European Tandem Wins GBP1.3B AstraZeneca Unit –

Cinven and Investcorp last month signed papers with AstraZeneca for the GBP1.3 billion ($2.1 billion) acquisition of its Zeneca Specialties division. The agreement highlights the recovery in the European high-yield market as the structure involves a planned GBP335 million high-yield issue, led by Chase Manhattan Corp. If successful, it will be the largest bond raised to date for a European buyout.

The deal, scheduled to close this month, also is the first instance of Cinven investing in tandem with Investcorp, although Cinven has co-led major deals with other prominent buyout houses including CVC Capital Partners, Kohlberg Kravis Roberts & Co. and BC Partners.

In this case, however, KKR was a competitor, not an ally; Clayton, Dubilier & Rice and at least one other private equity group also were among the unsuccessful contenders, along with various strategic buyers, such as BASF and Bayer.

Zeneca Specialties’ principal product areas are industrial colors and coatings, resins, biocides, and life science molecules, while its performance and intermediate chemicals division provides materials to the polymer, dye, pharmaceuticals and mining industries worldwide.

The manufacturing activities of the six group divisions are concentrated in the U.K., the U.S. and the Netherlands, with additional facilities in France, Singapore, Brazil, Mexico, Spain and Italy; worldwide, Zeneca Specialties employs 4,700 people. The chemicals businesses, which generate approximately 75% of their combined sales in continental Europe and the U.S., produced GBP90 million in operating profits on sales of GBP686 million last year.

Cinven Director Hugh Langmuir said it is rare for a profitable, high quality portfolio of chemicals businesses such as Zeneca Specialties to come onto the market. Certain private equity houses have suggested that the price paid by Cinven and Investcorp was excessive.

However, Mr. Langmuir said Zeneca Specialties is being acquired at an EBTIDA multiple of around 9.4, which he claims is a fair price for a business in that sector.

The Zeneca Specialties portfolio includes many high-growth businesses and offers substantial potential for enhancing revenue and profitability, and Cinven and Investcorp will support the existing management team’s plans to develop the group.

J.P. Morgan & Co. is acting as co-manager and underwriter for the senior loans and, together with Morgan Stanley Dean Witter, also will co-lead manage the bond issue, which is due to be rolled out around the middle of the year.

The GBP500 million equity component of the funding is split evenly between Cinven and Investcorp. Mr. Langmuir confirmed that Zeneca Specialties management will participate in the equity, although the precise structure of the team’s holding has yet to be determined.

Chase Manhattan led and arranged the entire GBP950 million debt structure, which will include a GBP30 million payment-in-kind bond, as well as the high-yield issue and ordinary term loans facilities.

On completion of the Zeneca Specialties acquisition, Cinven’s current fund will be 35% invested.

The completion of the deal will take Investcorp’s current portfolio of European corporate investments to nine and decrease its weighting in the luxury goods and retail sectors.

Cinven recently revealed it plans to open offices in Paris and Frankfurt by the end of the year.