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www.heinz.com
NYSE: HNZ
600 Grant Street
Pittsburgh PA 15219
United States
Phone: 412-456-5700
Fax: 412-456-6015
CEO: William R. Johnson
General Counsel: Theodore Bobby
Industry: Food
RECENT NEWS:
The latest dissident weapon: name-brand
CEO advisers
Sense of the markets: Don't ring the death knell yet on LBOs
TABLE OF CONTENTS:
COMPANY PROFILE ................................................................................................................................................ PAGE 1
RECENT LEGAL ADVISERS .................................................................................................................................... PAGE 3
RECENT FINANCIAL ADVISERS ............................................................................................................................. PAGE 4
RECENT DEALS ....................................................................................................................................................... PAGE 5
RECENT NEWS ........................................................................................................................................................ PAGE 8
Page 1 of 27
02/21/2015
Linkedin: http://www.linkedin.com/pub/mitch-ring/30/984/50b
Biography: Mitch Ring was previously vice president and a member of the Heinz management committee from 1996 to
2005. Ring joined Heinz in 1991 after serving as vice president marketing at Citibank NA from 1990 to 1991, business unit
director/marketing director at M&M/Mars from 1983 to 1989 and in various marketing and finance positions at General
Foods from 1974 to 1983.
Ring has both his B.S. and M.S. degrees from the Sloan School of Management of the Massachusetts Institute of Technology.
Page 2 of 27
02/21/2015
PROFESSIONAL
FIRM
DEAL
DATE
Target
Bick, John
02/14/13
Target
Davis, Michael
02/14/13
Target
Ferrell, Kathleen
02/14/13
Target
Florack, James
02/14/13
Seller
Golden, Arthur
02/14/13
Target
Harty, Ronan
02/14/13
Seller
Hochbaum, Lee
02/14/13
Target
Hudson, Sophia
02/14/13
Target
Kaplan, Michael
02/14/13
Seller
Lin, Kyoko
02/14/13
Target
Carlton, Rod
02/14/13
Target
Cronk, Jeremy
02/14/13
Target
Hutton, Susan
02/14/13
Target
Stockwell, Alexandra
02/14/13
Buyer
Bick, John
06/21/10
Buyer
Chen, Yixin
06/21/10
Buyer
Delia, Andrew
06/21/10
Buyer
Ferrell, Kathleen
06/21/10
Buyer
FitzGerald, Edmond
06/21/10
Buyer
Holloway, Mark
06/21/10
Page 3 of 27
02/21/2015
PROFESSIONAL
FIRM
DEAL
DATE
Target
Baronoff, Steven
02/14/13
Seller
Effron, Blair
02/14/13
Seller
Luongo, Peter
02/14/13
Coniexpress SA
02/01/11
Buyer
Page 4 of 27
02/21/2015
Recent Deals
COMPANY
ROLE
DEAL
TYPE
DEAL
INDUSTRY
REGION
DATE
VALUE
($ MIL)
Lien
Financing
Food
MidAtlantic
North America
03/13/13 2,000.00
United States
United States - East
Lien holder
Lien
Financing
Food
MidAtlantic
North America
03/13/13 6,550.00
United States
United States - East
Lien holder
Lien
Financing
Food
MidAtlantic
North America
03/13/13 2,950.00
United States
Seller
Target
Committee
Likely
bidder
Buyer
North America
Merger
Acquisition
Food
02/14/13 28,000.00
MidAtlantic
Auction
Merger
Acquisition
Food
Food
Latin America
Australia and Pacific
islands
01/09/13 1,000.00
10/29/12
United States
Seller
Merger
Target
Acquisition
Food
Manufacturing
North America
United States - East
05/13/12
Northeast
Pennsylvania
United States
Northeast
Likely
bidder
Auction
Pfizer Nutrition
Healthcare
07/07/11 1,000.00
Auction
United States
Healthcare
Northeast
06/04/11 1,000.00
North America
New Jersey
New York state
Food
Buyer
Merger
Acquisition
Coniexpress SA
Consumer and
household products
Manufacturing
Merger
Brazil
Latin America
02/01/11
South America
Food
Page 5 of 27
02/21/2015
Buyer
Buyer
Buyer
Acquisition
Merger
Acquisition
Merger
Acquisition
Manufacturing
Food
Benedicta SA
Food
Asia
Australia and Pacific
islands
06/21/10 165.00
10/06/08 216.00
Europe
Europe, U.K. and Ireland
07/02/08
(includes Iceland)
North America
United States - Central
Likely
bidder
Auction
Northeast
Healthcare
New Jersey
12/05/07
United States
United States - East
Midwest
Buyer
Merger
Acquisition
business
Bankruptcy
Filing
Food
Retail
06/05/07 58.00
02/14/06 23.00
North America
United States
Buyer
Merger
Acquisition
Food
07/19/05 130.00
Northern California
Silicon Valley
Buyer
Merger
Acquisition
HP Foods Ltd.
(includes Iceland)
06/20/05 820.00
Europe
United States
Far West
Actual
bidder
Auction
Food
Silicon Valley
United States - West
06/13/05 50.00
Northern California
North America
Seller
Target
Actual
bidder
Auction
(includes Iceland)
05/26/05 250.00
Europe
HP Foods Ltd.
Food
(includes Iceland)
03/31/05 500.00
Europe
Filing
bidder
businesses
Bankruptcy
Likely
Auction
Bankruptcy
Filing
Bankruptcy
Filing
Food
Retail
Southeast
02/21/05 2,235.56
Europe
Food
05/24/04 50.00
(includes Iceland)
Fleming Cos.
Target
Merger
Seller
Acquisition
Food
Retail
Telecommunication
Food
Southwest
04/01/03
09/23/02
06/13/02 2,800.00
Page 6 of 27
02/21/2015
Southern California
Buyer
Merger
Acquisition
Food
North America
07/26/01 200.00
United States
Far West
United States - West
United States - East
Likely
Merger
bidder
Acquisition
VF Brands Inc.
Food
United States
North America
03/21/01 195.00
MidAtlantic
Buyer
Merger
Acquisition
Food
Manufacturing
Europe
Europe, U.K. and Ireland
10/23/99 318.00
(includes Iceland)
Page 7 of 27
02/21/2015
Recent News
The latest dissident weapon: name-brand CEO advisers
Ronald Orol
Updated 04:38 PM, Feb-20-2015 ET
Last month, Nelson Peltz's activist fund Trian Fund Management LP announced it had formed an advisory board stacked with three
high-profile ex-CEOs. Leading the group is former H.J. Heinz Co. chief executive William Johnson, who, in January, was installed on
the board of PepsiCo Inc. (PEP) as part of a settlement with Trian after Peltz had urged the soda and sports drink company to break up.
