SLM Corp. (Turned sharply south: July 11, 2007)
Kicking things off was student lender Sallie Mae. The Deal's Scott Stuart wrote in a February retrospect:
SLM Corp. on July 11 let it be known that JC Flowers & Co. of New York might not be able to close its $26 billion buyout of the education lending company known as Sallie Mae because of potential changes in the legislative landscape for federal loan support. JC Flowers was buying Sallie Mae with equity partners J.P. Morgan Chase & Co. and Bank of America Corp. It soon became a topic of conjecture that JC Flowers director J. Christopher Flowers might seek an out because of the rapidly declining credit environment that, seven months later, risk arbitrageurs and dealmakers had become all too familiar with. ...
Although the Sallie Mae buyout is rightly a 2007 deal corpse, the saga over the Reston, Va., company ended only recently, on Jan. 28, when SLM restructured a $30 billion lending facility that had been part of its merger package with BofA and J.P. Morgan. This time, the new $31 billion financing was syndicated out to also include Barclays Capital, Deutsche Bank AG, Credit Suisse Group, Royal Bank of Scotland plc and UBS. As part of that transaction, Sallie Mae dropped its lawsuit in Delaware Court of Chancery to compel the partners to the April 15, $8.8 billion equity commitment to pay the $900 million termination fee.
The Delaware suit was to determine whether Sallie Mae had suffered a material adverse change in its business as defined by the merger agreement. ...The JC Flowers deal offered $60 per share for SLM. The buyers did offer a reduced price of $50 plus a warrant of unknown value in October. The offer was spurned. SLM shares now trade at around $21.
Harman International Industries Inc. (Fell apart: Sept. 21, 2007)
Despite much pushback from the car stereo maker's founder and chairman Sidney Harman, the would-be buyers walked in September. The Deal's Vyvyan Tenorio wrote:
On Sept. 21, Kohlberg Kravis Roberts & Co. and Goldman Sachs Capital Partners said they would walk from their $8 billion agreement in April to buy the audio systems maker. The deal opened another front in the material-adverse-change wars. The sponsors had agreed to buy Harman International Industries Inc. for $120 per share but backed off, claiming the Washington-based company had suffered an unspecified material adverse change. An indignant Sidney Harman, the company's 89-year-old chairman and founder of the company in 1953, and CEO Dinesh Paliwal fired back, insisting the company had had no serious setbacks. In a conference call Sept. 27, they pointed to the company's growth prospects. In a compromise Oct. 22, KKR and Goldman, which would have been liable to pay a $225 million breakup fee had Harman taken them to court and won, invested $400 million in convertible debt, a rare instance of noblesse oblige, perhaps. More likely it was either that or a $225 million breakup fee.
Acxiom Corp. (Crumbled: Oct. 1, 2007)
And then there was drawn-out fight over Acxiom, as Tenorio noted:
This two-year tussle between the Little Rock, Ark., customer information management company and two would-be buyers, San Francisco- and Boston-based activist fund manager ValueAct Capital Partners LP and technology buyout group Silver Lake, ended with no clear winner and no shortage of losers. On Oct. 1, not long after Acxiom Corp. shareholder MMI Investments LP gave up its fight in mid-August against the proposed $3 billion, or $22.10 a share, acquisition, the buyers decided to abort the deal. Neither side gave reasons, but Acxiom stock had been sliding, and the company posted disappointing earnings in the quarter ended June 30. ValueAct lost money on its stock purchase, plus its share of the $65 million penalty paid to Acxiom. The day the deal was killed, Acxiom chairman Charles Morgan said he would retire once a replacement had been found.
Affiliated Computer Services Inc. (Dried up: Oct. 31, 2007)
Cerberus Capital Management LP pulled out of its ACS buyout in late October. Stuart noted:
Cerberus Capital Management LP and Darwin Deason have dropped their longstanding $6.2 billion bid for Affiliated Computer Services Inc. because of conditions in the credit markets. ... Deason, ACS's founder and chairman, teamed up with Cerberus on a $62 per share cash take-private offer. Deason owns roughly 9% of ACS, which provides outsourced business processing and information technology services, but he controls 42% of the vote. Cerberus had an exclusivity agreement with Deason that had received particular scrutiny by the special committee's review.
