Hicks Muse Giddy On Champagne Deal –

Inking its first platform deal in France, Hicks, Muse, Tate & Furst Inc. last month agreed to acquire the Mumm and Perrier-Jout champagne houses from Canadian drinks conglomerate Seagram for $310 million.

The Dallas buyout firm will put $100 million in equity into the deal, and bring on board Jean-Jacques Frey, a local businessman in the champagne industry, as a co-investor. According to a spokesperson for the firm, Hicks Muse will own between 85% and 90% of the champagne production businesses. Seagram will continue to distribute the brands.

Because Hicks Muse’s European fund-which was launched with a target of $1.5 billion early this year-has yet to hold a close, the equity for the deal will come from an equity operating loan provided by a syndicate of banks.

The acquisition gives Hicks Muse control of champagne brands that go back to the 19th century, including the labels Belle Epoque (distributed in the U.S. as Fleur de Champagne) and Cordon Rouge.

One general partner at a U.S. buyout firm, which also has an investment in a champagne house, said Hicks Muse’s success will depend on the strength of the local partner’s industry connections, and on marketing. He described the champagne produced by Mumm and Perrier-Jout as brands that had been popular 40 years ago, but since had lost market share.

In a statement, Hicks Muse chief operating officer John Muse said the firm would use the champagne investment as a platform to build global brands in the wine and spirits industry.

Anarchy in the U.K.

The champagne deal is being privately negotiated, according to a spokesperson for Hicks Muse, and no rival bidders are expected to emerge. This contrasts markedly with the firm’s raucous experience in the U.K. in its bid for Hillsdown Holdings PLC, a publicly traded food and furniture company, earlier in the second quarter.

In mid-May, Hicks Muse announced an agreement to acquire the outstanding shares of Hillsdown for GBP1.27 per share ($2.03), totaling approximately GBP464 million in equity. The total transaction price, including debt, was valued at GBP750 million ($1.2 billion).

Hicks Muse had the approval of the company’s independent directors and 16.9% of voting shareholders.

The goalpost began to shift, however, when Dresdner Keinwort Benson, the investment bank advising Hillsdown, granted a GBP2.3 million break fee to both Hicks Muse and Candover Investments PLC, a U.K. private equity firm, which enticed the two firms into a bidding war.

On May 27, Candover Investments PLC, a U.K private equity firm, announced that it was prepared to make an offer for the company that was “considerably in excess” of the Hicks Muse offer.

That same day, before Candover was able to state its own price-per-share figure, Hicks Muse announced that it increased its ownership of Hillsdown shares to 16.3% from 2% at GBP1.41 per share, and said it would raise its offer for the remaining shares outstanding to that price.

Candover countered on May 28 with an offer of GBP1.45 per share. This time it was the U.K. firm that had the backing of the independent directors. But by the beginning of June, Hicks Muse had increased its share ownership to 29.9% and was offering GBP1.46 per share.

Hicks Muse finally vanquished its British foe when, on June 2, Candover dropped out in the face of Hicks Muse’s increased offer of GBP1.47 per share.

According to the Hicks Muse spokesperson, the total transaction value of the Hillsdown deal now stands at GBP870 million ($1.39 billion), or 16% more than the original bid. A syndicate of banks currently are shopping around a high-yield debt vehicle for the transaction, the spokesperson said.

As with the champagne deal, Hicks Muse will fund the acquisition through the equity operating loan. Limited partners in the European fund will have the option to buy pieces of the loan after the European fund closes. Hicks Muse employed this same strategy while it was raising its fourth fund.

In addition, Hicks Muse will offer L.P.s a chance to co-invest as much as $50 million in Hillsdown’s branded food chain business. Hicks Muse originally only wanted to acquire that division. Now, the firm also will own a poultry division, which it plans to sell off as soon as possible, and the furniture business, the fate of which Hicks Muse is still debating, according to Dan Blanks, a managing director at the firm.