SPOTLIGHT: BIGS GETTING STILL BIGGER

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KKR BID TO BUY TELECOM ITALIA SPARKS BATTLE FOR CONTROL

The board of Telecom Italia (TI), Italy’s largest telecommunications provider, met Sunday to mull a takeover bid from U.S. private equity firm KKR.

KKR already owns 37.5 percent of TI’s “last mile” business that connects individual homes and businesses to the larger network; now KKR wants to pay $12.2 billion to own the entire company.

If successful, the transaction would be among the largest-ever private equity purchases in Europe, according to Bloomberg.

TI is valued at €7.5 billion, or about $9 billion, and is carrying €29 billion in debt.

Vivendi, the French media conglomerate that is TI’s largest shareholder, will oppose the sale, saying KKR’s offer is too little, people familiar with the news told Bloomberg.

KKR’s per-share offer is about half of what Vivendi paid for its 24-percent stake in the company, Bloomberg noted.

Also, at a board meeting scheduled for 26 November, Vivendi will move to oust TI CEO Luigi Gubitosi, with whom Vivendi has had a contentious relationship, according to insiders cited by Bloomberg. 

TI was Europe’s most valuable telecom business in the 1990s but has suffered several crises since then, with share prices crumbling by two-thirds since 2018 and recent profits missing their targets.

Gubitosi brought in KKR last year to strengthen the company’s finances, extracting €1.8 billion from KKR for its purchase.

Despite its troubles, TI remains politically important and the government holds the ultimate power to reject any takeover bid it deems not in the national interest.

In a statement, the government of prime minister Mario Draghi called KKR’s offer “good news,” indicating it is unlikely to oppose the sale.

Private equity firms CVC Partners and Advent International are working with former TI CEO Marco Patuano to study possible involvement in TI but have denied any involvement with KKR’s proposal, the Financial Times said.

KKR’s bid is the latest in a series of similar moves on European telecom companies.

“Funds are looking to break up businesses, separating networks from consumer businesses to realize value or improve the [financial] performance of the companies,” the FT noted.

KKR is among the most active private equity firms shopping Europe’s telecom industry, the FT said, and was part of a private equity consortium last year that took Spanish provider MasMovil private in a €5-billion deal. 

KKR also bought HyperOptic, a U.K. fiber company, in 2019.

FORTRESS BUYS 170 GOLF COURSES IN JAPAN FOR $3.5 BILLION

Fortress, the investment fund bankrolled by Japanese holding company Softbank, has agreed to buy Accordia Golf, Japan’s largest operator of golf courses, from South Korea’s MBK Partners private equity firm for ¥400 billion, or about $3.5 billion, including ¥232 billion in debt, the Financial Times reported.

Other private equity firms recently rejected the deal as too expensive, in part because Japan’s golf courses have been declining in popularity for more than a decade.

About 5.2 million people in Japan played golf at least once last year, a decline of 10.3 percent from 2019, a study by the nonprofit Japan Productivity Center found.

Accordia’s average customer plays 2.7 times a year, totaling 11 million rounds played on its courses in 2020, the company said.

However, Japan has one of the world’s fastest growing populations of well-off older adults, an expanding market that Carlyle thinks might be ready to hit the links.

Accordia also generates a lot of cash as well as profits, which have been growing  by 1.5 to 2 percent per year from its dominance of Japan’s golf market, the FT said.

Softbank already has received inquiries from logistics companies and renewable energy firms about purchasing some of the land in the deal’s portfolio, persons familiar said.

Accordia was put together by Goldman Sachs early in this decade and sold in 2016 to MBK. 

CARLYLE FINALIZING $2-BILLION TAKEOVER OF SOFTWARE FIRM

Private equity firm Carlyle Group is in advanced discussions to buy Autoform Engineering, a Swiss maker of industrial software, for €1.75 billion, or about $2 billion.

Engineers use Autoform’s software to design sheet metal parts, determine the best ways to connect parts of a car’s frame, and find the most efficient way to make tubular parts, among other uses.

The software stays in the Cloud, allowing companies to pay a fee only when the tool is used instead of subscribing for a fixed period of time.

Auto makers use such tools to improve fuel efficiency, cut exhaust emissions, and minimize materials needed to build a car.

Carlyle is buying Autoform from Astorg, a European buyout company.

Earlier this month, Carlyle took majority ownership of CSS AG, a German firm whose software manages companies’ financial and human-resources operations.

Carlyle has done more than 270 deals in the technology sector, worth $31 billion, according to The Wall Street Journal.

Carlyle has about $293 billion under management.

PRIVATE EQUITY FIRMS NEARING TAKEOVER OF ATHENAHEALTH

Athenahealth, which makes cloud-based software for electronic health records and medical communications, is nearing a deal to be bought for $17 billion by a partnership of private equity firms Bain Capital and Hellman & Friedman, The Wall Street Journal reported.

IN 2019, private equity partners Veritas Capital and Evergreen Coast Capital bought Athenahealth from Elliott Management Corp, for $5.5 billion and took their new purchase private.

The two partners then combined Athenahealth with Virence Health Technologies, which had been called GE Healthcare’s Value-Based Care Solutions Group until it was bought by Veritas Capital and rebranded as Virence.