The buyers expressed frustration at the lengthy review process.
In its termination letter, Cerberus stressed that it would have been able to close the deal had the offer been accepted earlier. But terminating based on credit market conditions makes it seem more that Cerberus does not want to pursue the deal at the $62 price, or simply could not get acceptable financing in the near term for that deal, rather than that the special committee ignored the $62 bid. Cerberus also said that, if market conditions change, it may consider proposing another transaction for ACS.
J Sainsbury plc (Second suitor walked: Nov. 5, 2007)
In Europe, one particular stalled buyout commanded much financial media attention and played out in a tragic-comic way, Jonathan Braude argued:
The private equity folks at CVC Capital Partners Ltd. must be rolling in the supermarket aisles at Qatar's decision to walk away from buying J Sainsbury plc. The London buyout shop, after all, hadn't been able to get backing for its own £11.7 billion ($24.4 billion), 582 pence a share offer for the grocer in April this year. Not only did it face unflinching opposition from the founding Sainsbury family, but its own consortium partners, including Blackstone Group LP and TPG, had also walked. It must have been galling to see the Qatar Investment Authority and its U.K. agent, Paul Taylor of Three Delta LLP, get so close to buying the business with his £11.9 billion, 600 pence a share proposal.
After picking off first the Sainsbury board, then the shareholders and ultimately the company pension fund with a series of concessions, Taylor's fund, Delta (Two) Ltd., fell at the most difficult hurdle of all -- raising an extra slab of equity from his own Qatari backers. At the last moment, his lending banks wouldn't play ball. ...
It will be a while before anyone appears with a third attempt at buying Sainsbury. But whoever tries his luck should be careful not to assume it was only the Qataris and the unfortunate Taylor who got things so badly wrong. Taylor may yet have the last laugh.
United Rentals Inc. (Terminated: Dec. 24, 2007)
And URI, also victim to Cerberus' second-guessing, was the first to sue in Delaware to enforce a merger agreement, David Marcus noted:
As financing markets worsened last summer, the precise language in the merger agreements private equity firms signed became more important to buyers and sellers than it had been in years. ... Many sellers saw their deals close on the original terms. Others, notably Home Depot Inc. in the sale of its HD Supply unit, had to accept a price cut. And SLM Corp. and Harman International Industries Inc. had little recourse when buyers walked.
But only United Rentals Inc. sued in Delaware to enforce a merger agreement. The Greenwich, Conn., construction equipment rental company attempted to force Cerberus Capital Management LP to close the parties' $6.6 billion agreement, which led to a trial before Chancellor William B. Chandler III. The collapse of the URI buyout highlights the importance of the issue and invites comparisons to the ways parties in other deals-including, in one instance, Cerberus itself resolved it.
URI, then, in June 2008 did what Cerberus wouldn't, leveraging up to buy as much as $1.4 billion in equity.
PPG Industries Inc. (Collapsed: Dec. 31, 2007)
Two stalled buyouts rounded out December. As Tenorio noted:
Affiliates of private equity firm Platinum Equity LLC said they are terminating an agreement after Monday, Dec. 31, to buy the automobile glass units of Pittsburgh-based PPG Industries Inc. for about $500 million and filing a lawsuit in New York claiming the company fraudulently concealed facts material to the leveraged buyout. Unlike other recent LBO blowups stemming from the credit crunch, the Beverly Hills, Calif., firm said the issue isn't over financing, and that it is in fact still interested in buying the assets -- at the right price. ...
On Sept. 13, Platinum agreed to acquire the assets of PPG 's glass unit, which supplies glass to automakers and the aftermarket, as well as its auto glass services operations. Platinum, led by financier Tom Gores, has a long history of acquiring financially troubled businesses in technology and other areas and turning them around.
