Flight to safety - Stocks rout may lead to renegotiation on LBO deals

Stock Rout May Prompt Leveraged-Buyout Renegotiations (Update3)
By Jason Kelly and Ambereen Choudhury

Aug. 10 (Bloomberg) -- The global stock-market decline dented shares of buyout targets including TXU Corp., SLM Corp. and First Data Corp., prompting speculation some deals may go back to the negotiating table.

Private-equity firms that said they would pay high premiums based on cheap debt and guaranteed financing are revising terms. Home Depot Inc., the Atlanta-based home-improvement retailer, said yesterday it may lower the price for the supply unit it agreed to sell in June to a group of buyout firms.

``As the markets get tighter, the companies have to reassess what's the give and what's the get,'' said Paul Schaye, managing partner of New York-based Chestnut Hill Partners, which helps buyout funds find deals. ``Everybody's going to see a little bit of pushback.''

Transactions are stumbling as investors reel from losses in the credit markets related to subprime mortgages. Bond declines have spread to equities, sending the Dow Jones Industrial Average of the largest U.S. stocks down 2.8 percent yesterday, its biggest drop since February. The Dow fell 31.1 points, or 0.23 percent today, after dropping as much as 1.6 percent during the session. In the U.K., the benchmark FTSE 100 Index fell 232.9, or 3.7 percent, to a five-month low of 6,038.3.

``Investors should expect markets to remain volatile over the next few months as events unfold,'' said Edward Bonham Carter, chief executive officer of Jupiter Asset Management Ltd. in London, which oversees about $40 billion in equities.

Deals Slow
Corporate and private-equity buyers have announced a record $3.17 trillion in transactions so far this year, driven in part by $712.6 billion in leveraged buyouts, according to data compiled by Bloomberg. Global mergers and acquisitions may fall this year, according to research by KPMG International.

As investors reject bonds and loans slated to pay for those buyouts, dealmaking is slowing. Companies including London-based Cadbury Schweppes Plc, the world's biggest candy maker, have delayed asset sales. Virgin Media Inc., the U.K.'s second-largest pay-television operator, delayed a sale of the company on Aug. 7 after the stock fell 19 percent in a month.

``We're definitely in a sentiment-driven marketplace and it's the opposite of the sentiment of February and March,'' said Robert Profusek, chairman of mergers and acquisitions at Jones Day in New York. ``I don't think the big deals are in jeopardy. It's just changing the dynamic.''

Ontario Teachers' Pension plan said in a statement today it will stand by the terms of its C$51.7 billion ($49.1 billion) agreement to purchase BCE Inc., Canada's biggest phone company, after the shares fell as much as 4 percent on speculation the deal would falter.
Teachers' and private-equity firms including Providence Equity Partners Inc. said June 30 they would buy the company for C$42.75 a share. The stock dropped 25 cents to $C38.85 today in Toronto.

Shares Fall
Shares of TXU, the top supplier of power in Texas, rose 10 cents today to $63.65 after dropping as much as 3.1 percent, bringing the decline to 5.4 percent since the end of May. Kohlberg Kravis Roberts & Co. and TPG Inc. agreed to buy the Dallas-based company for $69.25 a share. The stock has dropped 6.6 percent in the past month.

SLM Corp., the student-loan provider known as Sallie Mae, fell 95 cents, or 1.9 percent, after declining as much as 4.2 percent. The shares have declined 17 percent from their 2007 peak a month ago. Buyout firms led by J.C. Flowers & Co. of New York agreed in April to buy Reston, Virginia-based SLM for $60 a share.

First Data, which agreed to be taken private by New York- based KKR in April, rose 4 cents to $31.05 after dropping as much as 6.1 percent. The stock has decreased 5.1 percent since July 10. KKR agreed to pay $34 a share.

Representatives of TXU, KKR and J.C. Flowers declined to comment. First Data spokesman Colin Wheeler said the company didn't comment on its stock price and ``remained confident the transaction will close in the third quarter.''

Sallie Mae expects its deal to close in October and the transaction isn't contingent on financing, spokeswoman Martha Holler said.