US buyout firm Cerberus has made an €8 billion ($10.7 billion) offer for German chemicals, energy and property group RAG, trumping the German government’s expected proceeds from a stock market flotation by nearly €3 billion, according to media reports.
RAG is a private company owned by utility companies Eon and RWE as well as steel companies ThyssenKrupp and Arcelor-Mittal. The group owns the Degussa chemicals business; Steag, an energy company and property assets. These assets are relatively free of regulation, according to reports. But RAG also manages Germany’s coal interests, ensuring political interest in any sale.
The government supports a complex planned IPO, expected to raise €5.1 billion, proposed by former economics minister and chief executive of RAG Werner Müller.
The Müller plan is to set up a foundation controlling billions of euros in coal liabilities and pensions supported by the government. This foundation would be led by BP executive Wilhelm Bonse-Geuking and would be financed by the float as well as dividends from a 25 percent stake in RAG.
Despite the place the company would occupy in the Dax-30 blue-chip index under the plan, it is felt by many investors that the German government is rejecting a better offer merely because of its prejudice towards the alternative asset class.
Rival chemical group Lanxess has offered about €5 billion for Degussa alone in informal talks, energy company RWE is interested in Steag and buyout firms are said to be attracted by the companies property assets, according to the FT.
Aside from its latest mega deal, the distressed debt specialist is in advanced discussions with a Duke Street Capital-led consortium to buy DIY group Focus for £250 million (€370 million, $493 million), according to a banking source. “It is well into due diligence and if there were to be a deal it would be announced in a week or so,” he added.
The DIY group is owned jointly by Focus founder Bill Archer, with an 11.5 percent stake, global buyout firm Apax Partners, with 30 percent, and Duke Street Capital, with 43 percent. Apax and Duke Street Capital will probably fail to make any money on the sale, although it has been a profitable investment for Duke Street over the years since it first invested in 1987. The price tag is £30 million below the company’s £280 million debt level.
Cerberus could not be immediately reached for comment about either deal