Other heavyweight ex-chief executives on the Trian panel: Dennis Reilley, former CEO of Praxair Inc. (PX) and current chairman of
Marathon Oil Corp. (MRO), and Dennis Kass, the former CEO of investment firm Jennison Associates LLC and a current director at
Legg Mason Inc. (LM), where until December, Peltz served on the board. Trian is still the asset manager's top shareholder. Trian is the
latest activist seeking to formalize relationships with high-profile executives who, the plan goes, will apply pressure to targeted
companies. The CEO advisory panels, some publicly disclosed-others not so public-are the latest arrow in the activist quiver. "By setting
up an advisory panel Trian is legitimizing its activist efforts," said Steve Wolosky, partner at Olshan Frome Wolosky LLP in New York.
Wolosky, who leads his firm's activist investor practice, said these advisory panels can be kept private or made public. "By setting up a
panel and making it public, an activist is in a way marketing itself to investors showing how they can attract high level talent," he said.
Though Trian used the word "advisory," those experienced CEOs may be on tap to do more than simply provide advice: If Trian decided
to mount a proxy fight, the panelists can serve as director nominees. As the firm noted in its announcement, the advisory partners "may
also join the boards of directors of companies in which Trian invests." TRIAN ISN'T ALONE in having C-suite executives on call for
potential campaigns.Barington Capital Group LP, for example, has a network of advisers, including Javier Perez, a former McKinsey &
Co. partner, who the activist fund nominated to the board of chemical company Omnova Solutions Inc. (OMN) in December. Barington
also recently got another of its advisers, the ex-CEO of Scientific Games Corp., Joseph Wright Jr., on the board of insurance industry
software provider Ebix Inc. (EBIX). Some activists will hire advisers for a particular campaign. Take Starboard Value's Jeffrey Smith.
In December, when Starboard upped its stake at packaging company MeadWestvaco Corp. (MWV) it also reported an advisory
agreement with Steven Klinger and George Wurtz, two people the fund retained with a $50,000 fee each. (As part of their advisory
agreement with Starboard, Wurtz and Klinger agreed to use the proceeds from their fees to buy shares in MeadWestvaco.) In a
regulatory filing, Starboard said it retained them because of their "unique skill set, industry experience and industry knowledge." Wurtz
is chairman of Soundview Paper, a tissue products company, and Klinger is former COO of Smurfit-Stone Container Corp., according to
the filing. A person familiar with Starboard said Wurtz and Klinger could make good dissident board candidates if the activist decided to
launch a proxy fight at the company-a campaign that is now likely to be off because Meadwestvaco agreed to merge with Rock-Tenn
Co. (RKT)-a cash and stock deal valued at about $16 billion-after the activist showed his hand. Starboard had a similar arrangement set
up for its ultimately successful board takeover campaign at Darden Restaurants Inc. (DRI) last year. In March 2014, Starboard retained
Craig Miller, an ex-CEO of Ruth's Chris Steak House Inc., as an adviser with a "broad restaurant industry experience." That
arrangement included the same $50,000 fee Starboard offered to Wurtz and Klinger. A person familiar with Starboard said the fund
hires people as advisers to teach its managers about the industries involved and help identify areas in which a company could improve,
adding that they also may end up making good dissident board candidates. Plus, known industry experts can add credibility to an
activist's platform when meeting with institutional investors. "They realized that when they go meet with investors in a heated proxy
fight they are likely to be treated more seriously if they roll out some name-brand CEO guy at the meeting who will talk about how the
company is all screwed up and if he was running things it would be all different," said one adviser to companies. Wolosky argued that
an advisory panel can provide a network of experts. "Having a CEO or ex-CEO with a lot of expertise could be valuable for activists
that want to do a deep dive into a company's operational capabilities," Wolosky said. "A CEO could help you figure out if the cost
savings will be there and why its operating margins are off kilter." IN SOME WAYS, activist fund managers are taking a page out of the
playbook of venture capital funds and private equity funds. "The PE funds and VC funds have been using advisory panels for years that
are composed of brand-name CEOs, former high-ranking governmental officials and other masters of the universe," said Keith
Gottfried, partner with Morgan, Lewis & Bockius LLP in Washington. "They have advisers that they look to for relevant industry
experience and connections, to help them source deals, for market intelligence and to assist with due diligence." Douglas Braunstein and
James Woolery, two Wall Street veterans, set up a different sort of advisory panel at their recently formed activist-style fund Hudson
Executive Capital. They signed up 14 former and current CEOs, most of whom are or were Fortune 500 executives, as both advisers and
partners, including former Verizon Communications Inc.'s (VZ) CEO Ivan Seidenberg. As part of the strategy, the partners are expected
to use their industry expertise to formulate ideas for improvement that they will bring to targeted companies. (In addition, the CEO
group will be heavily involved in discussions with top executives at targeted companies). "It is very powerful to be able to have a
CEO-to-CEO discussion about strategic options," Woolery said. The activist fund said it has no plans to launch proxy fights; it will
instead target companies that the founders believe will be receptive to doing something in a friendly, negotiated fashion. However, one
adviser to companies targeted by activists said he wondered how much success Hudson might have if they can't threaten-or go through
with-a proxy fight. "I may be cynical, but I think without the threat of a proxy contest they are less likely to have success," said the
company adviser. Nevertheless, Woolery said he is hoping his background in participating in panels bringing together institutional
investors and corporate directors will help. In 2014, he aided in the formation of the Shareholder-Director Exchange, an alliance of top
institutional investors like BlackRock Inc. (BLK) and Vanguard and corporate directors who seek to improve company-investor
dialogue in the face of a growing onslaught of activist insurgencies. Woolery added that he believes there is an opportunity for SDX
members and Hudson's CEO network to communicate when it comes to the fund's investments. Still, a potential downside exists to
bringing in a former CEO from a company's competitor for what is advertised as simply a strategic options review. The reaction may be
Page 8 of 27
02/21/2015
that the activist's adviser is simply a "CEO in waiting," Gottfried said. "The CEO is concerned that the activist is coming for his head
and wants to eventually replace him with the former CEO who is included on the dissident's nominee slate and who the current CEO
cannot reasonably deny is qualified for the job," he noted.
Page 9 of 27
02/21/2015
Recent News
Debt Financing: Caesars Entertainment, NII Holdings, Jurys Inn, H.J. Heinz,
Presidio
Edited by Nils Van Liew
Updated 01:40 PM, Jan-26-2015 ET
This report is an exclusive compilation of financing intelligence gathered by The Deal Pipeline's editorial staff. Today's highlights
include:
Caesars venue trial begins
NII to sell Mexican operations
Lone Star checks in at Jurys Inn
Heinz to sell $2B of senior notes
Apollo shelves $400M Presidio deal loan
The full report follows.
Bankruptcy
Caesars venue trial begins
Lawyers for Caesars Entertainment Operating Co. and its creditors have kicked off arguments on where the casino operator's bankruptcy
case should proceed.
