Fox Paine Unearths Seed Company Investment –

San Francisco-based private equity firm Fox Paine & Co. planted itself at the core of the seed industry with its latest acquisition, agreeing to buy fruit and vegetable seed maker Seminis in a public-to-private deal. The acquisition, which is currently under review by a special committee at Seminis, values the company at $650 million.

For the deal, Fox Paine is teaming up with Alfonso Romo Garza, the CEO and chairman of Seminis and controlling stakeholder in Mexican seed company Savia SA de CV, which itself has a majority stake in Seminis.

The deal has a fairly complex structure, but Fox Paine is hopeful it will close in the first half of 2003. In outlining the transaction, the firm said that Savia has agreed to exchange its preferred Seminis shares for Seminis common stock, and subsequently will distribute most of the common shares to its shareholders. The balance of Savia’s Seminis common stock, approximately 4.4 million shares, would then be sold in order to help pare down its debt. Fox Paine, along with Alfonso Romo, would pay Seminis stockholders $3.40 a share to buy the company, representing a premium of 35% over Seminis’s closing price on the Friday before the transaction was announced.

Fox Paine will contribute an equity stake of $222 million, and while the capital structure has yet to be worked out, Dexter Paine, president and co-founder of Fox Paine, told Buyouts he expects to finance the deal with a debt contribution of roughly 60 percent.

The firm, whose relationship with Romo spans almost 15 years, originally approached Savia about the investment in the summer of 2001. In describing why the firm was so attracted to Seminis, Paine said the company is a “global business with a number-one market share,” and added that the seed industry’s “barriers to entry” and Seminis’s strong management team also helped pique the firm’s interest. In 2001, Seminis took in $450 million in sales, and posted a net loss of $134.5 million. This past year, Seminis swung back into positive territory, with a net profit of $16.1 million in fiscal 2002. The company is also working to trim its debt, and last reported $278.5 million in total outstanding debt.

Going forward, Fox Paine expects Seminis to realize growth of around 5% to 10% annually in the next three to five years. The management team will stay in place at the company, with Romo maintaining his role as chairman and CEO, while Dexter Paine will assume the role of vice chairman of the board of directors. Fox Paine intends to nurture Seminis’s growth with a buy-and-build strategy and will also look to achieve growth organically. “We will be looking at a number of possible add-on acquisitions in order to extend Seminis’s product lines and expand the company geographically,” Paine noted.

That strategy does not stray far from what Seminis has done in the past. The company was particularly active in 1998, prior to going public, when it acquired four companies that enhanced its product line and extended its reach in Asia, India and South America. Seminis’s last transaction occurred in 1999, when it acquired Barham Seeds, which researches and develops seedless watermelon varieties. In all, the company produces more than 60 species and 4,000 vegetable and fruit seed products.

Fox Paine will use its Fox Paine Capital Fund II fund, which closed in December 2000 with $1 billion of capital. The fund’s last acquisition of a platform company was the privatization of Paradigm Geophysical Ltd. in May 2002. Most recently, the firm’s Cradle Holdings portfolio company agreed to buy L’Artisan Parfumeur, a French provider of luxury fragrances and toiletry products. That deal is scheduled to close by the end of January. The firm’s HR department has been busy as well. Earlier in January, Fox Paine announced the hiring of Robert Lowe Jr. as a managing director and chief operating officer and Herald Chen as a director. Lowe previously served as Arthur Andersen’s global managing partner for expansions and alliances, while Chen was a CFO and co-founder of Jamcracker Inc., a software service provider.