As Shareholders Okay KKR Deal, FDC Insists Buyout Is on Track

Amid reports about tightening credit, First Data Corp. shareholders today approved the $29 billion sale of their company to private-equity firm Kohlberg Kravis Roberts & Co. According to a First Data release, more than 98% of the shares cast voted in favor of the buyout. Shareholders will get $34.00 in cash per share, a 26% premium over First Data’s share price the last business day before the deal was announced April 2.n
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With the vote, First Data cleared yet another hurdle on the path to the deal’s planned third-quarter closing. The huge leveraged buyout, which includes the sale of $8 billion in high-yield debt securities?often called junk bonds?and $7.2 billion in equity, comes at a time when bank funding for LBOs of public companies by private-equity firms is drawing more scrutiny, partly because of troubles in the subprime mortgage market. Earlier this month, however, First Data chairman and chief executive Henry C. “Ric” Duques assured investors that the KKR buyout was on track. A spokesperson reiterated that position today.n
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“We have committed financing for the deal,” the spokesperson tells Digital Transactions News. “The deal is not contingent on financing, but we have it.” He adds that First Data has not changed its anticipated closing date of some time before the end of the third quarter since announcing the deal.n
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The financial wires have been filled with reports in recent weeks that the wave of LBOs in 2006 and 2007 may have crested because plentiful bank funding for deals led by private-equity firms suddenly has become harder to get due to credit-quality concerns. But KKR’s First Data buyout will happen regardless, according to consultant and former MasterCard executive Steve Mott, principal of Stamford, Conn.-based BetterBuyDesign. “[Recent investor concerns have] more to do with the mechanics and the financing than the viability of the deal,” noting that with First Data’s strong cash flow and high growth potential, “nobody’s going to lose any money.”n
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The most likely impact of a tighter debt market on the First Data LBO would be an accelerated sale of company assets, according to Mott. Payments executives have speculated since April 2 that KKR would sell parts of Greenwood Village, Colo.-based First Data, possibly even its 49% stake in highly profitable merchant acquirer Chase Paymentech Solutions LLC. JPMorgan Chase & Co. owns 51% of Chase Paymentech. A spokesperson for New York City-based KKR did not return a Digital Transactions News call for comment.n
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Another big payment processor in the midst of an LBO, Dallas-based Alliance Data Systems Corp., reported during its second-quarter earnings conference call July 18 that its planned $7.80 billion sale to Blackstone Capital Partners V L.P. is on target. The deal would pay Alliance Data shareholders a 30% premium over the company’s stock price just before it was announced May 17. A stockholder vote is set for Aug. 8, with closing expected in the fourth quarter.n
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According to a proxy Alliance Data sent to shareholders earlier this month, the buyout’s financing plan calls for up to $1.8 billion in equity and $6.6 billion in debt, including $2.2 billion in junk bonds. Alliance Data had just over $1 billion in debt on its books at the end of 2006, including $742 million in long-term debt, the company’s annual report says. Alliance Data chief executive J. Michael Parks told analysts that financing is fully committed.