On Monday, Jan. 26, a two-day hearing began before Judge Kevin Gross of the U.S. Bankruptcy Court for the District of Delaware in
Wilmington on whether hearings should be held there, where creditors filed an involuntary petition for the company, or in the Northern
District of Illinois in Chicago, where CEOC commenced its own Chapter 11 case.
The subsidiary of Caesars Entertainment Corp. (CZR) and dozens of units on Jan. 15 submitted voluntary petitions in Chicago, just days
after second-lien bondholders led by affiliates of Appaloosa Management LP ($13.11 million), Oaktree Capital Management LP ($18.24
million) and Tennenbaum Capital Partners LLC ($9.73 million) had sought a stay of any parallel bankruptcy proceeding. The petitioning
creditors on Jan. 12 commenced an involuntary Chapter 11 case for CEOC in Wilmington.
Gross on Jan. 15 then stayed the proceedings in the Chicago case until the Delaware court issued an order resolving the venue dispute.
At Monday's hearing, Bruce Bennett of Jones Day, counsel to the petitioning creditors, argued CEOC has "not acted as a fiduciary" for
its creditors in its prepetition transfers, in its search for a venue or in the terms of the reorganization plan proposed in its restructuring
support agreement. Full report
NII to sell Mexican operations
Wireless services provider NII Holdings Inc. (NIHDQ) on Monday, Jan. 26, announced plans to sell its Mexican operations to AT&T
Inc. (T) for $1.88 billion less outstanding debt at closing. The Reston, Va., company, which provides wireless telecommunications
services mainly in Mexico and Brazil, hopes to file a bidding procedures motion in the U.S. Bankruptcy Court for Southern District of
New York in Manhattan on Tuesday, according to court filings. The deal, which will be open to better and higher offers, will need the
blessing of both Judge Shelley Chapman and Mexican regulators. The company said Monday it hopes to close the transaction by the
middle of 2015. NII filed for Chapter 11 on Sept. 15 after the company failed to make $118.75 million in interest payments due Aug. 15
Page 10 of 27
02/21/2015
on 7.875%, 11.375% and 10% notes issued by two units. A 30-day grace period under which NII could have made the payments
subsequently expired. Additionally, a forbearance agreement with certain holders of the senior notes issued by NII Capital Corp. and NII
International Telecom SCA, including Aurelius, expired on Aug. 15. Full report
Private Equity
Lone Star checks in at Jurys Inn
Dallas private equity shop Lone Star Funds has agreed to buy Jurys Inn Group Ltd. for 680 million ($1.02 billion), the Irish hotels
group's departing shareholders announced on Monday, Jan. 26. The sale comes less than two years after the chain underwent a
debt-for-equity swap. The restructuring relieved it of a massive burden of buyout leverage taken on in 2007, at the height of the Irish
property bubble. Late last year, Jurys bought back a tranche of remaining debt held by the Irish Bank Resolution Corporation, and
brought in advisers to consider its options. Dublin-based Jurys operates 31 hotels in total, 28 under the Jurys Inn Brand and 3 under the
DoubleTree by Hilton and Hilton Garden Inn brands. It has four hotels in London, another 21 elsewhere in the U.K., five in Ireland and
one in Prague. The sellers are Oman Investment Fund, Mount Kellet Capital Management LP, Royal Bank of Scotland Group plc's Irish
unit Ulster Bank, Westmont Hospitality Group, of Mississauga, Ontario, and Avestus Capital Partners. Full report
Heinz to sell $2B of senior notes
H.J. Heinz Co.pany announced Monday plans to raise $2.0 billion through the issuance of second lien senior secured notes. It intends to
use the proceeds to repay a portion of its existing term loans, said the Pittsburgh-based ketchup maker in a press release. The issuer -through a syndicate that includes J.P. Morgan and Wells Fargo -- is seeking a ten year loan. The expected BB/B1 rated facility is said to
come with five year no call protection and price late Monday, Jan 26. Heinz's existing term loans date back to the company's June 2013
acquisition by Berkshire Hathaway Inc. (BRK.A) and Brazil's 3G Capital. Full report
Apollo shelves $400M Presidio deal loan
A syndicate including Barclays and Credit Suisse has postponed a $400 million credit facility backing the planned acquisition of
Presidio Holdings Inc. by Apollo Global Management LLC (APO), according to Bloomberg. Initial price talk on the now-shelved eight
year no-call three notes was between 10.75% and 11.00%, inclusive of an expected original issue discount. Indicated terms failed to
generate sufficient demand for the expected Caa1/CCC+ rated facility, according to sources cited by the news service. The
postponement comes days after bankers sweetened the terms on a concurrent seven year deal loan, from L+475 and an OID of 99 to
L+575 and 97.0. That facility, sized at $600 million, is expected to allocate late Monday. Apollo announced December 1 an agreement
to acquire Presidio from American Securities LLC for an undisclosed sum. Full report
Page 11 of 27
02/21/2015
Recent News
Heinz to sell $2B of senior notes (BRK.A)
Updated 11:26 AM, Jan-26-2015 ET
H.J. Heinz Co.pany announced Monday plans to raise $2.0 billion through the issuance of second lien senior secured notes. It intends to
use the proceeds to repay a portion of its existing term loans, said the Pittsburgh-based ketchup maker in a press release.The issuer -through a syndicate that includes J.P. Morgan and Wells Fargo -- is seeking a ten year loan. The expected BB/B1 rated facility is said to
come with five year no call protection and price late Monday.Heinz's existing term loans date back to the company's June 2013
acquisition by Berkshire Hathaway Inc. (BRK.A) and Brazil's 3G Capital. Those loans priced at spreads over Libor of between 225 and
250 basis points, according to S&P's LCD.
Page 12 of 27
02/21/2015
Recent News
Fraidin joins Ackman after half century at law firms
by David Marcus
Updated 03:10 PM, Jan-20-2015 ET
Bill Ackman's investment vehicle Pershing Square Capital Management LP announced Tuesday that it hired Stephen Fraidin as vice
chairman. Fraidin, 75, had been a partner at Kirkland & Ellis LLP and often represented Pershing Square, most recently last year when it
teamed with Valeant Pharmaceuticals International Inc. (VR X) in a hostile bid for Allergan Inc. (AGN). The Botox maker ended up
selling to Actavis plc (ACT), but Ackman made a profit of $2.7 billion on the deal.
The two men have known one another for about 30 years. Ackman grew up in Chappaqua, N.Y., where Fraidin raised his family.
Fraidin's two sons are about the same age as Ackman, and all three of the boys played tennis. During high school, Ackman and one of
Fraidin's sons were in a gifted students program at Columbia University, and Fraidin drove them back and forth from Chappaqua. When
Ackman graduated from Harvard Business School in 1992, he asked Fraidin to do the legal work on the formation of Gotham Partners,
which Ackman co-founded. The lawyer initially demurred, suggesting that Ackman see Paul Roth, a specialist in investment funds at
Schulte, Roth & Zabel LLP, but Ackman was persistent, and Fraidin relented, Fraidin hasn't done all of Ackman's legal work, in part
because of client conflicts, but has had a consistent relationship with Ackman.
