RJR Nabisco Buyout Toppled!!!

В продолжение вопроса о LBO

HCA sets LBO record at $33B

In the largest leveraged buyout ever, Nashville-based HCA Inc., the biggest U.S. for-profit hospital operator, agreed Monday, July 24, to sell itself to a consortium of private equity investors for about $33 billion, including debt.

The buyout group includes Thomas Frist Jr., the brother of Senate Majority Leader Bill Frist and a co-founder and former chief executive of HCA. The other investors are Bain Capital LLC, Kohlberg Kravis Roberts & Co. and Merrill Lynch Global Private Equity, the private equity arm of Merrill Lynch & Co.

Under the terms of the deal, announced Monday, the buyers will pay $51 in cash for each common share of HCA, about an 18% premium to HCA's closing price July 18, the day before the first media reports of a pending deal. The buyers will assume $11.7 billion in debt.

People involved in the LBO said the three private equity firms each will invest about $1.5 billion of equity. In addition, Frist and HCA's management will roll over a stake worth about $800 million, so in all, about $5.3 billion of equity will go into the buyout.

A bank syndicate led by Bank of America Corp., Citigroup Global Markets Inc., J.P. Morgan Chase & Co., and Merrill Lynch Capital Corp. is arranging a senior debt package. The buyers aim to refinance only a portion of the more than $7 billion of fixed-rate debt now on HCA's books. As a result, many bondholders face the unpleasant prospect of a cramdown, leaving them holding debt in a company with substantially higher leverage.

The $33 billion price tag tops that of KKR's $31.3 billion LBO of food and tobacco maker RJR Nabisco Inc. in 1989, and outstrips by $11 billion the $22 billion pending take-private of energy pipeline and storage company Kinder Morgan Inc. by a consortium of Goldman Sachs Capital Partners, AIG Global Asset Management Holdings Corp., Carlyle Group and Riverstone Holdings LLC.

Though the price is an LBO record and the equity portion of the financing is just 16%, the deal is modestly valued, at 7.8 times HCA's Ebitda in the 12 months ended June 30. That's well below the double-digit multiples that have become common in today's sizzling buyout market.

HCA's shares traded at $49.27 late Monday, up 2.9% from Friday's closing price on the New York Stock Exchange, a 3.4% spread to the offer.

The parties expect to close the deal in the fourth quarter, pending approval by HCA shareholders and antitrust regulators.

However, the agreement allows HCA to solicit superior bids from third parties for 50 days, and the hospital group plans to search actively for higher bids.
Credit Suisse Securities (USA) LLC and Morgan Stanley are financial advisers, and each provided a fairness opinion to HCA's special committee.

Merrill Lynch was the lead M&A adviser to the private equity consortium, which also sought advice from BofA, Citigroup and J.P. Morgan.

The private equity industry is flush with cash after record fundraising this year, and it is eager to invest in a company such as HCA, which generates significant cash flow and is perceived to be undervalued at its recent share price.

Founded by the two Thomas Frists, father and son, both of whom are physicians, HCA first went public in 1969 with 11 hospitals. The company expanded to 463 hospitals by 1987, then spun off some and went private in a deal backed by Texas financier Richard Rainwater. It went public again in 1992 and, as of June 30, owned stakes in 183 hospitals and 99 outpatients surgery centers in 21 states, England and Switzerland.

Thomas Frist Jr., 67, owns 16.9 million shares, or 4.4%, according to HCA's most recent proxy statement. His stake had a value of $809 million at the July 21 price.

Since hitting a peak market value of almost $24 billion in December 2005, HCA's value has slipped about 26%. Like other for-profit hospital groups, HCA is struggling with industry-related problems such as rising bad debt from uninsured patients and increased competition from doctors setting up independent operations.

HCA has tried, with scant success, to lift its stock price by buying back shares and arranging two dividend recapitalizations over the past year.
James Forbes, global head of healthcare banking at Merrill and an adviser to the buyers, said that the combination of HCA's sluggish stock performance and the huge amounts of capital available to the buyout industry led to the LBO.

"This type of deal was not feasible a year ago," Forbes said.

В продолжение, немного о финансировании такого мегадила.

HCA financing by the numbers

The proposed $33 billion buyout of Nashville-based HCA Inc., the biggest U.S. for-profit hospital operator, will likely result in the largest financings to hit the bank loan and high-yield markets this year.

According to sources, the buyout group, which includes co-founder and HCA's chief executive, Thomas Frist Jr., Bain Capital LLC, Kohlberg Kravis Roberts & Co. and Merrill Lynch Global Private Equity, the private equity arm of Merrill Lynch & Co., is contemplating financing the deal with $14.6 billion in funded bank debt, including a $2 billion drawn revolving credit line, likely to be asset-based, meaning that it will be backed by HCA's receivables. The financing will also include a $2 billion undrawn revolver and $5.7 billion in high-yield bonds. Those numbers dwarf the largest deals in both markets so far this year.

In the loan market, that would be the $11.25 billion of bank debt ($1.75 billion of which was an undrawn revolving credit line) used to finance Koch Industries Inc.'s $21 billion acquisition in December of Georgia-Pacific Corp. The loan was priced in the first quarter of this year. The largest high-yield bond financing of the year so far was the $3.6 billion, two-tranche offering by NRG Energy Inc. in January, which was used to back the energy company's $8.3 billion acquisition of Texas Genco LLC.

A bank syndicate led by Bank of America Corp., Citigroup Global Markets Inc., J.P. Morgan Chase & Co. and Merrill Lynch Capital Corp. is arranging the senior debt package for HCA.

According to sources, the HCA deal will include $5.3 billion in equity, as well as $7.7 billion in pre-existing debt that will be rolled over, meaning that existing investment-grade bondholders face the unpleasant prospect of a cramdown, leaving them holding debt in a company with substantially higher leverage.

According to Standard & Poor's Leveraged Commentary & Data, HCA's benchmark 6.5% notes fell on the transaction's announcement Monday, with the yield rising to 9.40%, from 8.02% last week, before news of the deal broke.

According to one leveraged finance banker, the size of the HCA deal will help grease the wheels of the financing package.

"It's a name that's well enough known, and the offerings will be liquid enough, that I think this deal gets done," the banker said.

The banker added, however, that the issuer can't get too aggressive with the pricing, because the deals in both the bank loan and high-yield markets are so large they must be priced attractively enough to ensure that all available investors participate.

HCA's financing depends on a successful closing of the deal, which is expected in the fourth quarter. The agreement between the buyout consortium and HCA allows the company to solicit superior bids from third parties for 50 days, and the hospital group plans to search actively for higher bids.

Although there have been no confirmed reports of other bidders contemplating jumping in, one source close to the deal said initial interest in HCA from other megabuyout firms has been high.

That's not surprising, considering that the proposed deal is modestly valued, at 7.8 times HCA's Ebitda in the 12 months ended June 30, well below the double-digit multiples that have become common in today's sizzling buyout market.

The $33 billion price tag makes the HCA deal the largest leveraged buyout ever, surpassing that of KKR's $31.3 billion LBO of food and tobacco maker RJR Nabisco Inc. in 1989.