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Financier Worldwide Magazine

April 2013 Issue

April 2013 Issue

On 8 March, following months of speculation, private equity firm Kohlberg Kravis Roberts and Co (KKR) announced it had agreed to acquire industrial equipment manufacturer Gardner Denver Inc., in a transaction valued at $3.9bn.

The deal will see the PE firm pay shareholders $76 per share. Reports of a potential KKR buyout of Gardner Denver originally surfaced in February, suggesting that the firm had bid $75 per share for the company. However, KKR was forced to increase its offer when Gardner Denver indicated that it expected a higher price.

The day before the deal was announced, shares in the Wayne, Pennsylvania based Gardner Denver closed at $73.85 in composite trading on the New York Stock Exchange, giving the company a market capitalisation of approximately $3.63bn. The agreed offer for the company therefore, represents a 3 percent premium on the 7 March share price and approximately a 39 percent premium on the 24 October price, the day before Gardner Denver confirmed that it was beginning to explore sales options.

The deal, which is expected to close in the third quarter of 2013, has been approved by Gardner Denver’s board of directors but remains subject to shareholder and regulatory approval. The purchase price also includes the assumption of Gardner Denver’s debt. In 2012 the company reported revenues of approximately $2.4bn.

Michael Larsen, Gardner Denver’s president and chief executive officer, said in a statement “After a thorough review of strategic alternatives to enhance shareholder value, we are pleased to provide our shareholders with immediate and substantial cash value representing a significant premium to our unaffected share price, in addition to the significant value to our shareholders.”

Gardner Denver, which manufactures compressors, pumps and vacuum products for industrial use, began to explore a potential sale following months of pressure from activist investor and hedge fund ValueAct Capital LLC. ValueAct had been pushing for a sale of the company after it reported it had acquired a 5 percent stake in Gardner Denver in July. ValueAct, the fourth largest investor in Gardner Denver, asked the company’s board to explore a sale “in light of the circumstances in which Gardner Denver finds itself after the surprising resignation of its chief executive officer, Barry Pennypacker”. Mr Pennypacker resigned from the company’s board in July 2012. 

A number of PE firms, including TPG Capital, Onex Corp., and CCMP Capital Advisors, had expressed an interest in acquiring Gardner Denver, yet it was rival manufacturing and industrial equipment supplier SPX Corporation that held advanced talks to purchase the company. SPX appeared to be close to confirming a deal to acquire the company in December 2012. At the time it was believed that SPX would have paid more than $4bn or $85 per share for Gardner Denver. Talks between the two companies collapsed in late December, however, following a negative reaction from shareholders.

In light of the collapse of the SPX bid, KKR followed up its interest in Gardner Denver. The purchase represents KKR’s third acquisition in the industrials sector in the last two years. In April 2011 the company agreed to purchase Capsugel, a unit of drug manufacturer Pfizer Inc, for $2.38bn. KKR then completed the $1.12bn purchase of Capital Safety, a UK based maker of safety products and equipment for construction workers, in November 2011.

Pete Stavros, head of KKR’s Industrials investment team, said “Gardner Denver is an outstanding business with a rich heritage of manufacturing excellence, innovation and quality that spans well over 100 years. The company has an impressive group of talented and dedicated employees, and we look forward to working closely with them to drive future growth and value. The long-term future of Gardner Denver is bright.”

The acquisition is being financed by UBS, Barclays, Citigroup, Deutsche Bank, RBC Capital Markets, Mizuho Corporate Bank and KKR’s investment funds.

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Richard Summerfield

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