Ackman has "been talking to me about this for several years," Fraidin said, "and it's something that we both have been considering for
quite some time. I'm going to be going to all the investment team meetings. I'm going to be involved to a greater extent in matters other
than pure legal advice. And I'll be able to counsel Bill on a more consistent and uninterrupted basis."
The move caps a very distinguished career in the law for Fraidin. A 1961 graduate of Tufts University, he joined Fried, Frank, Harris,
Shriver & Jacobson LLP out of Yale Law School and made partner in 1971. He represented Bendix Corp. CEO William Agee in his
legendary failed bid for Martin Marietta Corp. in 1982, the deal that popularized the term "Pac-Man defense." Fraidin also represented
Forstmann Little Inc. on its failed bid for RJR Nabisco in 1988. More recently, Fraidin advised 3G Capital Partners LP on its 2013
purchase of H.J. Heinz Co. and on Burger King Worldwide Inc.'s (BKW) acquisition of Tim Hortons Inc. last year.
Fraidin moved to Kirkland in 2003 and said his time at the firm was "incredibly happy and successful. It's a great law firm with terrific
people. The decision to go to Kirkland could not have worked out better."
"I've had a lot of opportunities," to leave the practice of law, Fraidin said, "but this is by far the only one I found appealing, and it's come
at the right time for me. Bill is absolutely extraordinary. I don't think there's anyone like Bill, and I've spent 50 years in two law firms,
and this was an opportunity to do something different."
Page 13 of 27
02/21/2015
Recent News
Daystar Desserts acquired by PE firm Superior
Updated 05:50 PM, Jan-09-2015 ET
Daystar Desserts LLC was acquired by Detroit-based private equity firm Superior Capital Partners LLC from bakery industry executive
John Fernandez, the acquirer said on Thursday, Jan. 8. Terms of the transaction were not disclosed. The target will be a bolt-on to
Dianne's Fine Desserts, which was bought by Superior in 2012 from food giant H.J. Heinz Co. Richmond, Va.-based Daystar is a maker
of branded and private label cheesecakes, bar cakes, mason jar cakes and individual desserts for retail. Newburyport, Mass.-based
Dianne's is a maker of frozen thaw-and-serve desserts for the foodservice industry. The deal closed on New Year's Eve and was financed
in part with money from Superior's inaugural fund raised in 2008. The firm said since acquiring Diane's in 2012 it has transformed the
company into a $100 million platform business. Richard Collings
Page 14 of 27
02/21/2015
Recent News
Trian launches proxy fight in quest to break up DuPont
by Lou Whiteman
Updated 10:15 AM, Jan-09-2015 ET
Nelson Peltz's Trian Fund Management LP is taking its fight for influence at E. I. du Pont de Nemours and Co. (DD) to shareholders,
announcing plans to nominate a slate of four directors to the chemicals giant's board.
Trian, owner of about 2.7% of DuPont, has been campaigning to split the company for nearly two years. The firm has complained that
DuPont's board has not held management accountable for missing earnings and revenue targets, and said the company has oversized
costs and poor corporate governance practices.
The fight over the future of DuPont is part of a broader battle playing out all over the chemicals space as companies often at the
prodding of investors are debating the benefits of being a one-stop chemicals supermarket versus transforming into smaller, more
specialized producers.
Trian has called on DuPont to separate its faster-growing businesses like agriculture and nutrition from its more commodity operations
making the raw materials for such products. That battle has also played out at Dow Chemical Co. (DOW), where Daniel Loeb's Third
Point LLC has made similar demands.
Meanwhile, companies like Platform Specialty Products Corp. (PAH) have aggressively been seeking out asset-light businesses from
these chemicals giants, in Platform's case teaming with Jarden Corp. founder and chairman Martin Franklin to roll up businesses.
DuPont to date has not followed the path of archrival Dow. Third Point and Dow in November announced a truce, with Dow adding
four new independent directors to the board while the activist agreed to a one-year standstill.
Trian and DuPont have failed to reach an agreement, leading Trian to take this latest step. The firm is nominating Peltz and former GE
Asset Management CEO John H. Myers, one-time H.J. Heinz Co. CFO Arthur B. Winkleblack and Robert J. Zatta, the acting CEO of
specialty chemicals firm Rockwood Holdings Inc., to the DuPont board.
"Trian believes the DuPont board has not held management accountable for continuing underperformance and repeated failures to
deliver publicly stated revenue and earnings targets," the firm said. Trian also cited "excessive holding company costs" and the
complexity and bureaucracy of the DuPont organization as reasons for waging the battle.
"Trian believes a separation would greatly increase the likelihood that the individual businesses will eliminate the operational gap versus
peers," the firm wrote. "Nevertheless, Trian does not intend this election to be a referendum on separating the businesses, but rather a
referendum on DuPont's performance."
DuPont shows no sign of backing down, releasing a statement trumpeting the company's returns under current management and saying it
has no plans to break apart. The company said that it has delivered total shareholder return of 160% over the past five years, in part, due
to the company's reach and scale.
"Our businesses benefit from significant competitive advantages as part of DuPont," the company said in the statement. "The combined
power of DuPont's science platform, our global scale, market access, and infrastructure leverage, along with our established brand and
solid financial foundation, have enabled us to deliver strong returns."
The company noted "multiple calls and meetings" between DuPont management and directors and Trian, but complained the firm "has
chosen this path with the potential to disrupt our company at a key stage of execution against our plan."
DuPont has over the past year taken steps to cut costs, and last fall said it would spin its performance chemicals unit to shareholders in
2015.
A Skadden, Arps, Slate, Meagher & Flom LLP team led by Lou Kling and Brandon Van Dyke are representing DuPont.
Page 15 of 27
02/21/2015
Recent News
Wintergreen eyes 2015 activism at Coca-Cola
by Ronald Orol And Richard Collings
Updated 04:30 PM, Dec-16-2014 ET
Mutual fund manager Wintergreen Advisers LLC on Tuesday suggested that a call Coca-Cola Co. (KO) had with analysts bolstered
their assertions that the soda giant has made a series of "failed" acquisitions and sets the stage for a continuation of its insurgency efforts
in 2015.
The fund, which dabbles in activism, on Monday stepped up its 10-month-old public relations campaign at Coca-Cola, despite owning
only 0.06% of the company. Fund manager David Winters called for the replacement of Coca-Cola CEO Muhtar Kent, arguing that
payments for Coke's top executives have been excessive "in light of the company's performance" and that the soda giant has "routinely
been outspending its cash flow in recent years and funding the gap with debt."
In an interview with The Deal, Winters suggested that a Coca-Cola call with analysts late Monday bolstered his assertions that the
company has a poor record under Kent when it comes to acquisitions. One such deal the company's acquisition of the North
American bottling assets of Coca-Cola Enterprises in 2010 for $13 billion was something Coke had promised would be a "game
changer," Winters said.
