Kohlberg Kravis Roberts, the US private equity house, has reached agreement with German car manufacturer Daimler-Chrysler over the purchase of MTU Aero Engines, the company’s aerospace and aircraft engine maintenance business.
KKR has declined to disclose the purchase price or financing arrangements for the transaction although media reports have put the price at around E1.45bn, with financing from Commerzbank, CSFB and JP Morgan.
Private equity firms have been circling the aerospace unit since the beginning of the summer, when it emerged that Carlyle, fresh from having acquired Fiat’s aerospace unit Avio, said it was likely to bid for the business. However, it is thought that Carlyle withdrew its interest early on in the bidding process. Other firms reported to have expressed an interest in MTU include The Blackstone Group and Doughty Hanson.
MTU develops and manufactures military and civil aircraft engines and provides service support. Its customers are manufacturers and operators of engines and industrial gas turbines around the world. The business is being sold by DaimlerChrylser as part of its ongoing strategy to dispose of non-core assets. MTU is one of the few remaining assets DaimlerChrysler plans to sell. The business has over 8,300 employees globally and had sales of about E2.2bn last year.
News of the completion of the deal will come as a relief to both KKR and Daimler-Chrysler. Earlier, reports emerged that private equity firms would be thwarted in their attempts to buy the business, due to the German Government’s reservations about a defence asset being sold to a foreign buyer. Chancellor Gerhard Schroder was quoted as saying: “Germany has an interest in keeping our capacities in defence technology – highly specialised in many areas – in Germany rather than having others control it.”
The completion of the transaction is subject to necessary regulatory approvals, which are expected by end of December, 2003. It is also subject to approval by DaimlerChrysler’s Supervisory Board. Johannes Huth, managing director of KKR in London, said in a statement: “We are looking forward to working with MTU to take advantage of the many opportunities for this experienced and innovative company.” KKR declined to comment on its plans for the investment.