CD&R takes ServiceMaster private for $5.5bn

The US buyout group has board approval to de-list ServiceMaster in one of the largest single-sponsor public to privates, although the three lending banks on the deal have each taken a small slice of equity.

Clayton, Dubilier & Rice is taking ServiceMaster Company, a domestic and commercial services business, off the New York stock exchange for a total enterprise value of approximately $5.5 billion (€4.13 billion), including existing debt.
The US buyout firm is putting up about $800 million in equity, with $600 million coming from its seventh fund and the remainder from investors in the firm’s co-investment fund, according to one source familiar with the deal.

The total equity in the deal is expected to be about $1.4 billion once investments by Banc of America Capital Investors, Citigroup Private Equity and JPMorgan are added. The three US banks are also providing debt for the transaction, which offers ServiceMaster’s stockholders $15.625 in cash for each outstanding share.

This is a premium of approximately 16 percent over ServiceMaster’s closing share price of $13.47 on 16 March and of approximately 31 percent over the closing share price of $11.90 on 27 November last year, when the company said it was exploring strategic alternatives.

Shareholders will vote on the proposed merger at a special meeting which the company currently expects to be held during the second quarter.

Donald Gogel, chief executive officer of CD&R, said: “We believe the company will be better positioned as a non-public enterprise to pursue management’s long-term growth plans and to further enhance its attractive collection of market-leading service businesses.”

The source said ServiceMaster could “continue to do the things it needs to do outside of the tyranny of quarterly earnings game.”

After completion of the transaction, Clayton, Dubilier & Rice announced that George Tamke, CD&R’s operating partner, will become chairman of the ServiceMaster board. Tamke is former co-chief executive of Emerson Electric and previously served as the lead operating partner for CD&R investments in Kinko’s, Culligan and HertzJ. Patrick Spainhour will continue as ServiceMaster’s chief executive.

Morgan Stanley and Goldman Sachs acted as financial advisors to ServiceMaster. Both firms as well as Greenhill provided fairness opinions to the ServiceMaster board.

Banc of America, Citigroup Global Markets, JPMorgan and Wachovia Securities provided strategic advisory services to CD&R. Debevoise & Plimpton is acting as legal advisor to CD&R.