The deal is another in a series of pricey corporate combinations in the past 18 months, including Discovery’s $43-billion marriage with AT&T’s  WarnerMedia (“Discovery Inc. Expands Media Empire,” 25 May 2021) and drug maker Novartis’s $21-billion sale of its interest in rival Roche.

With Blackstone Group and Carlyle Group, Hellman & Friedman was part of June’s $34-billion purchase of medical products giant Medline Industries (“M&A Deals Top $500 Billion in 2021’s First Half,” 13 Jul 2021).

Bain manages about $150 billion in assets spread across private equity credit, public equity, real estate, and venture capital.

Hellman & Friedman has about $80 billion under management.

PUBLISHER’S NOTE: If you look under the skin of more and more companies, you find private equity firms own a portion or all of them. Private equity firms are buying the American, and global economy, one piece at a time. 

HEINEKEN BUYS TWO ALCOHOL COMPANIES IN SOUTHERN AFRICA

Dutch brewer Heineken, the world’s second largest beer producer, is expanding its presence in southern Africa, an area that The Wall Street Journal said is “considered one of the world’s most attractive growth markets for booze” because of its growing population and low per-capita alcohol consumption.

Heineken will pay €2.2 billion for South Africa’s Distell Group Holdings, which makes spirits, wines, and ciders and will give Heineken exposure to alcoholic drinks other than beer.

Heineken also will pay about €400 million to buy the portion it does not already own of Namibia Breweries, that country’s largest beer producer.

The two takeover targets will be bundled into a single new company, Heineken said, which also will distribute Heineken products throughout the region.

Africa shows “the highest long-term potential upside to beer consumption,” Heineken CEO Dolf van den Brink said in a statement announcing the acquisitions, given the region’s “rising incomes and a demographic boom that will increase the drinking-age population by 30 percent in the next decade.”

The company has sought to grow after the COVID crisis cut its sales in several markets, most recently by Vietnam’s restrictions on socializing.

The deals highlight Heineken’s interest in growth, both geographically and in new categories of drinks, since van den Brink took charge of the brewer in 2020, Jeffries analyst Edward Mundy told the FT.

CVC PARTNERS BUYS UNILEVER’S TEA BUSINESS

Private equity firm CVC Partners has won a bidding contest to buy the bulk of global food giant Unilever’s tea business, agreeing to pay €4.5 billion for the world’s largest provider of teas, including the Brooke Bond, Lipton, and PG Tips brands. 

Private equity firms Advent International and Carlyle Group also were bidders.

The deal is “cash-free and debt-free,” the sale announcement said, implying a stock swap, and is planned to close in the second half of next year.

Unilever will keep its €1-billion tea businesses in India and Indonesia, where consumption is on the rise. 

Unilever has spent two years reviewing and now ridding itself of the tea operation, which has been sluggish for the past decade as consumers switched to herbal teas, alternatives such as kombucha, and the growing variety of coffee drinks, the Financial Times reported.

The tea business that CVC has bought will be named Ekaterra, the company said.

The new business will own three tea plantations, taking it into an industry noted for low wages and human rights abuses, the FT said.

Unilever has a variety of plans to address the plantations’ “social problems,” it said, but also is automating tea picking at a Kenya plantation, threatening jobs there.

SPANISH LENDER TO BUY BALANCE OF TURKISH BANK

Even as Turkey’s economy sinks further, Spanish financial services company BBVA has made a €2.25-billion bid to buy the 50.15 percent of Garanti, Turkey’s biggest bank, that it does not already own.

The price offers a 34-percent premium to the six-month average price of Garanti’s stock.

BBVA is offering to pay cash, using some of the $11.6 billion it collected when it sold its U.S. assets to PNC Financial Services earlier this year.

“We are selling at a very attractive price in the U.S. and we are buying at a very attractive price in Turkey,” Carlos Torres Vila, BBVA’s executive chair, said in a Financial Times interview, noting that the U.S. sale was at 20 times earnings and  the purchase of Garanti stock is at 3.6 times earnings.

News of the deal came as Turkey’s central bank cut interest rates again, further devaluing the lira and weakening the country’s economy (see related story in this issue).

The lira has lost about 75 percent of its value against the euro since 2014, the FT said, the year when BBVA paid €2 billion for a 14.89-percent stake in Garanti.

Despite Turkey’s economic quagmire, Garanti has turned in net profits between €1.5 billion and €2 billion in each of the last five years, Vila pointed out.

“You look at half of that, that is what we are buying,” he said. “We are buying asset flow of €600 million – north of that, I would say.”

As BBVA deepens its commitment to Turkey, Italian lender UniCredit is selling its remaining 20 percent of Yapi Kredi, a private Turkish bank, and leaving the country to concentrate on its core markets, UniCredit said.

In contrast, BBVA sees Turkey as a “strategic market,” Vila said.

TREND FORECAST: With Turkey’s economy in a tailspin and foreign investors fleeing, the prospects for continued long-term bank profits grow dimmer by the day. 

BBVA seems to believe it has bought in at or near the bottom of Turkey’s economic pit, but we forecast there will be more pain ahead, and perhaps even a new head of state, before Turkey can begin to repair its tattered economy and BBVA’s investment will pay a steady return.

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