The plot thickened this August when Hollywood Entertainment revealed that Leonard Green & Partners is likely to halt its previously announced $888 million (€724 million) buyout of the movierental company. In March, the Los Angeles-based private equity firm signed an agreement to take Hollywood private, paying $14 each for 63.4 million outstanding shares (at time of press, the company's price hovered below $10 on the NASDAQ).
The fate of the Wilsonville, Oregon-based business is a reflection of the state of the US movie-rental industry in general. Videoon- demand and pay-per-view options as well as Internet-based mail-order rental services such as Netflix are quickly seizing market share long held by traditional brick-and-mortar rental chains. In addition, large retailers, particularly Wal- Mart, are capitalising on consumer demand by selling DVDs at deep discount, driving the trend away from renting.
Hollywood Entertainment's hold on the US movie-rental market is second only to Blockbuster's. However, even the Dallas-based industry leader is hurting. In July it projected a 30 percent drop in earnings for 2004, more severe than most analysts were predicting. Blockbuster is calling the rental arena “challenging”.
In its statement to the US Securities and Exchange Commission, Hollywood Entertainment said that Leonard Green had informed the company that, due to industry and market conditions, the firm “believes the financing condition to the completion of the merger will not be satisfied”. UBS had been expected to provide a debt package for the deal, reportedly set at around $1 billion. However, most industry sources and analysts believe that Hollywood Entertainment failed to meet certain financial requirements, freeing the equity and debt providers of their pledges.
Parties on both sides of the agreement have declined to comment on the withdrawal announcement.
Hollywood Entertainment said it is already considering alternatives to the deal, though it did not specify what actions were taken. The company, currently operating more than 1,920 Hollywood Video locations and 600 Game Crazy video game stores, had been considering options, including finding a buyer, after a drop in 2003 net income and losses in two of the past five years.
Leonard Green's planned acquisition of Hollywood Entertainment had been considered a distressed deal, as the company's valuation back in March had been reported at less than five times EBITDA. Though the company's happy ending is far from certain, many industry observers think the deal might still go through if arranged at a lower price.
SATELLITE FRENZY: INTELSAT TO BE SOLD FOR $3BN…
A group of US and UK private equity firms comprising Apax Partners, Apollo Management, Madison Dearborn Partners and Permira have agreed to buy the global satellite company months after it abandoned an IPO attempt. Including approximately $2 billion in debt, the transaction reached roughly $5 billion (€4.1 billion). Intelsat, based in Bermuda, provides communications services to broadcasters, corporations and governments.
… AS KKR FINDS PARTNERS FOR PANAMSAT
New York buyout house Kohlberg Kravis Roberts will sell off more than half of its stake in PanAmSat, the US satellite operator it agreed in April to buy for $3.55 billion (€2.9 billion), to The Carlyle Group and Providence Equity Partners. According to a filing submitted to the US Securities and Exchange Commission, Carlyle and Providence will each buy a 27 percent stake in the former DirectTV subsidiary. KKR, through its affiliated fund Constellation, will hold 44 percent of PanAmSat, with management holding the remaining two percent. PanAmSat operates 29 satellites, 24 of which are wholly owned by the company; the fleet is capable of reaching more than 98 percent of the world's population.
MADISON DEARBORN IN $3.7BN TIMBERLAND DEAL
The Chicago buyout behemoth has agreed to buy paper and forest product assets from Boise Cascade, the owner of office-supply giant OfficeMax. Madison Dearborn Partners is making the purchase through holding company Boise Cascade LLC. Following the transaction, the original Boise Cascade will change its name to OfficeMax. The sale to the private equity firm completes a process begun in the mid-1990s, by which the Boise, Idaho-based company shifted from manufacturing to distribution. The firm owns roughly 2.3 million acres of timberland in the US and eucalyptus land in Brazil.
BLACKSTONE, METALMARK IN $1.75BN HOSPITAL RECAP
Vanguard Health Systems, an operator of acute care hospitals and related healthcare facilities and services is to be recapitalised by the New York buyout giant, and Metalmark Capital (formerly Morgan Stanley Capital). The deal willsee Blackstone purchase a majority equity stake, with Metalmark and management retaining a 30 percent interest going forward. Morgan Stanley Capital formed Vanguard in 1997 and the company operates 16 facilities in Chicago; Phoenix, Arizona; Orange County, California; and San Antonio, Texas.
MOVIE MEGADEAL FOR JP MORGAN, APOLLO
The two private equity firms have agreed to buy AMC Entertainment, a publicly traded movie theatre chain, for $2 billion (€1.6 billion), including the assumption of $399 million in debt. The deal involves $1.67 billion in equity from the two firms and will be transacted through a new entity called Marquee Holdings. JP Morgan Partners, the private equity direct investor of JP Morgan, will own 50.1 percent of the newly private company. Apollo, which already has a stake in the company, will reinvest for the balance of the equity stake.
KKR, DLJ IN $2.2BN PUBLISHING BUYOUT
Kohlberg Kravis Roberts and DLJ Merchant Banking Partners, the private equity division of CSFB, have combined to create a specialist printing and marketing company by integrating DLJ portfolio company Jostens with two new KKR acquisitions – Von Hoffmann, a publisher of educational text books and Arcade Marketing, a printer of sampling products for the cosmetics industry. The newly merged company will then be recapitalised – post-closing, KKR and DLJ will each own 45 percent of the company, with management holding the remaining equity.
BUYOUT KINGS STRIKE $3.65BN POWER DEAL
A private equity consortium comprising The Blackstone Group, Hellman & Friedman, Kohlberg Kravis Roberts and Texas Pacific Group has agreed to purchase power generation company Texas Genco from publicly held CenterPoint Energy. The investor group is making the purchase through GC Power Acquisition, a newly formed entity owned in equal parts by affiliates of each of the sponsoring firms. The transaction is to take place in two parts. In the fourth quarter of 2004, GC Power will acquire a Texas Genco unit that will be formed into own its own coal, lignite and gas-fired generation plants. In the first quarter of 2005, GC Power will purchase the remainder.
CSFB OFFERS HOPE TO TRUMP
As Trump Hotels & Casino Resorts, the group owned by real estate and media tycoon Donald Trump, prepares for bankruptcy, DLJ Merchant Banking Partners has agreed to buy a stake in the company. If the deal goes through, Trump will step down as chief executive officer of publicly traded Trump Hotels and reduce his stake in the company from a controlling position to 25 percent, but he will remain chairman. The plan calls for an injection of $400 million in equity, $70.9 million of which will come from Trump. Initially, DLJ, the private equity arm of Credit Suisse First Boston would have the right to nominate five members of the recapitalised company's board, and Trump would have the right to nominate three.