KKR bid heats up auction for Australia Leighton unit
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KKR's entry into the NextGen sale pits it against rival Providence Equity Partners and Australian telecommunications group TPG Telecom Ltd and underscores buyout firms' strong interest in one of Asia-Pacific's busiest private equity markets.
Several private equity deals have stalled this year in the region's fourth-largest economy, however, dogged by valuation issues as the regional economy and markets sagged, although Leighton's need to pay down debt is expected to bolster the chances of this deal going through.
Leighton, controlled by Spain's ACS SA, is selling the intercity fibre-optic business, known as NextGen, and two smaller data businesses Metronode and Infoplex.
KKR, Providence and Leighton declined to comment. TPG Telecom was not available for an immediate comment. The source declined to be identified as the sale process was confidential.
Australia has seen some of Asia-Pacific's biggest leveraged buyouts in recent years but its private equity-backed M&A volumes fell by more than half to $2.5 billion for the first three quarters of 2012, compared with $5.3 billion in the year earlier period, Thomson Reuters data shows. Australia is Asia's fourth-biggest private equity market by deal volumes, according to the data.
Deals that got derailed this year include Pacific Equity Partners' A$1.4 billion sale of its share registry business Link Group, TPG Capital Management LP's and Bain Capital's bids for listed surfwear maker Billabong International, and Brambles Ltd's cancelled sale of its $2 billion Recall information management business, which had attracted interest from buyout firms.
But some deals are still in the works. Blackstone Group is in talks to buy Ingham Chickens in a potential $1.5 billion buyout, according to a source with direct knowledge of the situation. Blackstone has declined to comment on the talks and Ingham has declined to disclose details regarding bidders.
Citigroup analysts estimate the sale of Leighton's NextGen business could bring in up to A$870 million, while Morgan Stanley expects a sale price between A$625 million and A$750 million. Leighton has $295 million of debt maturing in July 2014, according to Thomson Reuters data.
Private equity interest in NextGen comes at a time when the Leighton unit has been recording strong growth in its core earnings. Its earnings before interest and tax (EBIT) have more than quadrupled since fiscal year 2009, according to Morgan Stanley analysts.
It was not immediately clear who else may be among the short-listed bidders but industry analysts have said Australian telecommunications firm TPG Telecom was a likely contender. Senior TPG officials have not denied their interest in the sale.
"There are strict confidentiality agreements which don't allow us to disclose anything about that, but it will be an interesting process," TPG Chief Financial Officer Stephen Banfield told a shareholders' meeting last week.
Analysts said TPG Telecom was the only domestic telecoms firm that could buy NextGen and gain synergies in its fibre infrastructure network.
Macquarie Group is advising Leighton on the sale.
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