"Now it turns out that they've tied up $13 billion in shareholder money," he said, adding that the money would likely be tied up for at
least a decade "getting 0% return."
Not mentioned on the analyst call was the company's acquisition in 2007 of Glaceau, a water and vitamin energy company, for $4.1
billion. However, Winters said that acquisition too might be "worthless."
Coca-Cola declined to comment on the fund manager's claims about the two transactions. However, Coke said in an e-mailed statement
that the company "utterly rejects David Winters' claims." The company said Kent had "outlined meaningful strategic plans to accelerate
sustainable and profitable growth and deliver long-term value to our shareowners."
Winters, who launched his "deep value" Mountain Lakes, N.J.-based fund in 2005, has issued over a dozen press releases raising
concerns about Atlanta-based Coca-Cola, the first of which was one in March in which he expressed disappointment with a plan
Coca-Cola had that involved equity compensation for top executives that he considered dilutive to shareholders. Winters wrote to
billionaire investor Warren Buffett, a large Coca-Cola shareholder, and the Coke board raising the concern. In April, the company
received a substantial vote of no-confidence for its 2014 equity plan, with 17% of the "for or against" vote of shares, roughly 445
million shares, voting against the plan. In addition, Buffett, who owns a 9% stake, abstained, according to people familiar with the
situation.
In October, under pressure from Buffett and institutional investors, Coke changed its pay plan to focus more on cash awards in a move
that Winters said could seriously hurt shareholder dividends, adding that cash bonuses in the plan could cost shareholders as much as
$10.20 a share. "What they should have done was reduce the amount of compensation," he said.
However, Buffett told CNBC in October that the changed pay plan "makes great, great sense" and that Coke's compensation committee
chief, Maria Elena Lagomisino, was "terrific" in weighing all the variables.
A Wintergreen official said that the activist has no plans to launch a proxy contest at Coke's 2015 annual meeting, which will likely take
placed in April or May, but that other means could be employed to press his agenda. One possible approach, according to a person
familiar with the situation, is to launch a "just vote no" campaign when it comes to Coke's annual "say on pay" vote for the top executive
compensation plans next year.
Institutional Shareholder Services Inc.'s Quickscore report, obtained by The Deal, also suggests that Coca-Cola has some pay issues,
including that it grants stock awards but discloses that it only has a 12-month holding period for them. In addition, 25% of share capital
is necessary to convene a special meeting. Activists often seek special meetings to launch proxy contests and press for other changes.
In October, reports emerged that Berkshire Hathaway Inc., the Omaha-based company owned by Buffett along with 3G Capital, a
Brazilian investment firm, could buy Coke in a massive $258 billion leveraged buyout. The Brazilian firm controls Anheuser Busch
InBev and worked together with Buffett to acquire H.J. Heinz Co.
A leveraged buyout of Coca-Cola, however, would face a number of hurdles. First, Buffett himself reportedly said in June there was no
chance of a buyout. And the math behind a potential LBO of the beverage giant is more of a glass half-empty.
Coca-Cola has close to a $180 billion market cap. A 20% premium to that would equate to a $216 billion market cap. Figuring in cash
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and cash equivalents of about $20 billion and debt of about $42 billion, it would have an enterprise value of little over $200 billion at its
current market cap, and at a 20% premium, would have an enterprise value of nearly $240 billion, a cork-popping multiple of nearly
18.5 times Ebitda.
Assuming that Coca-Cola is able to achieve $3 billion in cost savings and generates the roughly $13 billion in Ebitda that is projected
for the fiscal year ending Dec. 31, it would be able to obtain debt financing of $96 billion, or 6 times Ebitda, to fall within what federal
regulators are asking banks to limit their leveraged deal financing.
Buffett's Berkshire Hathaway could also roll its 9% stake in Coca-Cola into an LBO to get a transaction across the finish line. Even
adding $20 billion from the sale of Coca-Cola's headquarters and its Keurig stake, among other options, the equity check could still be
as high as $100 billion, meaning if Berkshire-Hathaway and 3G, for example, teamed up, each would have to pitch in $50 billion unless
other partners were found to participate, or additional means of financing were secured.
Change may be in the offing at Coca-Cola if Wintergreen keeps the pressure on, as the fund is not a complete stranger to activism. In
2009 and 2010, it launched two consecutive proxy fights at Florida-based Consolidated-Tomoka Land Co. (CTO), a company with a
$307 million market capitalization. In 2009, Wintergreen succeeded at getting two dissident nominees elected to the board and in 2010
the two sides settled to add one additional activist nominee. In 2011, Wintergreen suggested a candidate that the management accepted
so no proxy contest was necessary, according to a spokesman for the activist. Their efforts eventually succeeded at removing the
company's CEO and CFO.
"There are a lot of similarities between the old Tomoka and Coca-Cola: management running a business to maximize their pay package
not for fiduciary duty for all shareholders, Winters said. "At Tomoka, there was improved governance and new management team and
approach. Now Tomoka and Wintergreen have a good relationship." In addition, the company declassified its board after shareholders
approved a binding proposal to do so.
Winters had previously worked for high profile value investor Michael Price.
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Recent News
Wintergreen Advisers steps up Coke campaign
by Ronald Orol
Updated 11:10 AM, Dec-16-2014 ET
Mutual fund Wintergreen Advisers LLC stepped up its 10-month-old activist campaign at Coca-Cola Co. (KO) on Monday, raising
concerns about the soda giant's "failed" acquisitions, "bad" compensation plans and weak governance.
The insurgent, which has a 0.06% stake in the company and is managed by David Winters, has called for the replacement of Coca-Cola
CEO Muhtar Kent. He has outlined a series of recommendations intended to boost the company's stock price and ensure that the
company's "50-year record" of dividends stay in place. The activist fund said payments for Coke's top executives has been excessive "in
light of the company's performance," adding that the cola company has "routinely been outspending its cash flow in recent years and
funding the gap with debt."
Winters, who launched his "deep value" Mountain Lakes N.J.-based fund in 2005, has issued over a dozen press releases raising
concerns about Atlanta-based Coca-Cola, the first of which was in March when he expressed disappointment with Coca-Cola's equity
plan.
The fund is not a complete stranger to activism: In 2009 and 2010, it launched a campaign at Consolidated-Tomoka Land Co. (CTO)
that included a proxy fight. According to FactSet, the proxy fight was settled in 2010 when the company agreed to nominate the
dissident nominee and recommend that shareholders vote in favor of the dissident proposals to adopt a majority vote standard in director
elections and approve a "say on pay" proposal. Winters had previously worked for high-profile-value investor Michael Price.
Winters' campaign at Coca-Cola began with an effort earlier this year to press the company to change its executive compensation plan,
which he said he considered dilutive to shareholders. Winters wrote to Warren Buffett, a large Coke shareholder, and the Coke board
raising the concern. In October, under pressure from institutional investors, Coke changed its pay plan in a move that Winters said was
"outrageously excessive and inconsistent" with past plans. "Much more work has to be done to revitalize Coca-Cola and restore trust in
the company," Winters said in October.