PHH Corp. (Missed deadline: Dec. 31, 2007)
Tenorio also gave the rundown on the multifaceted PHH deal:
General Electric Capital Corp., a unit of General Electric Co. agreed in March to buy Mount Laurel, N.J.-based finance company PHH Corp., which specializes in auto leases and residential mortgage loans, for $1.8 billion plus about $8 billion of debt. GE Capital wanted PHH's fleet services business, which fits well with GE's operations. But the deal was contingent on GE selling PHH's mortgage business to Blackstone Group LP. Blackstone's financing consisted of $750 million of equity and the assumption of $4.26 billion debt for a total of about $5 billion. J.P. Morgan Chase Bank NA and Lehman Brothers Inc. committed to provide, in a 70-30 split, a package that included up to $1.6 billion in term loans and revolvers and $4 billion in a mortgage loan repurchase facility. In September the lenders said they were cutting the financing by as much as $750 million. Blackstone at first expressed disagreement with the banks, hoping perhaps for a price cut on the buyout à la HD Supply, which involved the same lenders. But no such luck. The parties missed the Dec. 31 deadline, and Blackstone, while laying the blame on the banks, eventually honored the $50 million termination fee.
NIBC Holding NV (Bit the dust: Jan. 30, 2008)
Flowers found itself on the other side of a stalled buyout Jan. 30, as Renee Cordes noted:
Blaming market turmoil, Iceland's Kaupthing Bank hf on Wednesday, Jan. 30, yanked its planned 2.99 billion euro ($4.42 billion) purchase of Dutch investment bank NIBC Holding NV from a group led by JC Flowers & Co. LLC.
The collapse of the deal came in the month it was due to complete and led the Dutch investment bank's owners to pledge 300 million euros in fresh equity. ...
The deal with Kaupthing had excluded NIBC's U.S. subprime portfolio, which sold for $528 million in August to a nascent company owned by a consortium of NIBC shareholders. Enthoven said Wednesday that NIBC's results were "substantially affected" by the loss of the portfolio.
Reddy Ice Holdings Inc. (Melted: Jan. 31, 2008)
The Reddy Ice buyout finally melted Jan. 31, when the target revealed its $1.1 billion deal with GSO Capital Partners LP was called off. The Dallas-based packaged ice company was due a $21 million cash termination fee on Feb. 5 but would have to pay up to $4 million to New York hedge fund GSO and its consultants for related expenses, according to a statement at the time. The company's chairman and chief executive William P. Brick said the company and GSO had tried for weeks to renegotiate the deal.
3Com Corp. (Canceled: March 20, 2008)
3Com Corp. was the last buyout to go bust March 20 when a Bain Capital LLC affiliate pulled out
of its $2.2 billion deal for the company one month after saying it was
unlikely to gain clearance from the federal panel that vets foreign
investment in U.S. assets. 3Com unveiled a major blow Feb. 20, as Bill McConnell and Andrea Orr noted:
The proposed $2.2 billion buyout of 3Com Corp. by a Bain Capital LLC-led investor group has run into a roadblock after a national security review panel told the parties the deal would not be approved as currently structured. 3Com and Bain said, however, they had not given up hope of reaching a new merger proposal and they "remain committed to continuing discussions."
To that end, Donna Block wrote days later, they went back to the drawing board:
Shares of network gear maker 3Com Corp. jumped in early trading Friday, Feb. 29, after the company announced it will adjourn its scheduled shareholder meeting without a vote on the proposed $2.2 billion buyout by private equity firm Bain Capital LLC and China's Huawei Technologies Co.
In a statement announcing the merger's termination March 20,
Bain said:
"Bain Capital made several alternative
proposals to 3Com that we believe could have satisfied the concerns
raised by CFIUS. ...
We
regret that we were unable to agree upon an alternative transaction.
"
Myers Industries Inc. (Kaput: April 4, 2008)Myers Industries' buyout
went bust April 4, when Goldman Sachs Capital Partners pulled out of its $1.1 billion deal for Akron, Ohio-based rubber and plastics maker. Myers Industries said its split with GS Capital was mutual, but didn't give a reason. The
deal looked iffy for months, Dealscape's George White noted, particularly after a
December 2007
extension to afford GS Capital time to assess its target's prospects.
