perella, meguid seen starting up m&a shop · 2009-06-03 · to learn more about fitch ratings,...

In the NewsSome LBOs Squeeze Through 2M&A Volumes Soar 2SPACs Get Sweetened 4Citi MD Alleges Retaliation 4AMEX Relents On SPAC Listings 5 CapitalSource Exec Wary

Of Housing Sector 5

Private Equity/LBO NewsGryphon Recoups Through Recap 6Pension Makes Room For Buyout

Hedgies 6Indiana Retirement Looks To VC 6

M&A NewsMedical Co. Scouts For Targets 7Friendster To Fetch Under $50M 7

Financing StrategiesKKR Exits Willis Group 11Eagle Bulk Shipping Trims

Equity Sale 11Myriad Raises R&D Equity 11Flavor-Maker Sells Shares 11Columbus McKinnon Chips Away

At Debt 13

DepartmentsM&A Record 9Nuggets 13Financing Record 14

NOVEMBER 21, 2005VOL. XXXI, NO. 46

COPYRIGHT NOTICE: No part of this publication maybe copied, photocopied or duplicated in any form or byany means without Institutional Investor’s prior writtenconsent. Copying of this publication is in violation of theFederal Copyright Law (17 USC 101 et seq.). Violatorsmay be subject to criminal penalties as well as liabilityfor substantial monetary damages, including statutorydamages up to $100,000 per infringement, costs andattorney’s fees. Copyright 2005 Institutional Investor,Inc. All rights reserved. ISSN# 1064-1912

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Check our Web site www.corporatefinancingweek.com during the week for breaking news and updates

NEW TURNAROUNDS PREP FOR DISTRESSED WAVEA batch of turnaround buyout shops have recently opened their doors and begun marketing

new funds under the assumption the current boom in buyoutactivity and the expansion of credit markets will bring

them plenty of distressed companies in the next fewyears.

“Historically, this is a relatively underserved space,”said Kevin Prokop, a director in the private equitygroup at Questor Management Company, which runs

a group of funds in Southfield, Mich. “And [somefirms] are aware of the opportunity there in the next few

years as the leveraged loan market comes home to roost,” he(continued on page 15)

E*TRADE FINANCING GIVES OUTRIGHTS A LIFTOutright investors, those whose strategy involves holding convertibles, gobbled up asizable chunk of a $450 million of mandatory convertible preferred offering from E*Tradelast week. The deal, part of a $1.65 billion financing to pay for the acquisition of onlinebroker BrownCo, was priced at the cheap end of price talk and enjoyed an aftermarket lifton Thursday.

“There was a ton of outright demand,” said one capital markets executive of theconvertible tranche, which was oversubscribed by more than two times. “They like the storyand right now they’re the ones that have the money,” he added, comparing the fundamentalinvestors to arbitrage hedge funds, which have been struggling with redemptions this year.

Ravi Malik, senior portfolio manager at Froley Levy Investment Co., which oversees $3.5billion in convertibles, was among the fundamental investors that put in for the deal. “It was

(continued on page 16)

PERELLA, MEGUID SEEN STARTING UP M&A SHOPJoseph Perella, a former vice chairman at Morgan Stanley andveteran M&A banker, and Terry Meguid, former head ofinvestment banking at the firm, are in the process of settingup an advisory firm that will launch soon after their non-compete agreements expire at the end of the year. Thetwo, along with several other bankers, left theinvestment bank in April amidst a big shakeup thatculminated with the ouster of Phil Purcell.

Soon after resigning from the firm Perellaindependently advised credit card company MBNA in its$35 billion takeover by Bank of America in July. Several calls to


CFW112105 11/18/05 1:27 PM

Corporate Financing Week www.corporatefinancingweek.com November 21, 2005

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Pretty Please?LBO Issuers Adjust Junk TermsLBO issuers had to make hefty adjustments to their deal terms last week to gettheir money in the high-yield market. “A lot of them had covenant changes. Somewere aided by the strength of the loan market, which absorbed whatever couldn’tget done in high-yield,” said one syndicate banker.

Kohlberg Kravis Roberts’ Accellent downsized its $325 million deal to $305,the rest of which was taken out in a loan. The 10 1/2% 10-year notes (B-/Caa1)were priced at 98.67.

Team Health, backed by Apollo Advisors and Banc of America EquityPartners, also moved some of its funding into the loan market and raised $215million in 11 1/4% notes at par.

Other offerings such as Network Communications, backed by CitigroupVenture Capital, and Avago, a Singapore-based television network which alsocounts KKR as its backer, weren’t as lucky and will be trying again this week.“They’ll have until Wednesday morning at the very latest to get these done,” saidthe banker.

A CornucopiaM&A Soars As Year-End ApproachesLast week was the fourth busiest in M&A so far this year as several mega deals wereannounced or confirmed. From Nov. 13-18, the combined value of 115 U.S.transactions totaled $47 billion, according to Thomson Financial. That’s comparedwith $70 billion during the week of Jan. 23, the busiest of the year. Last weekrecorded fewer deals than any of the top 16 M&A weeks this year, suggesting dealsizes were particularly large.

Leading the pack was Johnson & Johnson’s agreement to purchase Guidantfor $21.5 billion, $4 billion below last year’s original offer. In another high-profile transaction, Koch Industries, a tightly controlled family conglomerate,announced its acquisition of papermaker Georgia Pacific for $13.2 billion. Atthe end of the week, Cisco Systems unveiled plans to acquire cable TVtechnology firm Scientific-Atlanta for $6.6 billion in one of the largesttechnology deals of the year.

Warren Gouk, head of M&A at Cascadia Capital in Seattle, said there is agenerally a big push to get things done before Thanksgiving. “It’s a sign of things tocome,” said Gouk, adding that the markets have been hotter during the past threeweeks compared with any other period this year.

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industrialstrength.

At Fitch Ratings, you may not realize the scope of our corporateand industrial coverage. More than 85% of all investment gradenew issues in the United States were rated by Fitch in 2004. In fact, we cover more than 90% of the Lehman U.S. InvestmentGrade Aggregate Index.

INVESTOR FOCUS is just one reason why Fitch is a different kind of rating agency.

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Citi’s Menon Says Firing Was RetaliatoryRamesh Menon, the former head of Citigroup’s structuredproducts group who was fired over a week ago, told CFW hisdismissal was directly linked to the fact he filed a $138 millionlawsuit against the firm. Last month, in the suit, he allegedindividuals at the firm discriminated against him on the basis ofracial and cultural origin (CFW 11/07).