Institutional Shareholder Services' Quickscore report, obtained by The Deal, suggests that Coca Cola has some pay issues, including that
the company grants stock awards but discloses that it only has a 12-month holding period for them. In addition, 25% of share capital is
necessary to convene a special meeting. Activists often seek special meetings to launch proxy contests and press for other changes, ISS
said in the report.
Coca Cola said, in an e-mailed statement, "We utterly reject David Winters' claims." The company said Kent had "outlined meaningful
strategic plans to accelerate sustainable and profitable growth and deliver long-term value to our shareowners."
In October, reports emerged that Berkshire Hathaway Inc., the Omaha-based company owned by Buffett and 3G Capital, a Brazilian
firm owned by three billionaires, could buy Coke for $258 billion.
The Brazilian firm controls Anheuser Busch InBev, and they worked together with Buffett to acquire H.J. Heinz Co.
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Recent News
A requiem for the LBO
by Bob O'Brien
Updated 12:20 PM, Nov-07-2014 ET
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At those multiples, the equity contribution from a PE firm starts to become untenable. Even leveraging a deal up to the highest levels the
market allows, DealLogic estimated that PE firms are having to make a 45% equity investment to close deals. On a $2 billion
acquisition, that total comes to $900 million; on a $5 billion deal, it zooms to $2.25 billion.
Strategic buyers, on the other hand, operate under no such constraints. With their public market values inflated by the equity market's
run to record levels, corporations have a valuable currency in their own stock. And sitting on huge reservoirs of capital after having gone
through a lengthy process of off-loading noncore assets over the previous four years, while hoarding cash by being penurious about
capital spending, strategics have the advantage of being able to strike all-cash deals.
All this without having to endure the scrutiny that limited partners subject PE firms to. (Of course, strategics have boards they have to
convince, but boards arguably haven't proved as willful as limited partners activist shareholders might represent a bigger thorn.)
That's helped push some PE firms into taking minority stakes in assets, rather than executing outright purchases, as Blackstone Group
LP (BX) did in February with its investment in Gianni Versace SpA. The firm paid $287 million for a 20% stake in the fashion house,
rather than bite the whole $1.4 billion at which the investment valued Versace.
Trends also have pushed PE firms into transactions other than public-to-private deals. Sponsor-to-sponsor deals, though not always
embraced by limited partners, have remained just as popular. Carve-outs of corporate assets, which don't qualify as LBOs under the
conventional definition, also have surged.
In February, industrials conglomerate Danaher Corp. (DHR) teamed up with Blackstone to bid for the water technologies assets of
chemicals maker Ashland Inc. (ASH). The asset ended up going to Clayton Dubilier & Rice Inc., which paid $1.8 billion for the
operation, subsequently renamed Solenis.
Similarly, Danaher, again pairing up with Blackstone, bid on the diagnostics unit that Johnson & Johnson (JNJ) was selling, only to lose
out to Carlyle Group LP (CG), which paid just over $4 billion for the asset. Though competitive, and pitting strategic players against
financial bidders, these carve-outs aren't counted as LBOs.
Combining carve-outs with sponsor-to-sponsor deals, the value of such transactions increased more than 150% in the first half of 2014,
S&P said, with a deal value that reached $89 billion. That would put those kinds of deals on pace to break the record of $172 billion in
such transactions recorded in 2007.
PRIVATE EQUITY FIRMS also have evinced a greater appetite for middle market deals. According to Pitchbook data, middle market
transactions have accounted for 83% of all buyout activity. That's not only the first time that the figure has topped 80%, it's the first time
that it's gotten significantly above 70% of transaction volume, which is where it stood last year, for a full year.
"The public to private transactions are much harder to execute, at least the large ones," Steven Kaplan, a professor at University of
Chicago's Booth School of Business, said in an interview. Prospective buyers are getting less information during the due diligence
process and are subject to more scrutiny, both from regulators and from litigious participants in the transactions, he said. "The large
public-to-private deals are just hard to do in a way that gets PE firms the returns that they want," Kaplan added.
Meanwhile, the unwelcome outcomes of some pre-financial crisis vintage big-ticket deals not the least of them the inglorious
collapse of Energy Future Holdings havve confirmed its status as the deal that never should have happened, while also having a
chilling effect on megadeals among PE firms.
And the kind of club deals that created the TXU disaster, in which a consortium of PE firms work cooperatively to purchase an asset,
have been much tougher to execute in the wake of the government's prosecution of PE firms for collusion.
Instead of partnering with each other, PE firms are competing for transactions. Which is what prompted Hamilton James, Blackstone's
president, to say in January, "It is frustration for our guys to keep going after things and keep getting outbid." And he meant outbid, not
by strategic buyers, but by other PE firms.
Despite all the talk of the death of the public-to-private transaction an assertion trumpeted in September by Goldman Sachs Group
Inc.'s (GS) famous "Where have all the LBOs gone" broadside there's some question as to whether the "death" of PE is all that it's
cracked up to be.
For one thing, the year-over-year comparisons, which make this year's LBO activity look anemic compared with 2013's total, are a bit
skewed by the two biggest LBOs of last year H.J. Heinz Co. and Dell Inc. which effectively comprised 65% of the deal value for
all the year's LBOs.
Both those deals were completed with some atypical financing arrangements the use of Berkshire Hathaway Inc. (BERK.A) preferred
stock in the Heinz purchase, and the contribution of mezzanine financing from Microsoft Corp. (MSFT) in the Dell takeout that make
them look like anything but conventional LBOs.
It's not as if LBOs have actually, in dodo-like fashion, vanished from the landscape. Just about the time Goldman was reading the last
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rites over the LBO market's limp form, Thoma Bravo LLC announced its $2.5 billion purchase of Compuware Corp. (CPWR). Shortly
thereafter, Vista Equity Partners unveiled its $4.3 billion acquisition of Tibco Software Inc. (TIBX). Those transactions give the
public-to-private market a couple of big scores.
Of course, a smattering of sub-$5 billion technology deals isn't going to be enough to make a reality of the mythical $100 billion LBO
that, back in 2007, had bankers' saliva glands working overdrive. (Dell once had a market cap of more than $100 billion, but got taken
out at a trifling $24 billion.)
Even the champions of the PE business seem to have thrown in the towel on the public-to-private model. Consider: the panel thatthe
Association for Corporate Growth titled "Castaway" and staged at a conference in late August advanced the question, "Is it time to
abandon the LBO model?"
The panel's title relegates LBOs to the ranks of either Wilson, Tom Hanks' cinematic volleyball companion, or Gilligan and the Skipper.
Sure, some changes such as the demise of expansive club deals might be considered structural in nature. Others, however, are
simply cyclical. As Leon Black said in the second part of his comment about pricing, "If [high prices] means waiting longer for
opportunities, we will happily wait."
