Buyout Groups Agree to Historic LBO

The deal is reportedly the largest LBO since KKR bought RJR Nabisco Inc. in 1989.
Stephen TaubNovember 30, 2005

It’s beginning to look a lot like the 1980s.

A group of buyout funds agreed to buy TDC A/S, Denmark’s former phone monopoly, for a total of $15.3 billion, according to Bloomberg. The deal is reportedly the largest leveraged buyout since Kohlberg Kravis Roberts (KKR) bought RJR Nabisco Inc. for $31.4 billion in 1989. The TDC deal is one of the largest LBOs in European history, reported the wire service.

KKR, Apax Partners Worldwide LLP, Blackstone Group, Permira Advisers Ltd., and Providence Equity Partners Inc. offered to pay $12 billion in cash and assume $3.3 billion in net debt for TDC, according to the report. The price tag is 5.5 percent higher than the company’s closing price the previous day. Before the deal was announced, TDC’s stock had already surged 56 percent this year.

Meanwhile, Dow Jones reported that a second group of private-equity firms, including Silver Lake Partners, is mulling over making a higher offer for TDC. Altogether, there have been $115 billion of acquisitions of phone companies announced this year, making it the industry’s busiest stint since the peak of the stock-market bubble in 2000.

Poul Jessen, an analyst at Danske Bank, told the Associated Press that he believes TDC was singled out as a takeover target because it is one of the few major European telecom operators in which the government does not hold a majority share.

This has been a boom year for buyouts, given the relatively lower interest rates in the United States compared to the rest of the world. Already, buyout firms have announced a record $210 billion of takeovers this year, according to Bloomberg. The TDC deal reflects a trend toward bigger LBOs, which has been gaining steam since May.

One of the more prominent deals this year was the September buyout of Ford Motor Co.’s car-rental business, Hertz Corp., for $15 billion by Clayton, Dubilier & Rice Inc. and Carlyle Group.

During the summer, Warburg Pincus LLC announced it was closing an $8 billion global fund, the largest pool of capital raised by the firm since it was established in 1966. Also, Blackstone Group LP received commitments of $12.5 billion for its buyout fund, Goldman Sachs Group Inc. raised $8.5 billion, and Carlyle Group and UK-based CVC Capital Partners raised $7.85 billion and $7.4 billion, respectively. The CVC tally crowns that firm’s largest buyout fund, according to several wire-service reports.

One reason buyout funds are able to raise such large sums of money is because they are generating attractive returns. Last year private-equity funds returned 16.4 percent, compared with 9 percent for the Standard & Poor’s 500 Index, according to a report citing Thomson Venture Economics and the National Venture Capital Association.

What is the buyout group’s exit strategy regarding TDC? After all, LBO funds don’t make big bucks until they sell their position or recapitalize their investment. “It’s too early to say when we’ll exit the investment, but the usual range is three to seven years,” Apax partner Richard Wilson said at a press conference in Copenhagen, according to Bloomberg. “Our primary reason for being interested in TDC is the expected growth in mobile and broadband.”