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TRIUMPH OVER ADVERSITY

A recent UK deal shows that companies with huge pension deficits need not be left on the shelf.

There's a case for saying that UK-based companies with pension scheme deficits may as well hang a sign over their headquarters saying “private equity firms: keep out!”, particularly since the introduction of the Pensions Act, which appeared to remove the so-called “corporate veil” – leaving not just GP groups but also their investors, portfolio companies and even senior executives potentially liable to make up any shortfalls.

But a recent management buyout at Sheffield Forgemasters Engineering Ltd (SFEL), a Yorkshire-based designer and maker of castings and forgings, may go a long way towards changing perceptions. The business was part of a parent company, Sheffield Forgemasters, that underwent two buyouts – led by Schroder Ventures (now Permira) and NatWest Equity Partners (now Bridgepoint) – before being sold to a series of trade buyers and finally landing in administration in 2003.

Unlike its parent, SFEL was trading profitably. However, the combination of a £65 million (€95 million; $117 million) pension fund liability and a couple of major creditors – one of which was the parent – meant the firm was unable to tempt a buyer. In desperate need of additional investment, the firm was living “hand to mouth”, according to Neil Thompson, a corporate group partner at law firm DLA Piper, who advised the firm on its eventual buyout.

To the rescue came the Pension Protection Fund (PPF), a statutory corporation set up in April under the very same Pensions Act that is being seen as one of UK private equity's biggest bugbears. The PPF offers compensation to members of pension schemes where companies have gone bust, as well as seeking to salvage such schemes whenever possible.

The PPF can only intervene in the event of a “qualifying insolvency”. It was able to do so in the case of SFEL because of the size of the pension liability, which enabled the firm to enter a creditor voluntary agreement (CVA). The PPF then paid cash amounts in full and final settlement to SFEL's creditors as well as assuming the pension fund liability – in exchange for a 26 per cent share in the new business that was acquired in an MBO by its incumbent management.

Thompson says this is the first deal of its kind, where a company “deserves to be saved but the pension fund has a black hole”. Although private equity was absent in this case, he sees no reason why it can't play a role in future in similar situations. “The PPF would prefer the equity to come not just from the management but from private equity as well, because it would make the company more solid,” he suggests.

ADVENT IN GERMAN DOUBLE DISPOSAL
Following an auction backed by Rothschild, Advent International has signed a deal to sell its stake in Viatris, a Frankfurt-based pharmaceutical firm to Swedish pharmaceutical company Meda for €750 million ($928 million). Advent acquired Viatris in a leveraged buyout from Degussa for €375 million in May 2002. “In terms of where we wanted to go next with Viatris, it was either a case of new products or new owners,” said Ralf Huep, director and general manager of Advent International in Frankfurt. The Viatris transaction followed the €1.1 billion sale of Moeller Group, a supplier of low voltage electrical distribution and automation components for industrial, commercial and residential use, to UK-based private equity firm Doughty Hanson. Doughty invested €192 million for a majority stake in the company and management will retain a minority holding. The acquisition was funded by a debt facility of €650 million from Mizuho and Morgan Stanley. The transaction is the fifth acquisition from Doughty Hanson & Co IV, bringing the total invested to €617 million.

PERMIRA TAKES SWISS AVIATION FIRM ON BOARD
London-headquartered buyout firm Permira has acquired a majority stake in Swiss aircraft management firm Jet Aviation from the Hirschmann family for an undisclosed amount. Swiss press reports suggested the sale price was in the region of CHF800 million to CHF1 billion (€515 million to €644 million). The deal is subject to antitrust clearance and is expected to close by the end of September. ([A-z]+)-based Jet Aviation was founded in 1967 by Carl Hirschmann, a UStrained pilot. The company provides maintenance, completions and engineering services, fixed base operations, airline handling, as well as aircraft sales, charter and management. It employs more than 3,500 personnel in over 60 facilities and stations globally.