Besides, the demise of the LBO market has been heralded before. A Google search of "the death of the LBO market" turns up news
headlines from 1989 and 1999, as well as 2009, all touting the passing of public-to-private deals. (Is the LBO market like some all-news
radio format that promises traffic and weather on the 9s?)
As to whether LBOs are, in fact, morte, toast or any of the other euphamisms for dead, Chicago's Kaplan, who said he believes many
changes are structural, insisted, "The caveat is that, at some point, PE firms will once again do the large deals, if only to put some of that
money to work."
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Recent News
Snow Phipps wins PE-backed Teasdale Foods
by Sarah Pringle
Updated 03:20 PM, Oct-29-2014 ET
New York private equity firm Snow Phipps Group LLC has emerged as the winning bidder for Teasdale Foods Inc., the provider of
Hispanic canned food products that was acquired only three years ago by Palladium Equity Partners LLC.
Terms of the transaction, which closed on Tuesday, weren't disclosed but a source familiar with the process said Snow Phipps paid
around 10 times the target's about $20 million in revenue, implying a deal valued at roughly $200 million.
The auction process included financial players that wanted to enter the burgeoning Hispanic food category and felt they could fuel
additional growth in Teasdale, the source said.
The Deal reported in late July that New York PE firm Palladium was shopping Teasdale, which it acquired on Sept. 20, 2011, for an
undisclosed sum.
Teasdale, which is based in Atwater, Calif., provides conventional and organic canned hominy, beans and sauces in the West and
Midwest through the Teasdale and Aunt Penny's brands.
Since gaining backing from Palladium, Teasdale has grown partly via acquisitions.
On Sept. 6, 2012, Teasdale acquired Hoopeston, Ill.-based Hoopeston Foods Inc., adding a conventional and organic canned dried beans
supplier serving the Midwest market. Financial terms of the deal weren't disclosed.
Teasdale then bought Zateca Foods LLC and Greeley Trading Co., suppliers of pre-cooked dehydrated beans, on Dec. 19, 2012, for an
undisclosed sum.
On July 25, 2013, Palladium announced the recapitalization of Teasdale, revealing that the portfolio company executed a $94.5 million
senior secured credit facility, $34 million of which was returned to Palladium investors via a dividend.
Other players offering similar products to Teasdale include B&G Foods Inc. (BGS), which offers canned bean products under its Joan of
Arc brand; Campbell Soup Co. (CPB), with complementary products such as its canned soup; and ConAgra Foods Inc. (CAG), which
offers Southwestern-style canned bean variations via its Ranch Style Beans brand as well as Dennison's canned chili.
Recent activity in the space includes Jalisco, Mexico-based canned food company Conservas La Costea SA de CV's Aug. 4 agreement
to buy Minneapolis-based Faribault Foods, a provider of canned vegetables, sauced beans, refried beans, baked beans, among other
organic and Mexican products. Terms of the deal weren't disclosed.
GraceKennedy Ltd., the Caribbean food and financial service conglomerate based in Kingston, Jamaica, extended its presence in the
U.S. by acquiring Hispanic-focused food distributor La Fe Foods Inc. for $26 million on Aug. 7. La Fe has offices in Moonachie, N.J.,
Raleigh, N.C., and Medley, Fla.
Teasdale CEO Alberto Bandera will continue to lead the company, while Snow Phipps operating partner Peter Shea will join Teasdale
as non-executive chairman of the board.
Shea previously served as managing director of H.J. Heinz Co. in Europe and currently serves as the non-executive chairman of
FeraDyne Outdoors LLC, the archery accessory company Snow Phipps won on April 29 following a robust auction process. Terms of
that deal weren't disclosed.
For Palladium, the sale of Teasdale comes on the heels of the Aug. 7 sale of Sahale Snacks Inc. to J.M. Smucker Co. (SJM) for an
undisclosed price. Sources at the time said J.M. Smucker likely paid as much as $150 million, or as high as 3 times the $50 million in
sales generated by the provider of premium, all-natural dried fruit and nut blends
Weil, Gotshal & Manges LLP's Sarah Stasny, Andrew Arons, Adam Dickson, Andrew Colao, Kristopher Villarreal, Alana St. Aude,
Rachel Trudeau, Emily Aguilar, Marc Silberberg, Mark Dundon, John O'Loughlin, Michael Nissan, Verity Rees, Lawrence Baer, Aryeh
Zuber, Joseph Verdesca, Gabriel Gershowitz, David Litvack, Jeffrey Osterman, Rachel Vigneaux, Vadim Brusser and Alexis
Brown-Reilly provided legal counsel to Snow Phipps on the Teasdale transaction.
Harris Williams & Co.'s Tim Alexander, Glen Gurtcheff, Brant Cash and Michael Gilkes supplied financial advice to Palladium.
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Recent News
Ahead of the news
Edited by Michael D. Brown
Updated 05:15 PM, Sep-16-2014 ET
This report is an exclusive compilation of advance intelligence gathered by The Deal Pipeline's editorial staff. Today's highlights
include:
Atlantic Power balks at sale
Don't ring the death knell yet on LBOs
Lambert cleverly gives Sears a short-term loan
Lilly, AstraZeneca partner on Alzheimer's drug
Revel ready for auction
Petropavlovsk plans share sale to fund debt revamp
From Tuesday's First Take: Allergan
The full report follows.
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last time you saw a three-month piece of paper issued?" said David Tawil, a co-founder and portfolio manager at distressed hedge fund
Maglan Capital LP. "It's very unconventional." Tawil said the short-term nature of the loan is a positive. "I think it's a pretty safe piece
of paper," he asserted. "It bears almost no risk." Full report
Lilly, AstraZeneca partner on Alzheimer's drug
Eli Lilly and Co. is betting up to $500 million that AstraZeneca plc has a winner in its potential Alzheimer's treatment AZD3293.
Indianapolis-based Lilly and the U.K.'s AstraZeneca plan to co-develop and commercialize the drug candidate, now in Phase 1, the
parties said Tuesday. The agreement calls for Lilly to pay an initial milestone of $50 million and up to $450 million in further
development and commercial milestones. Lilly would lead the clinical development, working with researchers from AstraZeneca's
neuroscience unit. The latter would be responsible for manufacturing, and the two would share responsibility for commercialization,
plus all future costs for development and net global revenues. Full report
Revel ready for auction
Revel AC Inc. has secured approval of its bidding procedures over the objections of a U.S. trustee and the operators of restaurants,
nightclubs and spas at its Atlantic City, N.J., hotel and casino. Judge Gloria Burns of the U.S. Bankruptcy Court for the District of New
Jersey in Camden on Monday, Sept. 15, signed an order sanctioning sale procedures that name Polo North Country Club Inc.
stalking-horse bidder. Polo, controlled by Florida developer Glenn Straub, has offered $90 million in cash for the debtor's property.
