There is a menagerie of companies with stocks that look like the boulevard of broken dreams because of the woes in the stock market and economy in January. But no group looks as bad as the group of the recently failed private equity buyouts. Some of the losses here may seem excessive compared to what would have been the buyout price, but that is the new private equity M&A world for you.
You can see how wide these spreads would be if they magically reappeared. And NO, these prices won’t come back any time soon.
The freshly failed acquisition of 3Com Corp. (NASDAQ: COMS) by Bain Capital Partners LLC & Huawei was originally $5.30 cash, although the last ditch effort to please CIFIUS via a unit sale would have resulted in a lower price. If that magically came back, you’d be looking at an 82% gain.
The deal for Alliance Data Systems Corp. (NYSE: ADS) from The Blackstone Group, LP (NYSE: BX) may or may not happen, but the original price of the buyout offer was $81.75. It is nearly impossible to think that price would ever be a buyout price in today’s environment, but that would represent a 54% premium to current prices.
SLM Corp. (NYSE: SLM), or Sallie Mae, was being J.C. Flowers & Co. before that merger was called off. The company was originally being offered $60 per share and then it was briefly revised lower to $50 per share before being ditched altogether. If that $50 number magically came back, that would represent a whopping 127% premium. If that $60 pipe dream ever came back, the gains compared to today would be a whopping 172% gain.
United Rentals (NYSE: URI) buyout from Cerberus was $34.50, but it at least looks like it got its $100 million deal termination fee. If that premium magically came back, that would be more than an 80% premium compared to today.
Clear Channel Communications Inc. (CCU), Thomas H. Lee Partners LP/Bain Capital Group is not yet a busted deal, although this $39.20 cash price is roughly 25% above today’s share prices. This one has taken long enough that it seems Methuselah is in charge of this approval and decision process.
For whatever this is worth, investors looking at any of these companies better be looking at each company individually. It isn’t like there weren’t some problems that either kept these mergers from happening, even if the buyout firms have had to gear down their efforts to more of true private equity firms instead of LBO firms.
Jon C. Ogg
February 21, 2008
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