Plastics molder Mark IV Industries Inc. has agreed to a $2 billion buyout by a European investment company that will take Mark IV private. BC Partners, an equity firm with offices in Paris, London, Milan, Italy, and Hamburg, Germany, will create MIV Acquisition Corp. to take over Mark IV for $23 per share.
The deal comes less than five months after Amherst, N.Y.-based Mark IV announced it had hired an investment banking firm to study a potential sale or breakup of the company.
"This is a plain-vanilla merger agreement," said Sal Alfiero, Mark IV chairman and chief executive officer, in a May 30 telephone conference. "They're committed to buy; we're committed to sell."
The sale should wrap up by September, with shareholder approval. The purchase price is worth about $1.2 billion in cash and $950,000 in assumed debt. Mark IV management controls about 20 percent of the shares. Alfiero has a 10 percent stake.
Mark IV makes a variety of plastic and nonplastic parts for the automotive and industrial markets, turning out everything from injection molded protective caps for table legs to nylon air-intake manifolds for North American and European automakers.
The company spent $60 million to buy LPI Systemes Moteurs SA of Orbey, France, in 1997, which uses injection molding, blow molding and vibration welding to produce manifolds.
The corporate umbrella also covers Caplugs Division, which injection molds plastic protective caps and valves, diesel engine maker Lombardini and Dayco Products Inc., an automotive belt and hose maker.
Mark IV posted $1.95 billion in annual sales in 1999 and has 16,000 employees in 19 countries.
BC Partners, a private equity firm managing $4.5 billion in funds, is involved in buyouts throughout Europe. Four members of Mark IV's management team will join BC in MIV Acquisition.
"Mark IV is an excellent example of what we look for in an investment opportunity: a market leader, a long and successful operating history with attractive growth prospects and a highly committed and experienced management team," Michel Guillet, managing director of BC Partners' Paris office, said in a written statement.
Alfiero would not specify who will join MIV, but said he will not.
Like many manufacturers, Mark IV has battled low stock prices, with value sinking from a high of $27.775 in October 1997 as Mark IV suffered what Alfiero termed "a couple of years of relatively moribund stock price."
The corporation had bought back a third of its stock through the end of 1999 to try to boost prices, but dropped by Dec. 27 to a 52-week low of $16.50.
Jan. 19, Mark IV announced it had hired Bear, Stearns & Co. Inc. of New York to examine its options, including a possible sale.
Investors immediately responded, pushing the stock to $23.875 and trading more than 1 million shares in one day when its average volume had been 241,000. The stock later settled at about $21.
"The stock did move up in light of that [announcement]," Alfiero said, but added, "This is a time when some companies would just be better off being privately owned."
Mark IV had 42 initial contacts following the announcement and considered four serious options, he said, ranging from the outright sale of the company to selling off some units to pay down debt and continuing operations with the core business.
Breaking up the company offered the best return on the surface, Alfiero said, with analysts estimating the business could see values of $27-$28 per share.
However, taxes and other expenses would have eaten away $4-$5 per share in value, leaving stockholders no better off than if Mark IV sold outright, he said.
"It sounds great when you talk about doing it, but then you get down into the innards of the thing," Alfiero said. "It just became such a complex activity, when framed against the all-cash transaction it just paled.
"We didn't want to spend the rest of our lives liquidating ourselves."
But analysts with New York-based Standard & Poor's have raised concerns over the debt load taken on through the buyout. In addition to refinancing existing debt, BC Partners must borrow funds for its cash portion of the sale.
While Alfiero termed the plan "one of the most underleveraged leveraged buyouts I've ever seen," S&P analyst Daniel R. Di Senso noted the purchase will only increase debt, not pay it off.
"We're already uncomfortable with the level of debt, and now they're going to increase it," he said.
While Mark IV maintained a BB-plus rating for corporate credit and BB-minus for subordinated debt, S&P listed the outlook as "negative" with the potential for a drop in those ratings, Di Senso said.
S&P had placed Mark IV on credit watch in January once the company announced it might put itself up for sale.
"There are signs here that could have an impact on the rating," Di Senso said.
Fitch ICBA of New York also listed Mark IV on its rating alert May 30 as "evolving," noting its standards of BBB-minus for senior subordinated debt and BBB for bank loans could change.
S&P will meet with the new buyer to hear how it plans to settle debts, Di Senso said.