Under the bidding procedures, competing bidders have to offer at least $94 million by Sept. 23. If the company received at least one
competing offer, it would hold an auction the next day, at which bids would have to increase in increments of at least $1 million. Polo
would receive a $3 million breakup fee if it were beat out at auction. A sale hearing is scheduled for Sept. 30. Full report
Petropavlovsk plans share sale to fund debt revamp
Russian gold mining company Petropavlovsk plc heaped more bad news on its long-suffering investors on Tuesday, announcing plans to
sell shares to fund payments to bondholders and an unnamed senior lender in a bid to unblock debt restructuring talks. The
London-listed company said it had made progress toward a restructuring deal after senior lenders had "indicated" they will waive
covenants that stood in the way of a restructuring of $310.5 million of convertible bonds. Petropavlovsk plans to hand investors new
convertible bonds maturing in 2019 in exchange for existing 2015 bonds and include a sweetener in the form of cash. The size of the
payment to both bondholders and the senior debtor will depend on the size of the company's proposed equity rights issue. Full report
From Tuesday's First Take: Allergan
ALLERGAN AGREES TO SPECIAL MEETING [AGN, VRX]: Botox maker Allergan Inc. [AGN] said late Monday that it had
reached a settlement with its pursuer Valeant Pharmaceuticals International Inc. to hold a previously scheduled special shareholders
meeting on Dec. 18, but this time without restrictions the company had been trying to impose on who could vote. Allergan was insisting
that shares eligible for voting privileges had to be held as of the time of the special meeting. In return, Valeant and backer Pershing
Square Capital Management LP are dropping their lawsuit in Delaware Chancery Court. Still outstanding, however, is Allergan's suit
against Valeant and Pershing Square in California federal court claiming that the suitors violated securities laws, including insider
trading rules, when they mounted their $51 billion bid for the company. The California court is holding a hearing on Oct. 28--Allergan
has set Oct. 30 as the record date for the special shareholders meeting.
RACKSPACE TERMINATES SALE TALKS [RAX]: From Chris Nolter Shares of Rackspace Hosting Inc. plummeted $7.09, or
18%, to $32.25 after hours on Tuesday after the company said it had terminated sale talks. Earlier this year, the San Antonio hosting
company said it had hired Morgan Stanley and Wilson Sonsini Goodrich & Rosati to explore options, after it received overtures from
unnamed entities. Rackspace also promoted President Taylor Rhodes to CEO. The company said that its business had begun to turn
around, and that second-quarter growth of 4.3% was the highest since the fourth quarter of 2012. Rackspace has been on The Deal's
watch list of companies that could be the target of an activist campaign or a takeover attempt since late January. Full report
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Recent News
Sense of the markets: Don't ring the death knell yet on LBOs
by Bob O'brien
Updated 02:55 PM, Sep-16-2014 ET
Goldman, Sachs & Co. penned an obituary for the leveraged buyout last week, and effectively assembled a pyre for the remains of the
private equity business.
Leveraged buyouts the stock-in-trade of private equity is a business that's died, Goldman insisted in its report titled "Where Have
All the LBOs Gone?"
In an era when the merger market is percolating up 60% this year over last, Goldman said the growth in PE-sponsored deals had
shrunk to a nubbin, boasting a puny 6% increase. Overall, in the take-private transactions where PE ought to be dominating, private
equity struck an inglorious total of just $3 billion worth of transactions so far this year, after having logged $80 billion in such
transactions last year, a year that included the $25 billion sale of Dell Inc., purchased in part, by Silver Lake Partners, the $23 billion
takeout of H.J. Heinz Co., partly by Berkshire Hathaway Inc. and 3G Capital, and the $7 billion buyout of BMC Software Inc., by a
consortium led by Bain Capital.
By contrast, 2014 sees its list topped so far by Golden Gate Capital Partners' $2.1 billion deal for Darden Resturants Inc.'s Red Lobster
chain.
What's worse, of course, is that PE is going starving in a land of plenty. Dry powder at PE firms climbed to a record total of $1.14
trillion by June, according to Preqin.
What's to be made of such wastrels? Such slackers? Such malingerers?
Well, for one, we could hesitate before we go all in on the LBO is dead meme.
Implicit in Goldman's analysis is that private equity firms have watched as a party has broken out in the merger arena, and chosen to sit
this one out.
Not so, says private equity.
"I think it's interesting that Goldman is basing its analysis on the dollar value of the deals that have been done, rather than on the number
of transactions," said Pam Hendrickson, chief operating officer at Riverside Co., and the past global chairwoman of the Association for
Corporate Growth, an industry group of middle market private equity managers and bankers.
"Dollar value" proved to be Goldman's biggest bugaboo. It said there have been no LBOs with a deal value of $5 billion or more,
compared with as many as 17 in 2007, the prior high in the merger market. It can be argued as to whether that's even the case. For one
thing, a number of transactions, including Albertsons LLC's $9 billion purchase of Safeway Inc., was categorized by Standard & Poor's,
Goldman's data source, as a strategic transaction. This despite the fact that Albertson's is backed by Cerberus Capital Management.
"The reality is that as many deals in the middle market have gotten done so far this year as were done in the second half of last year,"
Hendrickson said in an interview. The majority of deals as many as 90% of PE transactions, according to data Hendrickson has seen
are $400 million or smaller. "There's quite a lot of action in the middle market."
This isn't to say the emphasis on size is irrelevant. It's just that it's not necessarily an indictment of the PE model that knee-buckling
megadeals aren't getting done. High-dollar transactions can be a function of the assets being exchanged. But they can also be a result of
price. You get to eye-popping deals by over paying.
Everybody agrees that multiples have surged, as the rise in the value of public companies has inflated valuations, and conflated what
CEOs think their assets ought to command.
It's a dynamic that PE firms have taken advantage of, as research showed that redemptions hit record levels this year. But while they're
selling everything that's not nailed down a turn of phrase that's become increasingly commonplace PE firms have shown more
restraint on the deal-making end.
But is even that necessarily true? "I think we're seeing a lot of PE funds financing management in transactions and takeovers," said
Richard Schmitt, chief executive of AccuVal-LiquiTec, an appraisal and liquidation firm that consults on mergers, including
PE-sponsored transactions. What category do those go in? It's clear Goldman doesn't count them as sponsored transactions.
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Then there's the endemic lack of transparency in private equity transactions. Sponsor-to-sponsor transactions are, by nature, private
transactions, so their values aren't reported, and thus impossible to count.
Transactional value matters more to banks than to buyers and, to a lesser extent, sellers. And Goldman, which is hurling these brickbats,
is a bank. Strategic buyers can afford to pay up for expanding multiples, because the easy credit backdrop gives them a cushion. PE
firms, with well-established return expectations, have to show more discipline. It may aggravate banks that big deals are disappearing.
But it doesn't mean it's time to fit PE for a toe tag.
"We're still focused on the low and middle market," Hendrickson said. "It's a very different dynamic there."
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