Royal Ahold NV today announced that it has (finally) agreed to sell its U.S. Foodservice distribution unit to KKR and Clayton, Dubilier & Rice for $7.1 billion. What it didn’t announce, however, were any other financial details. So here they are:
The total transaction price includes $2.6 billion in equity and $4.5 billion in funded debt, according to sources close to the process. It represents a staggering 8.5x leverage multiple, plus a $1 billion unfunded revolver at closing and no covenants on either the bank or high yield notes (which is becoming a disturbing status quo on LBO deals).
J.P. Morgan Chase managed the auction process, which included a rival bid from Bain Capital, Blackstone Group and Wellspring Capital Management. If you’re wondering how (relatively) small Wellspring got into that mega-mix, remember that it already owns a food distribution platform called Vistar. Experience can sometimes offset lack of capital.
Speaking of capital, U.S. Foodservice represents another mega-LBO in which limited partners will be asked to double/triple/quadruple up with co-investments. CD&R and KKR are equal partners on the deal, which means that each must come up with a $1.3 billion equity check. That would be virtually impossible for CD&R to do alone, since it would represent nearly a quarter of its current fund. So, instead, I hear that CD&R will invest $600 million from its general fund, around $150 million from a dedicated co-investment fund and then syndicate the remaining $550 million to limited partners. So if you add the co-invest fund with additional co-investments, LPs will directly contribute more to this deal than will CD&R’s general fund…
*** In semi-related news, expect Royal Ahold to continue selling off North American assets. I hear the next to go should be supermarket chain Stop & Shop.
10:34 AM 5/3/2007