Posted on: Sunday, December 22, 2002
More takeovers, businesses going private seen in 2003
By Randy Whitestone
Bloomberg News Service
NEW YORK — Corporate executives, fed up with heightened regulatory scrutiny and declines in share prices, may increasingly try to take their companies private, merger and private-equity specialists said during a recent panel discussion.
Bankers from Lehman Brothers Holdings Inc. and Morgan Stanley, buyout experts from Carlyle Group Inc. and JPMorgan Partners, and a Sullivan & Cromwell mergers lawyer said they expect a rise in mergers and acquisitions in 2003 as buyers gain confidence in an economic recovery.
"We're going to see an increase in going-private transactions, a surprising number in the next year or so," said Francis Aquila, a mergers partner with Sullivan & Cromwell. "All executives are going to think, 'If you want to make a lot of money, take a company private and be part of the group.' "
Leveraged buyouts more than doubled to $70 billion this year as firms spent some of the record amount of money they raised the past three years to buy divisions of distressed companies such as Qwest Communications International Inc., Tyco International Ltd. and Vivendi Universal SA. The industry hasn't yet seen a return to its 1980s practices, typified by Kohlberg Kravis Roberts & Co.'s $31.4 million purchase of RJR Nabisco Inc. that took the company private in 1989.
This year, such transactions include Madison Dearborn Partners Inc.'s $3.3 billion acquisition of paper company Jefferson Smurfit Group Plc; Kelso & Co.'s $1.3 billion purchase of building-products maker Nortek Holdings Inc.; and Welsh Carson Anderson & Stowe's pending $711 million purchase of physician practice management company Ameripath Inc.
David Murdock, Dole Food Co. chief executive, announced plans last week to take the world's largest fruit-and-vegetable producer private with an increased offer that values Dole at $2.5 billion. Dole shares jumped 15 percent.
Regulatory concerns may make some CEOs consider taking their companies private after the passage of corporate governance legislation earlier this year sponsored by Maryland Democrat Paul Sarbanes in the Senate and Ohio Republican Michael Oxley in the House.
The law requires executives to certify financial statements are accurate and increases oversight of boards and auditors. The law also may make some boards more cautious about agreeing to take a company private.
"Executives say, 'I hate that Sarbanes-Oxley and talking to analysts,' " said Jeff Walker, managing partner at JP Morgan Partners, which manages $24 billion in private-equity investments. "There are tons of them out there that should be going private, but the board says, 'No, that's too cheap. As fiduciaries, we can't.' "
One result of taking a company private is that other investors may try to top an offer from management or a buyout firm. Financier Carl Icahn, for example, unsuccessfully sought to outbid Castle Harlan Inc. for steakhouse chain Mortons Restaurant Group Inc.
"I hear a lot about going private — it's usually on about the second scotch," said Steve Munger, co-head of mergers at Morgan Stanley. "There will be instances (of companies going private) but they will be few."
Private-equity firms, flush with $100 billion in uncommitted capital, will continue to dominate the mergers business in 2003, said Steven Wolitzer, global head of mergers for Lehman.
