European KKR Bids GBP627M For Wassall –

Kohlberg Kravis Roberts & Co. in early February launched an agreed GBP627 million bid for Wassall, the U.K. conglomerate that tried and failed in 1998 to convert into a private equity firm.

If the bid is successful, KKR intends to merge Thorn Lighting Group, Wassall’s principal asset, with privately owned Austrian group Zumtobel to form the largest operator in the fragmented European lighting fittings market.

Spokespeople for KKR have stated that earlier reports naming Zumtobel as a competing bidder for Thorn were inaccurate. The U.S. buyouts giant confirmed that it had reached agreement with Zumtobel on the proposed merger prior to the announcement of KKR’s bid for Wassall. Zumtobel is a major player in Italy and Benelux as well as the German-speaking markets, while Thorn Lighting’s presence is strongest in the U.K., France and Scandinavia. The merged group will have annual sales of around GBP800 million.

KKR funds will provide some GBP100 million of equity to takeover vehicle Wengen Acquisition, giving the buyout house a 34% holding in the merged group. Zumtobel’s owners will control the balance. Chase Manhattan and Warburg Dillon Read are underwriting GBP570 million of debt facilities. Managing director Johannes Huth led the deal alongside Edward Gilhuly, with legal advice from Allen & Overy.

Other than Thorn Lighting, which it acquired last January, Wassall’s holdings include Metal Closures and vehicle components manufacturer Wassall Asia Pacific, along with a cash pile of more than GBP300 million. The smaller businesses are apparently slated for disposal.

The 400p per share price offered by KKR represents a 43% premium to Wassall’s share price on Dec. 3 – the day before the group announced it was in talks that might lead to an offer – but is well below the 425p to 450p that analysts predicted Wassall could command. KKR declared its interest in the PLC after Knutsford, a shell acquisition vehicle headed by former Asda chairman Archie Norman, withdrew its offer, having failed to secure underwriters.

Suitors Abound

To be sure, Knutsford wasn’t the only interested party: a bid battle between private equity house Duke Street Capital and Knutsford appeared to be a distinct possibility. Duke Street acquired more than 4 million Wassall shares in December, adding a further 500,000 following Knutsford’s confirmation that it was in talks with the group, boosting its holding in Wassall to 5.8%.

Last month, Chief executive Edmund Truell said in discussing Duke Street’s interest: “We have had various conversations with the company’s advisers over a period of time and it is our view that their structure is not sustainable in the long term”.

Wassall’s attempts to transform itself from industrial conglomerate to a hybrid private equity firm/industrial holding company, while retaining quoted status, date back to 1998. The group argued at the time that by investing its own resources alongside capital from other institutional sources via offshore funds, Wassall would have been able to leverage investments and command a lower cost of capital. This in turn would have allowed its shareholders to benefit from potential private equity returns combined with quoted company liquidity. However, the attempt met with a lukewarm reception from the market and, although Wassall succeeded in securing Thorn Lighting, other high-profile acquisition bids, for BICC and Allied Carpets, were unsuccessful.

KKR meanwhile, appears to be stepping up its drive into Europe, with the acquisition of Bosch Private Networks Division, a deal believed to be worth $527 million, pending at press time.