The largest buyout of the year is now half as large, from the lead sponsor’s point of view.
Before even closing its agreed-upon $1.8 billion buyout of Korean beer-maker Oriental Brewery, buyout firm KKR has decided to sell half of the company to Asia-focused buyout firm Affinity Equity Partners. Affinity will help the firm bear the equity load and “share investment risks.”
The surprising part here is pricing-Affinity gets a 50% stake in Oriental Brewery for a mere $400 million. That’s just 22% of what KKR paid for the company, meaning Affinity is getting a half-off discount to the total deal value. Why would KRR let Affinity in for such a cheap valuation? The answer lies in the debt. When you break down the company’s capital structure, you find that Affinity is actually paying a small premium.
KKR obtained a $750 million credit facility with a $300 million PIK note from the seller, Anheuser Busch. That means KKR is only putting up $750 million, or 50% of the deal’s equity. So from an all-equity point of view, KKR isn’t ripping itself off by selling half of the company for $400 million when it values that stake, based on its investment, at $375 million. So really, KKR is earning $25 million for doing very little.
At the time of the deal, we reported that KKR won the auction for Oriental Brewery, even though its bid was not the highest, because it was the only firm with advantage of secure financing commitments. Now it appears to be using that edge to prevent itself from having to write large equity checks by bringing in other investors (perhaps with less access to capital). Affinity, in essence, paid $25 million for that access. The only question I have is why would KKR give up a full 50% of the company, instead of 49.9%?
Update: This post was updated from its initial version to reflect the $25 million premium I somehow overlooked…
Previously: Don’t Try This Deal At Home: KKR’s Beer Deal Not For Lightweights, Booze Isn’t Countercyclical… Did You Hear That Blackstone, Bain and KKR?, PE Firms Want Oriental Brewing, But Do They Have A Chance?