cash paid at NAV.

When P is above NAV but no more than 104.5% of NAV, the calculation credits MFIC holders with half of ARCC's premium to NAV. Multiply K by 1 plus half the premium, then divide by P to obtain the ARCC share entitlement.

Above 104.5% of NAV, that premium credit is capped. Multiply K by 1.0225, then divide by P. A higher ARCC price in this tier means fewer shares rather than an uncapped increase in the value used for the exchange. These are the agreement's three cases, measured on a mutually agreed date no earlier than 48 hours before the effective time, excluding Sundays and holidays. SEC filing, Exchange Ratio definition.

Work through a 1,000-share holding#

For this hypothetical example only, hold NAV constant at $20, assume a $1 qualifying special dividend per MFIC share, and keep the same 1,000-share MFIC holding throughout. K is $8.67 in all three cases. These prices are scenarios, not quotes or forecasts.

In the first row, $8.67 divided by $20 gives 0.4335 ARCC shares for each MFIC share. The 1,000-share holding therefore has an entitlement of 433.5 ARCC shares. At $19, that stock is worth $8,236.50. Add $1,210 of merger cash and the assumed $1,000 special dividend to reach $10,446.50.

In the middle row, half of the 2.5% premium is 1.25%. The stock value used in the exchange is $8.67 multiplied by 1.0125, or $8.778375 per MFIC share. Divide by $20.50 for the share entitlement. Across the holding, $8,778.375 of stock plus the same $2,210 of cash gives $10,988.375, displayed as $10,988.38.

In the final row, the stock value uses the capped multiplier: $8.67 multiplied by 1.0225 is $8.865075 per MFIC share. Dividing by $21.50 produces about 412.329 ARCC shares for the holding. Stock value of $8,865.075 plus $2,210 of cash gives $11,075.075, displayed as $11,075.08.

The table shows economic entitlements before taxes, costs and final settlement rounding, valued at the same assumed price used in each calculation. Fractional ARCC shares would be paid in cash under the agreement's separate five-trading-day VWAP method; they would not remain as the fractional holdings shown here. A later market price could also change the value of the whole shares. Merger agreement, section 2.1(a)(v).

This is why the eventual cash distribution and exchange ratio belong beside each other. With the price below NAV, replacing part of the stock-calculation amount with a cash dividend can even change the combined market value slightly. In the first scenario, no special dividend would give $10,396.50; the assumed $1 dividend produces $10,446.50, a $50 difference across 1,000 MFIC shares. That result holds NAV and price unchanged to isolate the formula. It does not predict how either would move in practice.

The new holding brings a different income and credit record#

MFIC's preliminary 30 September NAV estimate is $12.86 per share. The announced $10.88 consideration is about 15.40% below that estimate, despite being a 30.1% premium to MFIC's 26 October closing share price. Those comparisons use different starting points. Neither turns the preliminary NAV into an amount payable to you. MFIC expects to release final third-quarter results on 5 November, and its management estimate has not been audited, reviewed or approved by its board. Joint announcement and preliminary NAV footnote.

ARCC's reported portfolio was $29.213 billion at fair value at 30 September, spread across 636 portfolio companies. Management expects the combination to exceed $31 billion and 800 portfolio companies. That is broader exposure, but the income available for each share depends on the acquired assets, their financing costs and the new shares issued. Ares describes the transaction as modestly accretive to core EPS; it has not supplied a numerical uplift in this announcement. Acquisition announcement.

The current income record gives you a starting point for that claim. ARCC reported third-quarter core EPS, a non-GAAP measure, of $0.46 against its $0.48 quarterly dividend. GAAP net income was $0.44 per share. The two-cent gap between core EPS and the dividend is a question to follow across periods, rather than a calculation of a future cut. Those are standalone September results, with no earnings from this proposed acquisition. ARCC's operating results and core EPS reconciliation.

Credit quality belongs alongside the payout. ARCC reported loans on non-accrual status at 2.4% of investments at cost and 1.4% at fair value at 30 September, compared with 1.8% and 1.2% respectively at the end of 2025. Read both bases: the fair-value measure incorporates the current valuations of those investments, while the cost measure retains their cost basis. Keep the acquired portfolio's disclosures separate until combined results exist. ARCC's portfolio and investment activity.

What to check as the deal develops#

ARCC's 27 October earnings call is scheduled for noon Eastern, or 16:00 GMT. It is the next opportunity for management to explain the financial backdrop; it is not a closing date or a promise that every merger question will be answered. MFIC's 5 November results should replace the preliminary NAV estimate with its reported quarter. ARCC call details; MFIC results timing.

As the shareholder documents arrive, replace the assumed dividend in your calculation with the declared qualifying amount. Then use the agreement's measured ARCC NAV and price, calculate your share entitlement, and separate whole shares from the fractional cash settlement. Keep regular dividends and any purchases or sales in their own entries so the same cash is not counted twice.

The proposed merger still needs MFIC shareholder approval, effective registration and other closing conditions. Until those are satisfied, your MFIC shares remain exposed to MFIC's business and the possibility that the transaction changes or does not complete. If it does complete, the cash component is only part of the result: the ARCC shares become the holding you need to assess. Our price-versus-NAV guide explains how that market value can diverge from the assets per share, and the earnings checklist provides a way to compare the next reported period. SEC filing, closing conditions.