Kinetic Concepts Inc. (NYSE:KCI) is likely to spurn a $6.3 billion offer from rival ConvaTec unless that firm can guarantee financial backing, according to “people familiar with the matter” quoted in the Wall Street Journal.
KCI has already agreed to a $68.50-per-share buyout by private equity player Apax Partners and two Canadian pension funds. ConvaTec’s 11th-hour bid just beat the deadline for KCI’s “go shop” allowance to accept competing offers, which expired just before midnight August 21.
But, although the un-named sources told the Journal that ConvaTec is working to land financing for its bid, thus far the company is armed only with letters from Goldman Sachs Group and Jefferies Group averring that the banks are “highly confident” that ConvaTec will be able to win backers for the deal. KCI hasn’t made its final call yet, the sources added.
Should KCI wind up giving the nod to ConvaTec, Apax would have a three-day window to match or top that offer. If it decides to jilt Apax after that, the decision would cost nearly $52 million in breakup fees. But if KCI ditches the deal for other reasons, the kill fee nearly triples to $155 million.
ConvaTec’s competing bid is worth about 40 billion Swedish krone, or $6.29 billion, according to the Swedish business journal Dagens Industri. ConvaTec is owned by PE firms Nordic Capital and Avista Capital Partners.
Apax and its partners from north of the border agreed July 12 to buy KCI for a 6 percent premium over its closing price that day. The London-based PE firm and its partners plan to finance the buyout with about $5 billion in debt, backed by lenders Bank of America Corp., Credit Suisse Group AG and Morgan Stanley.
Avista had been mulling a joint bid for KCI with Bain Capital LLC before Bain pulled out of the talks. The Boston-based PE titan withdrew over concerns about obtaining financing and about the price of the deal.
Despite leveraged buyout costs reaching a year-long high, the days of the LBO might be back – the Apax deal would be the largest such deal since before the fall of Lehman Brothers sent the global economy into a tailspin in September 2008 (Nordic and Avista bought ConvaTec from Bristol-Myers Squibb Co. for $4.1 billion that year).