“I believe that my firing was transparently retaliatory andpretextual [sic], and I strongly dispute the basis for mytermination,” he said.

A Citi spokeswoman would not comment directly, butstressed the part of a company statement on the matter whichsuggests the two incidents were not connected, and that Menonwas fired for failing to meet standards of professional conduct,including failing to show up to work on a regular basis, and thathe’d been given a warning some weeks prior.

“We are aware that Mr. Menon recently filed a lawsuit againstthe company. We respect that right, but he also, like allemployees, needs to come to work regularly and do his job. Aswe have stated previously, we believe the lawsuit is without merit,its allegations are false, and we will contest it vigorously,” said thestatement, which also included a more detailed explanation forthe reasons behind the firing.

Menon said the move only adds ammunition to his suit. “Thisvery much strengthens the case I have regarding retaliation,” hesaid.

Bankers Tweak Terms OnAcquisition FundsAs more management teams and investment banks look to floatspecified purpose acquisition companies, some deal engineers areadding sweeteners to make the vehicles more attractive toinvestors, according to a panel of experts that spoke at theReverse Merger & SPAC Summit in New York last week.

“Some banks are aligning themselves with the SPAC bydeferring part of their fee to the ‘back end,’” said MitchellLittman, a partner at Littman Krooks. He was referring tothe final stage of a SPAC’s life when it consummates anacquisition. In a SPAC, money is raised with investors andthen put in a trust until the vehicle’s managers find a targetand consummate an acquisition. Deutsche Bank deferred partof its compensation in Cold Spring Capital, a SPAC thatwent public this month.

Another innovation has been to create a hierarchy ofsecurities, similar to preferred and common shares, which givesinvestors a larger exposure to appreciation. HCFP Brenner

Securities, an underwriter, is said to have come up with astructure in which one class of shares represents 2 warrants,which is typical, while a second class represents 10 warrants butwith no claim on the escrowed funds. Ira Greenspan at Brennerdidn’t return calls.

A third maneuver is to have management put its own moneyinto the trust which they would only get back if the deal wasconsummated. That strategy differs from officers buying warrantsin the deal, which has been common practice over the past year

U.S. Debt Underwriting Leaders Ranked by Number of Issues

Thurs. Nov. 10-Thurs. Nov. 17Proceeds Amount +

Book Runner Number of Issues Overallotment Sold (US$ Mil)

JP Morgan 16 4,897.2Merrill Lynch & Co Inc 14 1,019.1Citigroup 11 3,887.9Goldman Sachs & Co 8 1,742.5Morgan Stanley 8 908.3Deutsche Bank AG 7 2,211.2Banc of America Securities LLC 6 858.4Credit Suisse First Boston 5 606.8ABN AMRO 4 623.0UBS 4 678.1Wachovia Corp 3 282.4Lehman Brothers 3 632.4Barclays Capital 2 583.0HSBC Holdings PLC 2 225.0Bear Stearns & Co Inc 2 54.7Williams Capital Group LP 1 166.4Blaylock & Partners LP 1 166.4BNP Paribas SA 1 124.3KeyCorp/McDonald Investments 1 481.4BB&T Corp 1 20.3Industry Total 66 20,168.6

U.S. Equity Underwriting LeadersRanked By Number Of Issues

Thurs. Nov. 10-Thurs. Nov. 17

Proceeds Amount + Book Runner Number of Issues Overallotment Sold (US$ Mil)

JP Morgan 4 658.5UBS 3 248.1Lehman Brothers 3 254.7Goldman Sachs & Co 3 481.3Morgan Stanley 3 651.2Credit Suisse First Boston 2 274.5Deutsche Bank AG 2 246.0Citigroup 2 316.0Banc of America Securities LLC 1 123.5MDB Capital Corp 1 14.0Merrill Lynch & Co Inc 1 126.0AG Edwards & Sons Inc 1 66.8Bear Stearns & Co Inc 1 38.3Sandler O’Neill Partners 1 37.5Ryan Beck & Co 1 41.1Industry Total 19 3,577.5

Source: Thomson Financial

CFW112105 11/17/05 8:23 PM

November 21, 2005 www.corporatefinancingweek.com Corporate Financing Week

and a half. Under this stricter policy, any proceeds managementspends on expenses related to deal searches would be returned toinvestors in addition to the 90% or so of the funds that sit in anescrow account. The move dramatically reduces any downside forinvestors, said Littman.

AMEX Accepts Acquisition VehiclesThe American Stock Exchange is accepting applications forspecified purpose acquisition companies, according to executivesclose to the exchange. The AMEX had previously said it wouldn’taccept the vehicles, but Cold Spring Capital, a Deutsche Bank-led SPAC, began trading on the exchange this month, marking adeparture from the typical route taken by these vehicles, whichinvolves a listing on the Over The Counter Bulletin Boardexchange (CFW, 10/31).

While no official statements have been released on the matter,exchange officials confirmed they would be acceptingapplications from other blank check issuers, according toexecutives who spoke on a panel at the Reverse Merger & SPACSummit in New York last week.

SPACs are publicly traded shell companies run bymanagement teams whose mandate is to seek out an acquisition,usually within 18 months following its IPO.

If the AMEX had maintained its previous position not toallow SPACs, these vehicles would be stuck with only the OTCoption, which is limiting because the exchange’s listings aren’trecognized by a number of U.S. states. That reduces the listedcompanies’ liquidity and access to capital. AMEX officials didn’treturn calls by press time.

Lenders Eye Housing Sector With CautionLenders will likely be leery of making loans to building productsand durable consumer products companies next year because ofindications the housing market is softening, said Joe Kenary,president of CapitalSource’s corporate finance group. The groupwrites senior and mezzanine cash flow loans for the ChevyChase, Md.-based middle market lender.

Kenary mentioned two indications of the softeninghousing market. In a survey conducted earlier this month,real estate consulting firm Real Trends found the number ofhome-purchase contracts signed in October fell 8%compared with a year earlier at 48 of the nation’s large real-estate brokerage firms. Also, home builder Toll Brothersrecently reduced its sales forecast for fiscal 2006, blamingweaker demand in several markets.