SPRINGER ACQUIRES PROSIEBEN FOR €2.5BN
German newspaper publisher Axel Springer has agreed to take control of broadcaster ProSiebenSat.1 Media in a €2.5 billion ($3.1 billion) transaction that will create Germany's secondlargest media group. A consortium led by US media mogul Haim Saban and comprising US merchant bank Alpine Equity Partners and private equity firms Bain Capital, Hellman & Friedman, Providence Equity Partners, Putnam Investments, Quadrangle Group and Thomas H Lee Partners acquired ProSieben for €525 million in August 2003. The consortium, which acquired ProSieben from insolvent German media concern Kirch Media, will make a reported three times return on their original investment following the transaction. The acquiror, Axel Springer, is almost one-fifth owned by San Francisco-headquartered private equity firm Hellman & Friedman, which acquired a 19.4 per cent stake in the German newspaper publisher in October 2003 for €350 million.

FINAL TRANCHE OF AUNA SOLD FOR €2.25BN…
A consortium of four US private equity firms has acquired the fixed-line and cable business of Spanish telecoms operator Auna, as a slew of private equity firms missed out on the €6.4 billion sale of the group's mobile phone arm. Spanish cable operator Grupo Corporativo Ono has teamed up with JP Morgan Partners, Providence Equity Partners, Quadrangle Capital Partners and Thomas H Lee Partners to acquire the fixed-line and cable assets of Spanish telecoms group Auna for €2.25 billion ($2.7 billion). The private equity firms are investing equally a combined total of €1 billion in the transaction. The remainder of the transaction will be financed by a mix of senior and subordinated debt. The deal completes the divestment of Spain's second-largest telecoms group.

… AS FRANCE TÉLÉCOM TRIUMPHS IN AMENA AUCTION
Following its late entry into the auction process, France Télécom has agreed to acquire Auna's mobile phone arm Amena in a transaction valuing the company at more than €10 billion ($12 billion). France Télécom beat off competition from two consortia of private equity firms, one of which was bidding for the entire group. The deal marks the second time this summer that private equity firms have failed to secure a sizeable European telecommunications company. In May, Egyptian entrepreneur Naguib Sawiris beat off a number of private equity houses including The Blackstone Group to acquire Italian group Wind SpA for €12 billion. Blackstone, Carlyle, Permira and Providence had also tabled a €9 billion offer for Amena and late in the process a group comprising BC Partners, Goldman Sachs Capital Partners and Kohlberg Kravis Roberts had pulled out of the auction process, stating they did not want to be used as a “stalking horse” to drive up the price.

APOLLO, BC CREATE GERMAN CABLE COLOSSUS
The merger of German cable companies Iesy and Tele Columbus by their respective private equity owners Apollo Management and BC Partners will create a €3 billion ($3.7 billion) player in the fragmented market. US firm Apollo Management acquired Iesy in 2002 for €420 million and European buyout house BC Partners acquired Tele Columbus in 2003 for €510 million. The merger, which is subject to regulatory approval, also includes Ish, a German cable company that Apollo acquired for €1.6 billion in early 2005. The newly merged entity will be second in size in Germany only to Kabel Deutschland, which is jointly owned by another consortium of private equity firms: Apax Partners, Goldman Sachs Capital Partners and Providence Equity Partners. In March, London-based buyout firm Permira sold more than 40 per cent of its interest in German cable TV firm Premiere through an oversubscribed IPO that valued the company at €2.3 billion.

HOLMES PLACE IBERIA IN SECONDARY MBO
UK-based buyout firms Permira and Bridgepoint have sold the Iberian arm of health and fitness chain Holmes Place to three local private equity firms in a €110m ($136 million) secondary buyout. Spanish private equity firms Mercapital and Nmas1 (which has invested through its listed Dinamia vehicle) and Portuguese private equity firm Explorer Investments clubbed together to acquire an 89 per cent stake in the business with management retaining the remaining 11 per cent. Permira and Bridgepoint acquired Holmes Place in a public-to-private transaction in July 2003, in a £210 million deal that featured a debt facility (including funds for expansion) worth some £175 million. The sale of the Spanish and Portuguese clubs will be used to reduce the company's debt burden. The company says there are no plans to sell the remaining non-UK clubs in the portfolio.