Alliance Data Systems Corp. (Dunzo: April 21, 2008)
Closing out the week of April 14, Alliance Data Systems Corp. said April 18 its $6.4 billion sale to Blackstone Group was off and the credit card processor was suing the firm to collect its $170 million breakup fee. The Deal's Donna Block noted:
The
Dallas-based company cited Blackstone's "refusing to accept reasonable
and customary regulatory requirements and prolonging negotiations with
regulators" as evidence it did not honor its agreement.
Alliance Data accused the
Blackstone affiliates last month of trying to back out of the deal in
what it said was a case of "buyer's remorse."
Under the deal's terms,
Blackstone could walk away from the buyout by 11:59 p.m. on Thursday,
as long as it was not in breach of the merger agreement.
In January the buyout ran into trouble.
Blackstone said it did not envision gaining regulatory clearance from
the Office of the Comptroller of the Currency necessary to close the
deal. But if the deal was to come to fruition, the clock was ticking, Stuart noted:
The $81.75 per share deal has
been in limbo since Alliance moved in early February to jump start the
stalled talks between bank regulators and Blackstone.
The Office of the Comptroller of the Currency must approve the
change of control of Alliance Data's credit card bank subsidiary, World
Financial Network National Bank, which has about 100 million cardholder
accounts and $4 billion in receivables. Negotiations with the OCC broke
down, in Blackstone's view, after the regulator sought $400 million in
"source of strength" assurances from Blackstone funds to support the
bank.
Alliance Data had sued Blackstone, but withdrew the suit, saying it
thought it had found a solution. This was assumed to involve Alliance
Data shareholders funding an entity that would issue a guaranty in lieu
of commitment from Blackstone.
Cumulus Media Inc. (Busted: May 12, 2008)Cumulus' $1.3 billion buyout
bit the dust May 12 after its buyers, chairman, president and CEO Lew Dickey and Merrill Lynch's private equity arm tried and failed to amend terms of their agreement. Shares of the Atlanta-based radio broadcaster closed Friday May 9 at $5.81 -- nearly half off the $11.75 buyout price. In late 2007, tighter credit markets, a looming recession and the subsequent likely impact on radio advertising seemed to weigh on the company and the deal.
For the latest on buyouts we're watching as they market debt, fight law suits, renegotiate terms and try to eek their way through, stay tuned to Dealscape and the
PE Pipeline.
- Carolyn Murphy
| Dealwatch executive summary |
|
The Date |
The Action |
6.10.08
5.12.08
4.18.08
4.2008 |
URI does what Cerberus wouldn't.
Cumulus buyout is scrapped.
ADS deal is dead.
Alliance Data deadline looms. |
| 2.20.08 |
3Com, Bain withdraw CFIUS proposal. But all hope was not lost. |
| 2.2008 |
A 2007 retrospect: Sallie Mae kicked off a wave of failed buyouts. Others followed like a ton of bricks. URI sued in Delaware to enforce its merger agreement. |
| 1.31.08 |
Reddy Ice finally melts. |
| 1.30.08 |
NIBC deal goes bust. |
| 12.27.07 |
PPG deal stalls. |
| 11.2007 |
J Sainsbury is done. |
| 10.31.07 |
Cerberus drops ACS. |
| 9.21.07 |
KKR, Goldman Sachs plan to walk from Harman. |
|
Source: The Deal |
Kicking off the week of May 12, the $1.3 billion take-private of Cumulus Media Inc. bit the dust after its would-be buyers (chairman, president and CEO Lew Dickey and Merrill Lynch & Co.'s private equity arm) and the Atlanta-based radio broadcaster could not renegotiate terms. Cumulus may be the latest, but SLM Corp. kicked off a wave of terminations blamed on everything from the credit markets to material adverse changes in a company's business to an inability to renegotiate on favorable terms. So many stalled deals, in fact, have left PE firms excluded from some auctions, sending targets into the arms of strategics. Here's a look at recent buyouts gone bust: 
