DaimlerChrysler AG has agreed to sell its aerospace and aircraft engine maintenance subsidiary to Kohlberg Kravis Roberts & Co. (KKR), despite protectionist protests from German government officials. The acquisition target is named MTU Aero Engines GmbH, and is being sold as part of an ongoing DaimlerChrysler effort to shed non-core assets.
Neither DaimlerChrysler nor KKR have disclosed financial terms of the deal, but various press reports put the total transactional value at somewhere around EURO1.45 billion ($1.7 billion). More than 80% of the deal is believed to be in the form of equity from KKR, while the remaining debt is being provided by Commerzbank, Credit Suisse First Boston and J.P. Morgan Chase & Co.
KKR will be the deal’s sole equity sponsor, although it had once considered teaming up with J.F. Lehman and Morgan Stanley. An eventual bond issue is expected, as is an initial public offering of MTU common stock.
Not only does the pending buyout represent a win for KKR over rival bidder Doughty Hanson & Co., but also over public condemnations of the deal by German leaders like Chancellor Gerhard Schroeder and Economy and Labor Minister Wolfgang Clement.
“Germany has an interest in keeping our capacities in defense technology-highly specialized in many areas-in Germany rather than having others control it,” Schroeder said this past August, in reference to both the MTU deal and an earlier buyout of conventional submarine maker HDW by U.S.-based One Equity Partners. “I was not happy at the time about [the HDW transaction]. The current situation proves that I was right to be skeptical.”
Also speaking out was Clement, who proposed legislation that would require a government review of any transaction involving a military-related German company. Such a law, however, is unlikely to pass in time to obstruct the MTU acquisition, which is slated to close by year-end.
Reinhart Goronflos, a London-based director with KKR, says that his firm presented its thoughts and strategies to the German government and relevant political groups. “We didn’t need to adjust our strategies,” he explained. “We told them that we wanted to maintain MTU as an independent player and keep it integrated as it had planned.”
Both Carlyle Group and Blackstone Group had expressed early interest in the deal, but dropped out a few months ago.
Lawyers: DaimlerChrysler: Shearman & Sterling; KKR: Clifford Chance Punder, Simpson Thacher & Bartlett
Debt Provider: J.P. Morgan Chase & Co.