Macmillan Accepts KKR’s Sweetened Bid of $2.5 Billion
After a flurry of last-minute bidding, Macmillan Inc. said it agreed to be acquired by Kohlberg Kravis Roberts & Co. for $90.05 a share in cash and securities, or $2.5 billion, barely edging out British publishing magnate Robert Maxwell’s latest offer of $89 a share.
As part of the agreement, KKR was granted an option to purchase four of Macmillan’s businesses under “specified limited circumstances.” The option in this so-called lock-up agreement could presumably be exercised if Macmillan is eventually sold to another bidder.
The four businesses were not named, but analysts assumed that they are among the information services units that form Macmillan’s most profitable arm. Information services accounted for 40%--or $62 million--of Macmillan’s operating profits in 1987, and analysts expect that they will continue to grow at 25% annually.
A spokesman for Maxwell Communications Co. in New York said it was evaluating KKR’s bid but would not say whether a higher offer was planned.
“I am shocked that the board of directors of Macmillan would enter into this hasty, ill-conceived, front-end loaded, two-tier ‘junk bond’-financed offer with KKR without even contacting me,” Maxwell said in a statement issued Tuesday afternoon.
In response, Macmillan issued another statement later in the day noting that Maxwell was given every opportunity to amend his bid for the publishing company but refused to do so.
Maxwell said he is reviewing his options at this time. Analysts noted that he could begin a separate tender offer but speculated that he would more likely take Macmillan and KKR to court.
“I imagine he will sue,” said Bert L. Boksen, chief investment officer for Raymond James Financial Inc. in St. Petersburg, Fla. “He could tender separately, but there is a lockout of four companies, so I would think that would be extremely ill-advised.”
“I’ve thought all along that what Maxwell was really trying to do was buy the information services,” said J. Kendrick Noble Jr., a publishing industry analyst with Paine Webber. “It’s like he’s playing a poker game with his opponent and hoping he would fold his hand. But I still think Maxwell could go higher.”
Tuesday’s amended agreement is similar to KKR’s original bid of $85 per share in cash and securities for up to 94% of Macmillan’s 27.76 million shares. In the current offer, KKR through an affiliate will pay $90.05 a share in cash for about 91% of the outstanding shares. When the tender offer is completed, Macmillan would merge with the KKR affiliate.
‘Too Irrational’
If more than 91% of the shares are tendered in the offer, KKR will pay $82.05 in cash and the remainder in securities. Macmillan had accepted the initial KKR deal earlier this month but withdrew when Maxwell sweetened his all-cash bid to $86.80 per share. Macmillan said it wished to “continue the auction process” of selling the company to the highest bidder and set a deadline of 5:30 p.m. Monday for final offers. KKR submitted the revised plan within the time limit, but the offer was not announced publicly until Tuesday afternoon.
In his statement, Maxwell said he advised Macmillan on Monday night that he was increasing his all-cash bid to $89 from $86.80. He also said that if Macmillan received a higher bid, he should be informed so he could advise them promptly whether or not he planned to top it. Maxwell also said he understood that members of the financial community have valued the KKR bid at less than $89 a share, with the deal worth less than $86 a share if securities are part of the payment.
Analysts questioned whether Macmillan’s earnings could service the debt needed to pay for the acquisition. In order to handle the cost, the company will be forced to sell assets, they noted.
“It’s gotten too irrational,” said Noble of Paine Webber. “This forces them still to sell the information companies, in which case the company’s not worth as much. Things got too high for me. I’m out.”
In New York Stock Exchange composite trading, Macmillan was the eighth most-active stock, closing at $88.625 a share, up $1.375, on volume of 1.26 million shares.
