Macmillan Agrees to $2.36-Billion Bid of Kohlberg Kravis : Textbook Publisher Has Been Fighting Off Suitors Since May
After four months of fending off takeover attempts from all sides, Macmillan Inc. has given up its efforts to remain independent and struck a deal to be acquired by Kohlberg Kravis Roberts & Co. for $2.36 billion in cash and securities.
The nation’s third-largest textbook publisher announced the terms of the agreement Monday after negotiating with KKR over the weekend. KKR, a private partnership with offices in New York and San Francisco, specializes in leveraged buyouts. In a leveraged buyout, a company is acquired with mostly borrowed money, which is later repaid from the company’s profits or from the sale of assets.
In announcing the merger agreement, Macmillan said KKR had formed a corporation, MI Holdings, that later this week will begin an $85-per-share tender offer for the purchase of up to 94% of Macmillan’s 27.76 million shares outstanding.
When the tender offer is complete, MI Holdings will merge with Macmillan and offer securities worth $85 a share to stockholders who did not tender their shares. If the tender offer is fully subscribed, the cash portion of the offer will be cut to $80 a share from $85, with the difference made up in securities, KKR spokeswoman Ruth Pachman said.
“I thought it would be tough for Macmillan to go above $80, let alone $84, so I was surprised,” said J. Kendrick Noble, a publishing industry analyst at Paine Webber Group. “I think we are very close to the top price. I think it is all over but the shouting.”
Speculating about the company’s future, Noble added: “I assume the company will undergo some major asset sales.”
In addition to its textbook business, Macmillan publishes popular hardback books and owns a variety of information services, the Berlitz language schools and the Katharine Gibbs secretarial schools.
In Macmillan’s statement issued Monday, the company said about 60 of its top managers would be offered the opportunity to buy an equity stake in the merged firm.
Macmillan has been dogged by takeover attempts since mid-May, when the Robert M. Bass Group, which owns about 9.2% of the company’s stock, first offered $64 a share, or about $1.6 billion, for the company. Bass has raised his bid twice, and his most recent offer stands at $75 a share, or $2 billion, for the 90.8% of the company that he doesn’t already own. This offer is good until Sept. 23.
Bass could not be reached for comment, but analysts speculated that Bass might be more willing to cede the Macmillan deal to KKR at this time, after his agreement last week to bail out ailing American Savings & Loan Assn., which is based Stockton.
Analysts also said one of Bass’ goals appeared to be to keep the stock “in play” to guarantee that he made a profit on his stake. Bass first began accumulating Macmillan shares more than a year ago for as much as $70 a share. Observers estimated that Bass stands to make about $75 million on the KKR deal.
Macmillan initially sidestepped Bass’ takeover attempts by proposing a restructuring plan in late May. Valued at $64.15 a share, the plan would have split the company into two separate entities, one for publishing and the other for information services.
However, the Bass Group challenged this maneuver in Delaware Chancery Court in June and won an order restraining Macmillan from implementing the restructuring plan. In Monday’s announcement, Macmillan said that, in light of the KKR deal, it was jettisoning the plan and withdrawing its suit in Delaware court.
Macmillan’s takeover woes deepened in June, when Coniston Partners disclosed that it held 4.9% of Macmillan’s stock and filed an affidavit supporting Bass’ request to halt the restructuring. Coniston said it was not acting in conjunction with Bass but wanted to see Macmillan sold to the highest bidder. A Coniston spokesman said then the firm believed that Macmillan’s restructuring plan was not in the “best interest of the shareholders.”
On Monday, Coniston expressed hopes that the bidding would continue.
“My reaction is that I’m glad the restructuring plan has been abandoned,” said Paul E. Tierney Jr. of Coniston Partners. “I hope that the board of directors would explore further with (British publisher Robert) Maxwell. Clearly, Maxwell has the ability to pay $84; perhaps he can pay $86.”
Maxwell Communication Corp. announced that it would begin bidding for Macmillan in July with a conditional $80-per-share offer. Last Friday, Maxwell sweetened his bid, offering to pay $84 a share. In a letter to Macmillan Chairman Edward P. Evans, Maxwell said he would withdraw the bid if Macmillan had a “financed, binding alternative proposal” of greater value.
Analysts speculated that since Maxwell doesn’t own any shares in the company, it doesn’t serve his interests to terminate the bidding, but Maxwell spokesman John Kesby in London said only that “we have received this report and we are studying it.”
When asked what Macmillan’s response would be to a higher bid from Maxwell, David R. Jackson, vice president for investor relations, said: “You’re asking me to speculate, and I don’t know what the board would do. I suppose they would have to consider it.”
When Bass made his first offer May 17, Macmillan’s stock was trading at about $51 a share. In New York Stock Exchange composite trading, Macmillan closed Monday at $84.75, up 87.5 cents.
“Everybody comes out ahead with the KKR deal,” said Bruce Benteman, research analyst at Wealth Monitors, an investment newsletter in Kansas City, Mo. “Management retains a stake. KKR will probably make a fortune on the deal. At $85 a share, they are probably buying $110-a-share worth of assets. Bass will make a nice profit on his shares. The deal is structured in such a way as to make it very easy for the holders to share in the prosperity of Macmillan.”