Private Equity – Wassall agrees to KKR bid

Kohlberg Kravis Roberts & Co (KKR) in early February launched an agreed GBP627 million ($1 billion) bid for Wassall, the UK conglomerate whose 1998 attempt to metamorphose into a private equity vehicle foundered.

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.

KKR has stated that earlier reports naming Zumtobel as a competing bidder for Thorn were inaccurate and confirmed that Zumtobel and the buyouts giant had reached agreement 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 UK, France and Scandinavia. The merged group will have annual sales of around GBP800 million.

KKR funds will provide some GBP100 million ($160 million) of equity to takeover vehicle Wengen Acquisition, giving the buyout house a 34 per cent 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 via Wengen represents a 43 per cent premium to Wassall’s share price on 3 December, the day before the group announced it was in talks that might lead to an offer, but is well below the 425p-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 an offer, having failed to secure underwriters. Nor was Knutsford 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 per cent.

Discussing Duke Street’s interest in Wassall last month, chief executive Edmund Truell said: “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 hybrid private equity fund/industrial holding company while retaining quoted status date back to 1998. The arguments put forward by the group at the time were logical enough. 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 should 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 – possibly because, although institutional investors understand quoted companies, limited partnerships and investment trusts, they are not comfortable with any blurring of these boundaries – 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 (euros 519 million), pending at press time.