Cerberus Capital Management has dropped its $6.2 billion (€4.3 billion) bid for IT outsourcing company Affiliated Computer Services, citing “the continuation of poor conditions in the debt financing markets”.
Cerberus and ACS founder and chairman Darwin Deason sent a letter to a special board committee of ACS on Tuesday, stating that they would drop their $62 per share bid due to delays in the approval process.
“Had the special committee engaged Cerberus and Mr. Darwin Deason on the schedule we proposed in our offer letter, we are confident that our acquisition would have been approved and closed,” the letter said.
ACS declined to comment on the status of the deal.
Recent weeks have seen several high profile buyouts fall apart in the wake of the credit crunch, including a JC Flowers-led consortium’s $25 billion buyout of US student lender Sallie Mae and Kohlberg Kravis Roberts’ and Goldman Sachs Capital Partners’ $8 billion acquisition of stereo maker Harman International Industries.
US firm Lone Star said it would drop a $400 million agreement to buy subprime lender Accredited Home Mortgage, but the two parties eventually inked a $296 million agreement after Accredited sued Lone Star.
Cerberus’ backing away from the company is the second failed private equity attempt to acquire ACS. Last year The Blackstone Group, Providence Equity Partners, TPG and Silver Lake Partners were said to have submitted an offer of between $63 and $65 per share, but failed to reach an agreement with ACS on price.
ACS was rocked by scandal last November, when it admitted that it had backdated managers’ options to inflate their value. It was forced to sack its chief executive and finance officer, and pay out more than $50 million in extra accounting expenses.
Cerberus and Deason made a first offer of $59.25 per share in March. The consortium faced early opposition from ACS, which opposed an exclusivity arrangement stipulated in the offer. ACS also said Deason, who owns more than 40 percent of ACS, might face a conflict of interest if a higher bidder appeared.
Following the original offer in March, Deason sent a letter to the board alleging the special committee “has refused to negotiate with us, to permit Cerberus to conduct essential due diligence or to engage us in any constructive fashion”.
Cerberus and Deason upped their bid to $62 per share in May. But in the following months the consortium had difficulty securing debt financing for the deal, which slowed the process further.
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