KKR Carves Slice of European Action

As the long-predicted invasion of the European private equity market by US buyout houses gathers momentum, Kohlberg Kravis Roberts & Co. (KKR) has moved to the fore. KKR, long viewed by Europeans as the “archetypal” US LBO house, thanks largely to the publicity surrounding its $26 billion acquisition of RJR Nabisco in the ’80s, made an offer in July for the issued share capital of international insurance broker Willis Corroon. The offer price of 200p cash per Willis Corroon share and GBP10.00 cash per ADR values the group at approximately GBP851 million (ecu 1.25 billion), ranking the transaction as one of the largest public-to-private deals ever seen in Europe. KKR is also reportedly among the final bidders for Hoecht’s paint manufacturing business, Herberts, which is expected to sell for in excess of GBP1 billion.

Although KKR established a European operation, Glenisla Group, in 1994, the firm has maintained a relatively low profile in Europe since concluding the GBP205 million Reed Regional Newspapers buyout in late 1995, and Willis Corroon will be only its third acquisition outside the US. Insurance, however, is a sector where KKR seems to be very much at home: the group at one time owned both American Re and Canadian General and currently has interests in Rhine Re and Bristol West Insurance.

For the Willis Corroon bid, KKR has joined forces with the Royal and SunAlliance Insurance Group, Guardian Royal Exchange, The Chubb Corporation, Hartford Financial Services Group and the Travelers Property Casualty Corporation. Under the terms of the offer, these insurers will together take a 19% stake in Willis Corroon. KKR itself will take a 76% stake, while Willis Corroon managers will subscribe for an initial 5% holding, investing at least GBP700,000.

The KKR fund has agreed to invest up to GBP165 million in the acquisition vehicle, Trinity Acquisition, and provide a maximum $575 million (ecu 519 million) of bridge finance. The insurers have agreed to invest an aggregate GBP193 million, while Chase Manhattan Bank is underwriting $475 million of senior debt. The offer price of 200p per share compares with a closing price of 178.5p per share on 21 July, immediately prior to the bid announcement.

PDFM, which, with a 20% stake, is Willis Corroon’s largest single shareholder, has agreed to accept the KKR offer, although it could accept another bid for half its holding if it offered a premium of 10% over the KKR bid. Willis Corroon has agreed to compensate KKR to the tune of GBP6.5 million should it accept an alternative bid. At this stage, it seems unlikely that another bidder will emerge, although a number of shareholders, including Royce & Associates, have expressed dissatisfaction with the price KKR is offering. Under the terms of the deal, shareholders in Trinity Acquisition cannot dispose of more than 50% of the business until at least two years have elapsed.

Meanwhile, Hoechst is reportedly still in discussion with a number of potential acquirors for Herberts, a market leader in automotive paints and powder coatings, which made operating profits of DM173 million (ecu 87.7 million) last year. Although Hoechst has not yet officially confirmed that it has decided to sell Herberts, the group is currently in the process of withdrawing from sectors other than pharmaceuticals and life sciences.