KKR, Bain Capital, Merrill break LBO record with HCA takeover
Tuesday, July 25, 2006, 11:33
Kohlberg Kravis Roberts & Co., Bain Capital LLC and Merrill Lynch & Co.'s purchase of HCA Inc. For $33 billion will be the biggest leveraged buyout in history. The takeover of the largest US hospital operator will exceed the $31.3 billion that New York-based KKR paid 17 years ago for cookies-to-cigarettes maker RJR Nabisco Inc. Henry Kravis and George Roberts, KKR's founders, are acquiring HCA with Boston-based Bain, the buyout firm started by Massachusetts Governor Mitt Romney, Merrill and HCA co-founder Thomas F. Frist Jr. for $21.3 billion in cash and $11.7 billion in assumed debt.
There's a huge pool of capital available. You're likely to see quite a number of deals of this size. With yesterday's announced deal, KKR has backed six of the 10 biggest-ever LBOs. LBO funds have returned 24%age points more than the Morgan Stanley Capital International World Index in the 10-year period ended Dec. 31 by using a little of their cash and borrowing most of the purchase price, according to London-based Private Equity Intelligence Ltd. Institutional investors may pledge a record $170 billion to buyout firms this year in search of those higher returns.
KKR, Bain, Frist and New York-based Merrill, the No. 3 US securities firm by market value, are buying Nashville, Tennessee-based HCA for $51 a share, the companies said in a statement today. Shares of HCA were up 2.9% at $49.27 in New York Stock Exchange composite trading at 12:40 p.m. HCA's 6.5% note maturing in 2016 fell as much as 7.7 cents to 79 cents on the dollar, according to Trace, the bond-price reporting system of the NASD. The extra yield, or spread, investors demand to own the debt instead of US Treasuries widened to as much as 4.91%age points, up from 3.52 percentage points July 21. The debt was issued in February at 99.6 cents on the dollar to yield 2 percentage points more than Treasuries. Frist, HCA's 67-year-old former chairman, agreed to vote his shares in favor of the sale to the buyout group, HCA said. Frist, who founded the company along with his father, the late physician Thomas Frist Sr., owns 16.9 million shares, or 4.4%.
Kravis, and Roberts are first cousins who started KKR 30 years ago with their former Bear Stearns Cos. Mentor Jerome Kohlberg. The firm's biggest deals include RJR, Danish phone company TDC A/S and US computer program-maker Sungard Data Systems Inc. Separately, KKR today said it's negotiating to buy France Telecom SA's remaining 54% stake in directories business PagesJaunes SA for about € 3.3 billion ($4.2 billion The firm is raising as much as $15 billion for its latest buyout fund after collecting $5 billion in an initial public offering for a fund two months ago. (Bloomberg)