Hicks Muse, Bear Stearns Abandon Johns Manville Deal –

Earlier this month, Hicks, Muse, Tate & Furst and Bear, Stearns & Co. scratched their plans to buy out construction materials maker Johns Manville Corp. The investor group originally bid $3 billion for the Denver-based company over the summer (Buyouts, July 3, p. 1), but began renegotiating a lower price in November when Manville’s performance showed signs of deterioration.

Sources say, however, that the company itself is not entirely at fault. Even though Manville’s earnings took a nosedive in the third quarter, the difficult economic environment played a role in the outcome of the proposed buyout, and, really one problem led to another.

“The changes in the economic environment led to a change in the company’s performance,” said a source close to the transaction. “It’s doing fine relative to its peers, but the industry as a whole is having a tough time right now.”

Other building supply companies took a hit in the third quarter, including Home Depot, partly as a result of the most recent interest rate hike by the Federal Reserve.

Furthermore, John Howard, senior managing director and head of merchant banking at Bear Stearns, said Manville missed its targets as a result of exogenous things such as energy pricing. He added that the failed deal was somewhat, but not entirely a function of the difficult financing market.

“We could have done a deal,” Howard said, “but from the company’s point of view, the current operational results weren’t reflective of the true economic value of the company. And we weren’t going to pay more than the earnings indicated, so it was a little of an impasse that we couldn’t agree on the value of the company.”

Hicks Muse and Bear Stearns planned to finance the deal with $2.35 billion in senior loans and high yield debt. Of that, $1.75 billion was to be raised in the loan market, with the rest to come from $600 million in junk bonds.

The difficult financing market has wreaked havoc on several other large buyout deals proposed this year, although a few have managed to pull through in the last month.

Silver Lake Partners closed its $2 billion acquisition of Seagate Technology late last month (Buyouts, Dec. 4, p. 3). Heartland Industrial Partners can also claim success with its $2 billion buyout of MascoTech that closed approximately two weeks ago.

Mega-deals that have not yet seen closure include DLJ Merchant Banking‘s proposed acquisition of meat company IBP for $2.4 billion. DLJ’s offer is being challenged by interested strategic buyers, including Smithfield Foods, which threw in a stock-for-stock bid worth $2.7 billion.