On the heels of a shareholder’s lawsuit against the $6.3 leveraged buyout of Kinetic Concepts Inc. (NYSE:KCI) by a private equity firm and two Canadian pension funds, the company announced plans to finance the acquisition in part with a $2.6 billion term loan.
In a lawsuit filed earlier this month, KCI shareholder Sharon Meg Dunn alleges that the deal "will likely result in KCI shareholders being cashed out of their interest in the company at below the company’s true value," and accuses the San Antonio, Texas-based wound management company and its board of mismanagement and breaches of fiduciary duty.
KCI’s general counsel mostly dismissed the lawsuit as "part of the process" of being sold, adding that law firms were "just racing to the front of the line to say we get to be the lead plaintiffs in the case."
At least 15 law firms have issued press releases announcing that they are investigation possible claims against KCI since the announcement of the deal on July 13, the San Antonio Express reported.
Rumors that KCI was on the block proved true when the company announced that it had agreed to a leveraged buyout at $68.50 per share, a 6 percent premium on its closing price on Wall Street on July 12. The price represented a 16 percent premium compared to the closing price on July 5, the day before rumors began circulating.
Legal challenges point to a valuation by Collins Stewart analyst Tao Levy who put KCI’s share price at between $73 and $76 prior to the agreement.
To pay for the deal, the consortium has lined up about $1.74 billion from equity backers and $4.95 billion in loans from Bank of America, Merrill Lynch, Pierce, Fenner & Smith Inc., Credit Suisse and Morgan Stanley Senior Funding.
KCI also announced that it will finance the buyout with a $2.6 billion term loan, including $1.25 billion of senior secured notes, $900 million of senior unsecured bonds and a $200 million revolving credit line, Bloomberg reported.
The loan could be the second largest such deal this year, following the $2.7 billion in debt supporting Del Monte Food Co.’s buyout of KKR & Co.
KCI shares were steady at $66.75 in midday trading today.