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Private Equity/LBO News

Gryphon Gets Back Half In Six MonthsGryphon Investors recently recouped half of its $40 millionequity investment in Update Legal, a legal staffing company itpicked up in May, through a dividend recapitalization. NickOrum, a partner in San Francisco, said Gryphon decided to takea dividend out for a couple of reasons. “The company isperforming ahead of expectations. And we desired to generate areturn for our investors.”

Gryphon is in the middle of raising a reported $750 millionfund. Orum declined to comment on the fund-raising effort.But the payout generated from recapitalizing Update Legalnudges up the existing fund’s rate of return, a selling point inraising a successor fund.

Details of the most recent deal weren’t disclosed becauseGryphon doesn’t want to reveal the company’s earnings,Orum said. The senior debt, provided by Madison CapitalFunding, amounted to 2.5X EBITDA. The mezzanine slice,provided by 1818 Mezzanine Fund and AlpInvest Partners,amounted to 2X EBITDA.

Gryphon has experience in acquiring staffing companies andbulking them up through add-on acquisitions. The firm has usedNursefinders as a platform in the medical staffing business, buyingLinde Healthcare and Kendall & Davis as add-ons earlier this year.Orum said he expects to find acquisitions to fold into Update Legal,especially companies that would expand its geographic reach.

Pension Builds Exposure To PrivateEquity Via Hedge FundsITT Industries is building an allocation for its pension fund to“convergence” strategies—hedge funds participating in privateequity-style investing. Hedge funds are moving toward illiquidinvestments, such as buyouts, because there is a barrier toaccessing company-specific data, so managers in the know havemore of an edge, said Theodore Economou, assistant treasurer.“That’s probably the next frontier in the hedge fund space.” Thefund is discussing what size allocation it wants to build and islikely to place mandates by mid-2006.

The engineering and manufacturing company in WhitePlains, N.Y., views 20% of its pension portfolio as an alphaengine, which should consistently outperform cash by 300-500basis points with low volatility. Convergence strategies will sitwithin this pool, which includes hedge funds and also long-onlystrategies that have high information ratios. ITT will likelyenlarge the alpha portfolio as it finds new managers. Economou

said the fund is looking for niche strategies where there is aninformation advantage the manager can exploit.

Because convergence is a new strategy, managers do not havelong track records so a lot of due diligence needs to be done, saidClayton Young, assistant treasurer. Economou expectsconvergence strategies to have higher returns and higher volatilitythan other hedge fund strategies.

One example of a hedge fund morphing into a buyout firm isEdward Lampert’s ESL Investments. The 42-year-old billionaireis credited with orchestrating the merger of Kmart and Sears,Roebuck and Co. last year. Highfields Capital Management, aBoston-based hedge fund, offered $17 a share for Circuit City inFebruary. Earlier this year, the tussle for Toys ‘R’ Us pitted aninvestment group including hedge fund Cerberus CapitalManagement against a number of private equity biddersincluding veteran buyout house Kohlberg Kravis Roberts.

Indiana May Add More VentureCapital Next YearThe $12.7 billion Indiana Public Employees Retirement Fundwill likely invest in venture capital next year as it works towardfilling its roughly $635 million target to alternatives. So far, thefund has around $190 million in its alternatives bucket, with$24.5 committed to firms investing in venture capital and therest in private equity. Jeffry Carter, spokesman, said the boardlikes venture capital because it’s a more conservative way to investin alternatives and boost returns without getting tangled up incomplicated strategies, such as hedge funds, which the plandoesn’t invest in. He said it’s too soon to speculate on how largefuture venture capital mandates may be and there is no timetablefor meeting the target. David Adams, executive director, did notreturn calls. Mercer Investment Consulting advises the fund.

The plan has 45% in domestic equity, 11% in internationalequity, 9% in global equity, 20% in core fixed-income, 10% inTIPS and 5% in alternatives.

NOW GET corporate financing week EVERY FRIDAY!

Paid subscribers now have access to a PDF ofthe upcoming Monday’s newsletter onCFW’s Web site every Friday afternoonbefore 5 p.m. EDT. That’s a 64 hour jumpon mail delivery, even when the postoffice is on time! Read the news onlineat your desk or print out a copy to read atyour leisure over the weekend. Either way,you’ll be getting our breaking news evensooner and starting your week off fully informed!

CFW112105 11/17/05 8:23 PM


Medical Management Co. Seeks AcquisitionsAmerican Healthways, a medical management company inNashville, Tenn., is looking to acquire healthcare servicescompanies promoting healthier lifestyles and healthcaretechnology players. Paul Wallace, senior v.p. of strategicdevelopment, said the company is interested in purchasescosting $5-500 million and is also open to a merger. Thebusiness has a $1.4 billion market capitalization.

The desire for acquisitions stems from a customerpreference to have all healthcare management services underone roof, said Wallace. That means providing employers andhealth insurance plans with a full range of services, such asassisting cancer patients and recovering alcoholics.

American Healthways is interested in service providersthat for instance help people quit smoking, said Wallace,adding he’s also attracted to technology companies that havetools to help assess the needs of patients over the phone.Acquisitions might be financed by a variety of instrumentsincluding bank debt or the public markets. In July, the

company purchased Health IQ Diagnostics, a Chicago healthsupport company.

Friendster Seen Fetching Less Than $50MOnline social networking company Friendster, which isreportedly up for sale, will probably fetch a price below$50 million because it has few unique offerings in a crowdedmarketplace, according to Michael Maxworthy, foundingpartner of Marlin & Associates, a New York investment bankspecializing in the media and IT sectors. Last week, severalreports said Friendster had hired investment bank Montgomery& Co. and was looking to sell itself for $50-100 million.

Friendster has little else to offer aside from a customer baseof 21 million user profiles, said Maxworthy. It is not theleader in its space and doesn’t cater to a specific niche, headded. In addition, its venture capital backers, which includeKleiner Perkins Caufield & Byers, Benchmark Capital andBattery Ventures, have only poured in $13 million into thecompany since 2003. A price of $50-100 million would mean

M&A News

Youreaditherefirst!We stay aheadof our competitionso you can stayahead of yours.

JUNE 13, 2005

WARBURG RAISES $7.8B PRIVATE

EQUITY FUND

Warburg Pincus has raised a $7.8 billion buyout fund, which

will give the private equity firm a top three slot in the ranking

of the big funds. The only U.S. firms with larger funds are

Goldman Sachs which raised $8.5 billion and The Carlyle

Group, which raised two funds worth a combined $10 billion

(CFW, 4/11). The final size of the Warburg fund may vary

slightly, according to an industry official.

