Tuesday, October 05, 2004
Latest in LBO Mega-Dividend Recaps
LBO houses reap dividends - by David Carey Posted 03:40 EST, 5, Oct 2004
In the spirit of the harvest season, a handful of leveraged buyout houses are preparing to reap massive dividends from portfolio companies, many of them acquired just in the last year.
Warner Music Group, which a private equity consortium led by Boston's Thomas H. Lee Partners bought from Time Warner Inc. for $2.6 billion in February, said late Monday, Oct. 4, that it will award its owners $350 million in cash. After the latest payout, which follows a $200 million distribution in April, Warner Music's owners will have recouped 44% of their original $1.25 billion equity investment, a person familiar with the deal said.
Also in the last two weeks, Blackstone Group pocketed a $500 million special dividend from German specialty chemicals maker Celanese, which the New York buyout firm bought in April. That amounted to more than three-fourths of its $650 million investment.
What's more, the Warner Music and Celanese dividends coincide with another, considerably faster flip. Just one month after clinching a $4.1 billion acquisition of satellite operator PanAmSat Corp., Kohlberg Kravis Roberts & Co. of New York, Carlyle Group of Washington, D.C., and Providence Equity Partners of Providence, R.I., are set to take back $250 million of their initial $550 million equity outlay.
Also this week, Moody's Investors Service said Providence Equity Partners and other stockholders aim to mine a $100 million dividend from Kerasotes Showplace Theatres LLC, a movie theater chain in which Providence invested $75 million in June.
The Warner Music dividend, however, differs from the others. Instead of piling additional debt onto its balance sheet to fund the payment, as did the other four companies, Warner Music's coffers are bulging with dollars ? more than enough to pay the dividend.
The record business' CEO, Edgar Bronfman Jr., has taken a sword to overhead since the LBO. He shrank worldwide staff to 4,400 from about 5,400, merged the Atlanta and Electra labels and dropped some unprofitable acts. Those moves are expected to boost Warner's bottom line by about $225 million annually.
Warner had stockpiled hundreds of millions of dollars to cover severance costs, and after it finished retrenching found it had plenty of cash to spare. In addition, Warner's cash flows are higher than originally projected. Ebitda, just $314 million during the 12 months ended Nov. 30, 2003, should hit $350 million to $370 million this year.
The latest dividend will go out within two weeks, a source said. Thomas H. Lee Partners, Warner's 52.4% owner, will collect about $183 million. The other recipients are Bain Capital LLC, a 22.4% owner; Providence Equity Partners Inc., which holds 12%, and Bronfman, whose Lexa Partners LLC owns 13.2%.
A robust junk-bond market has fostered the wave of debt-fund dividend awards, which gathered momentum in mid 2003. Until recently the flood of refinancings had shown few signs of abating. But in late September, a note issue for Polypore Inc. to fund a dividend for Warburg Pincus LLC priced at a higher-than-expected coupon.
Private equity players wonder how long the party will last. "Our assumption is that interest rates will be generally rising, and as that happens it should cool off fixed-income markets a little," said Blackstone vice chairman Hamilton James. "But right now, those markets are offering pretty attractive returns relative to other assets classes, so the money is flowing into them."
©Copyright 2004, The Deal, LLC. All rights reserved.
In the spirit of the harvest season, a handful of leveraged buyout houses are preparing to reap massive dividends from portfolio companies, many of them acquired just in the last year.
Warner Music Group, which a private equity consortium led by Boston's Thomas H. Lee Partners bought from Time Warner Inc. for $2.6 billion in February, said late Monday, Oct. 4, that it will award its owners $350 million in cash. After the latest payout, which follows a $200 million distribution in April, Warner Music's owners will have recouped 44% of their original $1.25 billion equity investment, a person familiar with the deal said.
Also in the last two weeks, Blackstone Group pocketed a $500 million special dividend from German specialty chemicals maker Celanese, which the New York buyout firm bought in April. That amounted to more than three-fourths of its $650 million investment.
What's more, the Warner Music and Celanese dividends coincide with another, considerably faster flip. Just one month after clinching a $4.1 billion acquisition of satellite operator PanAmSat Corp., Kohlberg Kravis Roberts & Co. of New York, Carlyle Group of Washington, D.C., and Providence Equity Partners of Providence, R.I., are set to take back $250 million of their initial $550 million equity outlay.
Also this week, Moody's Investors Service said Providence Equity Partners and other stockholders aim to mine a $100 million dividend from Kerasotes Showplace Theatres LLC, a movie theater chain in which Providence invested $75 million in June.
The Warner Music dividend, however, differs from the others. Instead of piling additional debt onto its balance sheet to fund the payment, as did the other four companies, Warner Music's coffers are bulging with dollars ? more than enough to pay the dividend.
The record business' CEO, Edgar Bronfman Jr., has taken a sword to overhead since the LBO. He shrank worldwide staff to 4,400 from about 5,400, merged the Atlanta and Electra labels and dropped some unprofitable acts. Those moves are expected to boost Warner's bottom line by about $225 million annually.
Warner had stockpiled hundreds of millions of dollars to cover severance costs, and after it finished retrenching found it had plenty of cash to spare. In addition, Warner's cash flows are higher than originally projected. Ebitda, just $314 million during the 12 months ended Nov. 30, 2003, should hit $350 million to $370 million this year.
The latest dividend will go out within two weeks, a source said. Thomas H. Lee Partners, Warner's 52.4% owner, will collect about $183 million. The other recipients are Bain Capital LLC, a 22.4% owner; Providence Equity Partners Inc., which holds 12%, and Bronfman, whose Lexa Partners LLC owns 13.2%.
A robust junk-bond market has fostered the wave of debt-fund dividend awards, which gathered momentum in mid 2003. Until recently the flood of refinancings had shown few signs of abating. But in late September, a note issue for Polypore Inc. to fund a dividend for Warburg Pincus LLC priced at a higher-than-expected coupon.
Private equity players wonder how long the party will last. "Our assumption is that interest rates will be generally rising, and as that happens it should cool off fixed-income markets a little," said Blackstone vice chairman Hamilton James. "But right now, those markets are offering pretty attractive returns relative to other assets classes, so the money is flowing into them."
©Copyright 2004, The Deal, LLC. All rights reserved.
# posted by Tom @ 3:42 PM 
