New details have emerged regarding the behind-the-scenes bidding war that led to the massive buyout of First Data Corp.
In a proxy statement filed with the Securities and Exchange Commission Tuesday, the Denver processing company said it had gotten offers from multiple private equity companies before agreeing to sell itself to Kohlberg Kravis Roberts & Co. for $29 billion, or $34 per share.
Henry Kravis, one of KKR's founders, approached James Robinson 3rd, a First Data director, in late November or December to ask whether the company "would be interested in discussing the possibility of an acquisition of First Data at a price per share between $30 and $32," the filing said.
Mr. Robinson told Mr. Kravis that he would discuss the matter with First Data's chairman and chief executive, Henry C. Duques, and on Jan. 17 Mr. Duques notified KKR that he would be interested in a deal at $33 per share.
After a series of discussions and preliminary due diligence efforts, KKR raised its offer to $32.25 per share on March 6.
However, during this period, First Data had solicited bids from other companies, and throughout March it entertained offers from KKR and two other private equity companies "with the most financial capacity that could lead a transaction with the amount of equity investment being contemplated," the proxy said.
The two private equity firms were labeled "Bidder A" and "Bidder B" but not named in the proxy.
On March 11, KKR asked Mr. Duques "to agree to have discussions exclusively with KKR."
By this time, First Data had created a strategic review committee to handle negotiations, and Mr. Duques told KKR that it should "contact the committee with any requests," the proxy said.
On March 21, all three contenders made offers. Bidder A's was for $30 per share; Bidder B matched KKR's March 6 bid, at $32.25; and KKR hiked its bid again, to $33.50.
At this point, Bidder A dropped out, but Bidder B said it would to go up to $33.86, though it "was more interested in participating in a collective bid for First Data."
First Data pressed KKR to go to $34, a price the buyout firm said it would meet in exchange for exclusive negotiating rights until April 1; the next day, First Data agreed.
Additional discussions and due diligence ensued. On March 29 KKR contacted Goldman Sachs and Lehman Brothers to help arrange financing. On April 1, First Data's board unanimously approved the deal, and on Monday, April 2, before trading began at the New York Stock Exchange, First Data issued a press release announcing it.
The $34 per share deal was a 26% premium over First Data's closing stock price on March 30.
(As part of the deal, First Data had 50 days to solicit further offers. This period ended May 22 with no other bid made.)
The deal is expected to close in the third quarter, but either party could walk away if, for some reason, it fails to close by Dec. 20 (or a potential extended deadline of Jan. 31, 2008).
A regulator could also block the deal, the proxy warned.
Barring those circumstances, either company would have to pay a $700 million fee if it terminated the sale. First Data could also be required to pay up to an additional $40 million in expenses to KKR under certain circumstances.
KKR is to put up $7.17 billion of the $29 billion purchase price, and it has received debt commitment letters from Citigroup Global Markets Inc., Credit Suisse, Credit Suisse Securities (USA) LLC, Deutsche Bank AG Cayman Islands Branch, Deutsche Bank Securities Inc., HSBC Bank USA, HSBC Securities Inc., Lehman Commercial Paper Inc., Goldman Sachs Credit Partners LP, and Merrill Lynch Capital Corp.
This financing includes about $16 billion in so-called covenant lite loans - a $14 billion, seven-year term loan and a $2 billion, six-year revolving credit facility. This would be the largest covenant lite term loan ever issued.
Private equity companies have struck several major deals in the banking space this year. The day after the First Data deal was announced, the Milwaukee banking company Marshall & Ilsley Corp. said it had agreed to a $4.25 billion spinoff of its technology subsidiary, Metavante Corp. As part of that transaction, the private-equity firm Warburg Pincus is to pay $625 million for a 25% stake in Metavante.
"The private equity world is in its golden era right now," Mr. Kravis said Tuesday in a speech at the annual meeting of Canada's Venture Capital and Private Equity Association in Halifax, Nova Scotia. "Stars are aligned, there is plenty of capital on one side, and you have a very receptive community of companies."