The Warburg fund should be announced soon, the

industry official said. A spokeswoman at Warburg declined to

comment. The New York firm’s previous fund is the $5.3

billion Warburg Pincus Equity Partners VIII raised in 2001,

according to Capital IQ. Its most high-profile deal this year

was the $5.1 billion buyout of luxury retailer Neiman Marcus

with Texas Pacific Group.

This year buyout players have raised mega-funds as

investors have been looking for returns that beat the public

markets. They’ve also benefited from investors flocking to

firms with the best returns.

Warburg to Unveil $8 Billion ForNew Private-Equity FundInvesting firm Warburg Pincus LLC is expected

today to announce a new private-equity fund with

approximately $8 billion in capital, according to a person

familiar with the matter, the latest in a line of big-ticket

fund raising.These are flush times for private-equity houses, whose

investors—primarily pension funds, universities and

high-income individuals—have proved eager to take on

increasingly larger deals even while overall private-equity

returns level off and competition intensifies.In the last year alone, Warburg was part of groups

that purchased retailer Nieman Marcus Group Inc. for

$5.1 billion, and technology company TelcordiaTechnologies Inc. for $1.3 billion. Those deals were just

part of a broader explosion of private equity, which in the

WALL STREET JOURNALAUGUST 15, 2005

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Copying prohibited without the permission of the publisher. 9

a multiple of four to seven times that investment, a highnumber for a mediocre company like Friendster, he said. “Itdoesn’t smell quite right,” said Maxworthy, adding it’s strangethat the VCs are looking to cash out only two years after theirinitial investment.

IAC/Interactive Corp., United Online and SparkNetworks are some companies that might be potentiallyinterested in acquiring Friendster to add new customers and

expand their social networking offerings, said Maxworthy.Interactive owns Match.com, United owns Classmates.com,and Spark owns AmericanSingles.com. Also, Yahoo!, whichhas yet to make a foray into the social networking space,might look at Friendster as a way to enter the market.Representatives from Friendster and Interactive Corp.declined to comment while representatives from the othercompanies didn’t return calls.

Mergers and Acquisitions Record (NOV. 9 - NOV. 16)

ANNOUNCED TRANSACTION DATE COMPANY NAME SIZE($ MLNS) BUYER SELLER BUYER ADVISOR SELLER ADVISOR11/16/2005 Axes Technologies 54.00 Mahindra British Telecom Avendus Advisors

11/16/2005 10 Non Core Brands 57.00 Cenuco Inc. Playtex Products Inc. Hermes Group LLC, The; Stanford Group Company

11/16/2005 North American Magnet 125.00 Rea Magnet Wire Co. Inc. Phelps Dodge Corp.Wire Assets

11/16/2005 Columbian Chemicals Company 600.00 DC Chemical Co. Ltd., Phelps Dodge Corp.One Equity Partners

11/16/2005 Intellisync Corp. 487.89 Nokia Corp.

11/16/2005 SNB Bancshares Inc. 231.50 Prosperity Bancshares Inc. Sandler O’Neill

11/15/2005 Learning Care Group Inc. 158.27 ABC Learning Centres Ltd. Jacobson Partners

11/15/2005 nMatrix, Inc. 125.00 EPIQ Systems Inc.

11/15/2005 BAX Global Inc. 1,120.00 Deutsche Bahn AG Brinks Co.

11/15/2005 Automotive.com Inc. 72.50 PRIMEDIA Inc.(80% stake)

11/15/2005 Excelsior Radio Networks, Inc. 60.00 Lincolnshire Management, Inc. Sunshine Wireless Co.(Undisclosed Majority Stake)

11/15/2005 Compass Productions Inc. 51.80 Somerset Entertainment BMO Nesbitt Burns, Inc. Income Fund

11/14/2005 Southern Graphic Systems, Inc. 410.00 Citigroup Venture Capital, Ltd. Reynolds Metals Company Deutsche Bank Securities Inc.(Financial Advisor)

11/14/2005 Sara Lee Branded Apparel 321.67 Sun Capital Partners, Inc. Sara Lee Corp. Goldman, Sachs & Co. (Financial Advisor)

11/14/2005 New York Marriott East Side 287.00 Prime Property Fund, LLC Strategic Hotel Capital Inc. Morgan Stanley & Co Inc. -

11/14/2005 Precise Technology, Inc. 275.50 Rexam plc Code Hennessy & Simmons, L.L.C. Citigroup Inc.

11/14/2005 Enterasys Networks Inc. 380.43 Gores Technology Group, LLC; Tennenbaum Capital Partners,

11/14/2005 Funk Software, Inc. 122.00 Juniper Networks, Inc.

11/14/2005 Compex Technologies Inc. 102.66 Encore Medical Corp. First Albany Corporation

11/14/2005 National Business Furniture, Inc. 82.00 K + K America Corporation

11/14/2005 38 Luxury and Upper Upscale Hotels 4,095.76 Host Marriott Corp. Starwood Hotels & Resorts; Goldman, Sachs & Co. Bear, Stearns & Co. Inc.; Deutsche Starwood Hotels & Resorts Bank Securities Inc. Worldwide Inc.

11/13/2005 Georgia Pacific Corp. 24,111.90 Koch Forest Products, Inc. Citigroup CIB

11/11/2005 Serena Software, Inc. 1,419.92 Silver Lake Partners, L.L.C. Lehman Brothers Holdings Inc. ; Merrill Lynch & Co. Inc.

11/10/2005 Gold Banc Corp Inc. 706.89 Marshall & Ilsley Corp. (WI)

11/10/2005 Alamo Corporation Texas 86.21 Cullen/Frost Bankers Inc.

11/10/2005 Guardian International Inc. 65.50 Devcon International Corp. Lehman Brothers Inc.

11/10/2005 Hughes Network Systems, Inc. 100.00 SkyTerra Communications Inc. DirecTV Group Inc.(50% stake)

11/10/2005 Coastal Security Systems, Inc. 50.40 Devcon Security Holdings, Inc.

11/08/2005 The Westin Philadelphia 89.00 HEI Hospitality, LLC Starwood Hotels & Resorts Worldwide Inc.

* denotes proprietary informationChart contains deals of $50 million or more involving U.S.-based targets.

