Wendel, KKR Nail Down Legrand Acquisition –

After six months of watching the deal waver in and out of their grasp, France-based Wendel Investissement and Kohlberg Kravis Roberts & Co. closed the purchase of Legrand on Dec. 11. At E3.7 billion, the acquisition of the electrical equipment maker from Schneider Electric is the largest ever LBO in Europe.

The consortium supplied a total of E1.76 billion in equity to the deal, with Wendel Investissement and KKR each investing E658.5 million. Other minority investors included West LB, with a E200 million contribution, HSBC Private Equity, who supplied E115 million, and Goldman Sachs Capital Partners, who chipped in with E100 million, among other, smaller, investors. Schneider Electric also provided E150 million in the form of a vendor loan, and the balance of the transaction was financed with E1.82 billion of senior debt and E600 million of mezzanine debt. In July, the buying group indicated that Credit Suisse First Boston, Lehman Brothers and The Royal Bank of Scotland would arrange the financing for the deal.

Schneider originally acquired 98% of Legrand’s capital for E5.4 billion in October 2001. However, the deal quickly raised red flags for the European Commission, which barred Schneider from owning Legrand, saying the acquisition would illegally damage competition.

Following the EC’s demands, Schneider looked to unload the company and in June 2002 reached an agreement with the Wendel Consortium to divest Legrand for E3.7 billion. However, at the eleventh hour, a top European Union court annulled the EC’s decision, saying, “The Commission’s economic analysis is vitiated by errors and omissions, which deprive it of probative value.” That opened the door for Schneider to possibly go forward with its original Legrand merger, but in the end Schneider decided to forego that option and sell the company to the consortium. Had Schneider walked away from the KKR/Wendel offer, it would have been forced to pay a break-up fee of E180 million.

In a press release, Schneider pointed to two major factors that ultimately killed the merger, specifically citing, “the position adopted by the European Commission” and “the hostility to the merger … expressed by the leaders of Legrand.” Schneider said adherence to the EC’s request to divest certain brands would make the deal industrially unjustified, and the company was also chafed by Legrand Management’s filing of an appeal that forced Schneider to obtain its approval on any decisions that involved Legrand.

After Schneider made the announcement Dec. 3 that it would not go through with the merger, the buying group immediately responded and closed the deal just seven days later.

The Wendel Consortium plans to keep Legrand’s management team in place and “reinforce the leading position of Legrand in [its industry], and will implement the principal strategic orientations defined by the management team.”

Wendel Investissement took shape in June 2002, right before the announcement of this deal, through the merger of CGIP and Marine-Wendel. The Legrand deal represents KKR’s first investment in France.