Source: Capital IQ,a division of S&P

M&A News (cont’d)

CFW112105 11/17/05 8:30 PM

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KKR Wraps Up Fund With FinalInsurance Secondary Kohlberg Kravis Roberts monetized the last of its ownership inWillis Group Holdings, a U.K.-based insurer, by selling6.1 million shares at $36.41 on Nov. 8. It marks Willis’ sixthpublic offering since it was acquired by the buyout shop in1998. KKR’s remaining 5% stake in Willis, worth close to$220 million, is also the last outstanding position held by the$6 billion KKR 1996 Fund.

The offering marks the end of what one executive called atextbook private equity investment. The company, acquired in1998, went public in 2001 at $13.50, and over the next fouryears KKR sold off shares at $24.25, $28.25, $31.00 and$38.27. While this last offering was sold at a lower price thanthe previous monetization, the overall pattern shows the shoptook full advantage of an increasingly profitable business thatnearly tripled its market capitalization over the life of theinvestment. “It was probably a smart move to have held onto[Willis, as opposed to selling it,]” said an equity capital marketsmanaging director who works with financial sponsors. A KKRspokeswoman declined to comment.

While part of the reason for coming to the market this monthwas driven by an interest in closing out the 1996 fund, IanWarner, group treasurer at Willis, noted recent developmentshave contributed to an opportune moment for issuance. “Theanalyst perspective has changed and market favor improved forthe sector looking towards results for 2006,” said Warner, addinga slew of hurricanes inevitably leads to higher insurance rates.

Citigroup and Lehman Brothers, both relationship firms ofWillis Group, led the offering.

Shipping Co. Downsizes Follow-OnEagle Bulk Shipping downsized an equity offering to 5.5million shares from the originally-planned six million targetbecause of lower-than-expected demand. Alan Ginsberg, cfo ofthe New York marine company, declined to explain the reasonfor the sluggish demand, but said he was pleased the shares werepriced at a premium to their June IPO price of $14.

On Oct. 28 Eagle Bulk sold shares at $14.50, $0.02 premiumto the last day. The company generated gross proceeds of $79.8million and netted $75.8 million, said Ginsberg. The underwritershave an over-allotment option to purchase up to 500,000 primaryshares and 325,000 secondary shares. If the greenshoe is exercised,the company will raise the amount it had originally targeted.

The majority of the proceeds will be used to fund theacquisition of two ships purchased last month for $70 million,said Ginsberg. UBS and Bear Stearns led the offering and were

chosen because they are active in the maritime sector. The twofirms also underwrote the company’s IPO.

Biotech Raises R&D CashMyriad Genetics, a biotech company in Salt Lake City, Utah,recently sold more than eight million shares, netting$139.7 million for product development. With a drug forAlzheimer’s disease in late stage clinical trials and $103 millionin cash at the end of the third quarter, Jay Moyes, cfo, said hefigured it was a good time to raise money. The shares werepriced at $18.50, a $0.45 discount to the previous day’s close.

Moyes said on the road show, investors were attracted to thepredictive medicine business, the use of genetics to determine aperson’s risk for a disease, and Myriad’s position in that market.Myriad holds numerous patents and has few competitors. Healso said the company could file one or two investigational newdrug applications—possibly for an HIV drug—with the Foodand Drug Administration in the next two quarters. Filing anIND is an early step in putting new drugs through clinical trails.

JPMorgan led the offering. Bear Stearns and UBS InvestmentBank were the co-lead managers. Piper Jaffray, First AlbanyCapital and JMP Securities were the co-managers. Moyes pointedto the company’s longstanding relationship with Charles Duncan,equity analyst at JPMorgan, as one reason his company picked thefirm to lead. “We want a mutually beneficial relationship. Actually,we want to have a mutually beneficial relationship with all ofthem. That’s why we had six hands on the offering.”

Calif. Co. Raises Equity For Flavor ResearchSenomyx recently sold more than four million shares, netting$57.2 million for research and development for its flavors andflavor-enhancers for food and beverage companies. The La Jolla,Calif.-based company sold the common stock to Deutsche Bankfor $14.20 per share. The investment bank then sold them tothe public for $14.60.

The proceeds will help push four current projects: savory, sweet,a salt enhancer and a bitter taste modulator. In March, the Flavorand Extract Manufacturers Association approved its savory line,meant to replace monosodium glutamate, or MSG, in packagedfoods. Gwen Rosenberg, Senomyx’s executive director of investorrelations, said the products should be commercialized in 2006.

Rosenberg said Deutsche Bank proposed the bought deal asthe most efficient use of executives’ time. “The advantage is thatthey could get it done quickly, which allows managers toconcentrate on business. They don’t have to go around thecountry talking to investors.” Deutsche Bank was a natural fit

Financing Strategies

CFW112105 11/17/05 8:23 PM

WSL2006Yearbookad copy 11/11/05 2:25 PM Page 1

for the deal after serving as one of the underwriters in thecompany’s last equity sale, its $36 million initial public offeringin June 2004, she added. Executives have been in frequentcontact with the investment bank since the IPO.

The proceeds nearly triple Senomyx’s cash. The offeringraises holdings to $87 million, after ending the third quarterwith $30 million.

Manufacturer Taps Equity For Debt ReductionColumbus McKinnon recently sold three million shares as partof a plan to pay down debt. The manufacturer of cranes, hoistsand other products based in Amherst, N.Y., netted $56 millionfrom the offering. Karen Howard, cfo, said $40 million will beused to pay a portion of $115 million in 10% senior securednotes (B-) due in 2010. She explained the company had untilAugust next year to exercise a 35% clawback option on the bonds

and decided to raise the cash while its shares had been trading up.The shares were priced at $20.00, a $1.78 discount to the

previous day’s close. “We’ve been focusing on improving our debt to equity

balance and generate cash to pay down debt. We figured this wasa good time to accelerate the process,” said Howard. Thecompany plans to bring debt to total capital ratio down to 50%and, eventually, around 30%. Once exercised, the clawbackshould put the ratio closer to 30%, she said.

The remaining $26 million from the equity offering could beused for a few purposes. Howard said the company isconsidering acquiring companies that will expand its reach intonewly industrialized countries in Eastern Europe or in Asia orcompanies that sell complementary products.

Credit Suisse First Boston led the offering. Robert Baird andNeedham & Co. were the co-managers. Howard said part of thereason for picking CSFB was its work in underwriting previousprivate debt offerings for the company.



Nuggets are a summary of important news impacting the capital markets over the last week. The information has been obtained fromsources believed to be reliable, but CFW does not guarantee its completeness or accuracy.

Nuggets

Investment Banking• Goldman Sachs’ role in the merger between the New YorkStock Exchange and Archiplego was rebuked by a New Yorkjudge. The NYSE was ordered to get a new fairness opinionfrom an “unbiased” investment bank.

• Morgan Stanley has plans to cut as many as two dozen seniorinvestment bankers, said an insider. The layoffs are part of ceoJohn Mack’s turnaround plan and come on the heels of thecutting of 1,000 broker positions.

• Morgan Stanley, which controls roughly $1.24 billion ofChina’s $126 billion of bad loans, has halted purchases of non-performing Chinese loans, citing high prices.

Deals• Koch Industries, a tightly controlled family-ownedconglomerate, agreed to acquire papermaker Georgia Pacific for$13.2 billion, nearly a 40% premium above closing price theday before the deal was announced. The deal will lift Koch’srevenues to $80 billion, propelling it past agriculturalconglomerate Cargill as the largest private U.S. company.

• Johnson & Johnson lowered its acquisition price for Guidantby almost $4 billion to $21.5 billion, ending the standoff overthe value of the pacemaker and defibrillator manufacturer.

• Host Marriot agreed to purchase 38 properties fromStarwood Hotels & Resorts for $4.4 billion.

• Goodman Fielder, the Australian maker of Buttercup breadand Meadow Lea margarine, has chosen to float $1.5 billionworth of shares and rejected a $2.6 billion takeover offer fromBain Capital, Goldman Sachs and Pacific Equity Partners.

• Kohlberg Kravis Roberts made its first foray into Italy, takingover automotive lubricant maker F. L. Selenia for $976 million(€835 million). The seller, New York-based Vestar CapitalPartners, bought Selenia two years ago for €670 million

• General Atlantic LLC agreed to purchase 10% of NymexHolding, the parent of the New York Mercantile Exchange, for$135 million.

• Bill Gates’ Cascade Investment invested $84 million for a27% stake in Pacific Ethanol. The proceeds are earmarked forthe construction of a fuel-additives plant in California.

Corporations• Knight Ridder, the owner of 32 newspapers including TheMiami Herald and The San Jose Mercury News, has hiredGoldman Sachs to explore a potential sale.

• Intel launched a $50 million venture fund for start-ups basedin Middle Eastern countries, like Egypt, Saudi Arabia, Turkeyand the United Arab Emirates.

• Boeing launched an updated 747 jumbo-jet model to competewith the Airbus A380. Eighteen planes, which amount to$5 billion at list price, have been ordered by two cargo companies.

CFW112105 11/17/05 8:23 PM



Corporate Financing Record (OCTOBER 20—OCTOBER 27)

DebtPRINC. GROSS SELLING UNDERAMT. SECURITY OFFER BP SPRD. CON. WRITING MGMT.

ISSUER DATE ($ MILS) CPN. TYPE MATURITY PRICE YIELD SPRD. M S&P F MANAGER FEE % FEE % FEE % FEE %

Ohio Power Company 11/10/05 200 5.3 Sr Unsecurd Nts 11/1/10 99.865 5.331 80 A3 BBB BBB+ MERRILL-MORGAN-STANLEY 0.6 0.35 Comb. Comb.

Boston Scientific Corp 11/14/05 350 6.25 Sr Unsecurd Nts 11/15/35 99.41 6.294 150 A3 A A DEUTSCHE-BK-SEC-JPM-UBS-I 0.875 0.5 Comb. Comb

NV-BANK

Boston Scientific Corp 11/14/05 400 5.5 Sr Unsecurd Nts 11/15/15 99.228 5.602 100 A3 A A DEUTSCHE-BK-SEC-JPM- 0.65 0.4 Comb. Comb.

UBS-INV-BANK

Commercial Net Lease Realty 11/14/05 150 6.15 Senior Notes 12/15/15 99.74 6.185 158 Baa3 BBB- BBB- CS-FB-CS-WACHOVIA-SEC 0.65 0.4 Comb. Comb.

Consolidated Edison Co of NY 11/14/05 350 5.375 Debentures 12/15/15 99.77 5.405 80 A1 A A+ MORGAN-STANLEY-CS-FB- 0.65 0.4 Comb. Comb

CS-MERRILL

■ Great Plains Energy Inc 11/14/05 250 6.05 Senior Notes 11/15/35 99.398 6.094 130 A3 BBB NR BNP-PARIBAS-JPM na

■ Compton Petroleum Corp 11/15/05 300 7.625 Senior Notes 12/1/13 99.26 7.75 328 B2 B NR CS-FB-CS-MERRILL na

■ El Pollo Loco 11/15/05 125 11.75 Senior Notes 11/15/13 98.74 11.999 740 Caa1 CCC+ NR MORGAN-STANLEY-BA-SEC-LLC na

Private Export Funding Corp 11/15/05 250 4.95 Secured Notes 11/15/15 99.978 4.953 40 Aaa AAA NR LA-SALLE-BK-NA na

■ Stanley Works Inc 11/15/05 450 5.902 Notes 12/1/45 100 5.902 140 Baa1 BBB NR CITIGROUP-GS-UBS-INV-BANK na

Wisconsin Gas 11/15/05 90 5.9 Global Notes 12/1/35 99.759 5.917 118 A1 A- A+ MORGAN-STANLEY 0.875 0.5 Comb. Comb.

CIT Group Inc 11/16/05 500 5 Global Notes 11/24/08 99.854 5.053 63 A2 A A BLAYLOCK-PTRNS-WILLIAMS na

CAP-LEH

E Trade Financial Corp 11/16/05 300 7.875 Senior Notes 12/1/15 100 7.875 335 B1 B+ NR MORGAN-STANLEY-JPM na

Encore Acquisition Co 11/16/05 150 7.25 Sr Sub Notes 12/1/17 98.039 7.5 302 B2 B NR CITIGROUP na

■ Greenbrier Cos Inc 11/16/05 60 8.375 Senior Notes 5/15/15 100 8.375 383 NR NR NR BA-SEC-LLC-BEAR na

Residential Capital Corp 11/16/05 750 6.125 Notes 11/21/08 99.862 6.176 175 Baa3 BBB- BBB- BARCLAYS-CAP-DEUTSCHE- na

BK-SEC-LEH

Residential Capital Corp 11/16/05 500 Floats Float Rate Nts 11/21/08 100 Floats Baa3 BBB- BBB- BARCLAYS-CAP-DEUTSCHE- na

BK-SEC-LEH

Vectren Utility Holdings Inc 11/16/05 75 5.45 Sr Unsecurd Nts 12/1/15 99.799 5.476 100 Baa2 A- NR LA-SALLE-BK-NA na

Vectren Utility Holdings Inc 11/16/05 75 6.1 Sr Unsecurd Nts 12/1/35 99.799 6.115 145 Baa2 A- NR LA-SALLE-BK-NA na

CommonPRINC. TOTAL TOTAL UNDER

AMT GLOBAL SECONDARY OFFER GROSS SELL WRITING MGMT.ISSUER DATE ($ MIL SHARES SHARES PRICE $ MANAGER SPREAD % CON. % FEE % FEE %

▲ Clear Channel Outdoor Holdings 11/10/05 630 35,000,000 18 GS-DEUTSCHE-BK-SEC-JPM 4.15 2.7 0.622 0.828

MERRILL-UBS-INV-BANK

▲ IHS Inc 11/10/05 232.2 14,515,000 14,515,000 16 GS-CITIGROUP 6.6 3.96 1.32 1.32

▲ Cold Spring Capital Inc 11/11/05 120 20,000,000 6 DEUTSCHE-BK-SEC 7.5 4.16667 1.333 2

Celanese Corp 11/14/05 205.2 12,000,000 12,000,000 17.1 CS-FB-CS na

▲ Vimicro International Corp 11/14/05 87 8,697,063 1,947,063 10 MORGAN-STANLEY 7 4.2 Comb. Comb.

Capital Title Group Inc 11/15/05 41.1 6,850,000 1,850,000 6 RYAN-BECK 6.5 3.66667 1.133 1.2

Crosstex Energy LP 11/15/05 116.4 3,500,000 33.25 LEH 4.25 0.851 0.851

Digene Corp 11/15/05 84 3,000,000 1,000,000 28 JPM 6 3.60714 Comb. Comb.

Environmental Power Corp 11/15/05 14 2,000,000 7 MDB-CAPITAL na

▲ IntercontinentalExchange Inc 11/15/05 416 16,000,000 13,500,000 26 MORGAN-STANLEY-GS 6.5 4.23077 Comb. Comb.

Omega Healthcare Investors Inc 11/15/05 53.1 4,500,000 11.8 UBS-INV-BANK na

United Community Banks,GA 11/15/05 37.5 1,350,000 27.75 SANDLER-ONEILL na

WPS Resources Corp 11/15/05 247 4,600,000 2,700,000 53.7 JPM-BA-SEC-LLC na

Axis Capital Holdings Ltd 11/15/05 199.9 6,800,000 29.4 CITIGROUP na

E Trade Financial Corp 11/16/05 650 36,111,111 18 MORGAN-STANLEY-JPM 3.25 Comb. Comb.

Enbridge Energy Partners LP 11/16/05 138 3,000,000 46 UBS-INV-BANK-LEH 4 0.804 0.804

Hiland Partners LP 11/16/05 66.8 1,600,000 41.77 A-G-EDWARDS 4.999 Comb. Comb.

▲ SunPower Corp 11/16/05 138.6 7,700,000 18 CS-FB-CS-LEH 7 1.4 1.4

SYNNEX Corp 11/16/05 38.3 2,500,000 2,500,000 15.32 BEAR na

Source: Thomson Financial/Securities Data. For more information, call Rich Peterson at (973) 645-9701.Comb. - fee is combined; NR - not rated; Na - not available; ■ 144A; ▲ IPO

// Manager responsible for running the books; Contains offerings of $2 million or more; * More managers, but not listed.

CFW112105 11/17/05 8:23 PM


Perella’s residence were not returned. Meguid could not be reachedfor comment. A Morgan Stanley spokesman declined to comment.

Richard Roth, a lawyer at The Roth Law Firm in New Yorkwho has worked on several investment banking-relatedemployment cases, said bankers interested in setting up theirown shops waste little time in launching once their non-compete agreements come to an end because they want topreserve their relationships with clients.

“It’s like letting the horses out of the gate,” said Roth,referring to bankers’ aggressiveness once their non-competesterminate.

Perella started Wasserstein Perella with Bruce Wasserstein in1985 after over a decade at First Boston. In 1993, he joined

PERELLA, MEGUID(continued from page 1)

added, pointing to the expectation that lower-quality companieswill begin to trip their covenants or have a hard time refinancingas interest rates rise. Questor was co-founded by Dan Lufkin.

Michael Madden, the former co-head of investment bankingat Lehman Brothers, recently left Questor to start his ownturnaround private equity shop, BlackEagle Partners. His shophas picked Probitas Partners to raise a fund with a $250 milliontarget. Other turnaround firms currently marketing their firstfunds include Industrial Opportunity Partners and MonomoyCapital Partners. Jerry Levin, the former ceo of Sunbeam andRevlon, is reportedly launching a fund. Many of the newbies areveterans of the established shops, such as KPS Special SituationsFunds and Questor, which plans to raise a new fund next year.

“Look at the [bond] new issue market,” Prokop said. “TripleC rated paper spiked in 2004-2005. And historically, 35-40%of all this paper defaults within three years.” Citing data fromProfessor Edward Altman at New York University’s SternSchool of Business, Prokop said a threefold increase inmaturities of single-B paper is coming due in the next two yearscompared to 2004 and 2005. “There are going to be a lot moreopportunities in a couple of years.”

NEW TURNAROUNDS(continued from page 1)

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Burke Whitman, cfo ofTriad HospitalsThis Dartmouth man, former bulgebracket banker andMarine Corps officerwho served in bothGulf wars and Bosnia,shares with CFW hisviews on service andleadership, nationalhealthcare policy, and the future financingoutlook of one of the country’s largesthospital operators.

See Financially Speaking, p. 12 In The NewsHarris Nesbitt Growing Asset Backed

Securities Group 3

Financing StrategiesNabi Biopharmaceuticals Sees Stock

Soar After Equity Deal 4Gibraltar Steel Seizes High Stock

Price To Issue Equity 5

M&A NewsLa Quinta Seeks $500m

In Acquisitions 8

DepartmentsUnderwriting League Tables 3M&A Record

9Financing Calendar 14

JANUARY 12, 2004VOL. XXX, NO. 2

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Check our Web site www.corporatefinancingweek.com during the week for breaking news and updates

A Satisfied CustomerHERSHA EYES EQUITY OFFER; UBS, CITI ON INSIDE TRACK Hersha Hospitality Trust will consider a $100-150 million equity offering later this year,potentially doubling the current size of the company, according to Ashish Parikh, cfo.Though Hersha has not committed to specific underwriters, Citigroup and UBS InvestmentBank, the leads on its last offering, will have a leg up in winning the mandate, Parikh said. “We were very happy with their work and I would be surprised if we didn’t use them asjoint-bookrunners,” Parikh said.

The potential equity offering for the New Cumberland, Penn.-based real estate investment(continued on page 15)

SELF-STORAGE COMPANY PLANS IPO, SHOPS FOR UNDERWRITERSPrivate self-storage company Extra Space is planning an approximately $500 million initialpublic offering and reportedly has been in talks with six to eight investment banks, includingGoldman Sachs, Citigroup, Wachovia and Merrill Lynch, as possible underwriters. KenChristiansen, cfo of the Salt Lake City company, did not return repeated calls and bankerseither declined to comment or did not return calls. Bankers and industry peers said the company is highly regarded for its unique technologyand management style and has expanded its reach on the East and West coasts in recentyears. “They have good and diversified properties and a unique management software system


A New Threat To FeesCOMPANIES INCREASINGLY GO IT ALONE ON M&A Just when bankers were beginning to believe in the deal market’srevival comes a sobering realization: anincrease in the number of completed mergersand acquisitions done without an

investment bank. Thirteen percent ofcompleted deals in 2003 were done withoutan advisor, up from 8.2% in 2002 and lessthan 5% in 2001, according to RichardPeterson, chief market strategist at


Land Grab!

B4001101

An executive who is currently selling turnaround funds toinvestors said part of the pitch is that the rush of buyouts in thelast two years will inevitably lead to more broken deals. “Everypresentation includes a segment that says, ‘look at how manybuyout deals have been done. If the same percentage go bad,we’ll be here to sift through the rubble.’”

—Matthew Craft

CFW112105 11/18/05 1:27 PM



Quote Of The Week“It doesn’t smell quite right.”—Michael Maxworthy, partner atMarlin & Associates in New York, referring to Friendster’s VCsapparent desire to cash out two years after their initial investment (seestory, page 9).

One Year Ago In Corporate Financing WeekBoston-based TA Associates was aiming to pump $900 millioninto 12-14 companies across a wide range of industries in 2005.[TA is on track to do 11 investments this year for approximately$850 million.]

Five Years AgoUnited American Energy and Duke Energy were seeking toissue either bonds or equity under the name American Ref-Fuel,a company the two were purchasing from Allied WasteIndustries as a joint venture.

an interesting, substantially sized deal that was brought oncheap,” he said. Price talk on the coupon was at 5 5/8 to 6 1/8%with a premium of 20-25%. The deal was printed at 6 1/8% up21.2% and traded up in the aftermarket. Convertible executivessaid offerings have been coming out with more buyer-friendlyterms lately because of an increased sensitivity to price.

While Malik is an outright, his fund benefited from thearbitrageurs who pushed the stock price down ahead of thepricing as they looked to secure short positions. “This offeringenjoyed a double effect of the stock price, which was already[recovering] from the short selling, as well as the cheap terms.”

E*Trade stock rose 5.3% on Thursday despite the $650million common offering the night before, while the new junkbonds (B+/B1), priced at par with a 7 7/8% coupon, traded ashigh as 101 1/4. The financing package was co-led by JPMorganand Morgan Stanley.

Elsewhere in the convertible market, investors said SonicAutomotive, an auto dealer, was looking to price $150 million inconvertible sub-notes at 3 3/4 to 4 1/4% up 20-25% and EDO,a defense company, was shopping around a 3 1/2 to 4%convertible sub-note at at a 28-32% premium. C&DTechnologies and The Pantry priced deals totaling $195 million.

—Dan Shirai

E*TRADE FINANCING(continued from page 1)

T H E C L O S I N G B E L L

What does it all mean? That’s whatinvestors in hybrid securities oftensay to themselves when Street firmscome up with a new acronym fortheir proprietary securities. The

names vary from the mundane to the highlyallegorical. Merrill Lynch can be credited with havingsome of the more involved names which, like its ‘BeBullish’ logo, conjure up images of power and strength.Merrill’s LYONs [liquid yield option notes] were followedby its PRIDES [preferred redemption increased dividendequity securities] which in turn were modified to create theFELINE PRIDES [flexible equity linked exchangeablePRIDES].

Some investors joke about whether the product isworthy of the name. “Do they spend more time designingthe structure or coming up with the name?” said HartWoodson, senior v.p. of convertibles at GAMCO in Rye,N.Y., and author of Global Convertible Investing TheGabelli Way. “One guy comes up with the structure andthen the rest all copy it. After that, all they need is a brandname.”

The ocean has been a source of inspiration for some ofCredit Suisse First Boston’s hybrids such as the TIDES[term income deferrable equity securities] and SAILs [stockappreciation income-linked securities.]

Citigroup’s William Ortner, credited with coming upwith SynDECS, a variation on his shop’s existing dividendenhanced common stock securities, said the idea is to makethem sound appealing and easy to remember. Who couldforget a name like ICONs [integrated convertible optionnotes?]

Here are some others you can test yourself with, and a morecomplete list can be found in Woodson’s book:

BUCS - Beneficial Unsecured Convertible Securities

CRESTS -Convertible Redeemable Equity Structured Trust Securities

EPPICS - Equity Providing Preferred Income Convertible Securities

Convertible TOPrS - Convertible Trust Originated Preferred Securities

SPURS - Shared Preference Redeemable Securities

ACES - Automatically Convertible Equity Securities

TRACES - Trust ACES — Tax Advantaged ACES

TrENDS - Trust Enhanced Distribution Securities

Morgan Stanley as a senior banker and member of themanagement committee. Meguid was with Morgan Stanley for27 years and served as deputy to Perella for close to a decade.

—Priya Malhotra

CFW112105 11/18/05 1:27 PM

perella, meguid seen starting up m&a shop · 2009-06-03 · to learn more about fitch ratings,...

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