Kohlberg Kravis Roberts & Co., the deep-pocketed buyout firm set to acquire Mannesmann Plastics Machinery AG, plans to hold on to all six MPM companies - and will look for acquisitions, said a managing director of KKR's London office.
``It's the largest plastics machinery group in the world, and we're trying to grow that. We're not into dismantling,'' said Johannes Huth. He characterized New York-based KKR as a patient investor that generally retains existing management and holds acquired companies an average of 71/2 years.
``I think we're really going to keep this for some time,'' he said.
Huth declined to specify how many years KKR has in mind to keep Munich, Germany-based MPM. German machinery sources think KKR will hold MPM for at least two years while the depressed machine market recovers.
But one MPM board member, Henning Scheele, said two years does not seem realistic. Based on the board's talks with KKR, the U.S. owners have a longer time frame, he said.
``We feel two years is too low. It will take longer, more like five years. [Eventually], we are aiming at an [initial public offering]. That is one of our strategic goals, but only as an option,'' said Scheele, who is in charge of human resources.
Huth said that KKR, which since its founding in 1976 has completed more than 100 transactions involving more than $100 billion in total financing, can afford to wait out the depressed machinery conditions, he said.
``We do think there is clearly a cyclical rebound coming in the industry. When you look at more general plastics trends, those are starting to pick up again,'' Huth said in a telephone interview earlier this month from London.
One indication of a rebound is that resin consumption has started to grow.
In the United States, the recession has left too many machines unused, making it hard to sell new equipment. Huth thinks machinery sales eventually will return to their healthy levels of the late 1990s and 2000.
``If that happens, we've made a fabulous investment,'' he said.
MPM generated 2001 sales of 1.2 billion euros ($1.07 billion) from six companies that make Krauss-Maffei, Van Dorn Demag, Demag Ergotech, Netstal, Billion and Berstorff machines. Injection molding machines account for about 80 percent of MPM, which is a 20 percent share of the global market, according to industry estimates.
Acquisitions may come in the future to strengthen MPM's extrusion equipment segment.
``Extrusion is a sector we're going to look at,'' Huth said. ``Another question is, are we going to do more in PET, or handling machinery [such as robots]? There may be some round-out acquisitions we could do.'' The company also may look to increase production in Asia, he said.
In the deal announced July 26, KKR said it was paying Siemens AG $1.7 billion for seven businesses. MPM is the largest of those businesses. Huth called MPM ``really, the core of what we're buying.'' He declined to say how much KKR paid for MPM.
KKR expects regulators to approve the deal by late September.
Last year a German equity group, Apax Partners & Co. Ventures Ltd., was reported to have offered 800 million euros for MPM. That deal fell apart, as the machinery market crumbled and Apax reportedly wanted a lower price.
``We clearly paid less than that,'' Huth said. ``We paid significantly less than 800 million euros.''
Two analysts who cover Siemens agreed that KKR probably got MPM for a good price, and probably will hang onto the machinery companies. The deteriorating market, and the package deal to take seven unwanted businesses from Siemens all at once, combined to make KKR's offer attractive, said James Stettler, who covers Siemens from London for Dresdner Kleinwort Wasserstein, the investment banking division of Dresdner Bank.
Frank Rothauge, an analyst at private bank Sal. Oppenheim in Frankfurt, Germany, thinks KKR will keep the machinery business, although other parts of the acquisition may be sold more quickly.
Huth said the $1.7 billion figure was for 100 percent of the seven businesses. Under the agreement, after KKR bought the units, Siemens and KKR set up a new holding company in Luxembourg called Demag Holding sarl, with Siemens buying a 19 percent stake. Some analysts have questioned why Siemens, which is in a streamlining mode, kept any of it. Huth said Siemens wants to ``have some participation in the upside'' when business rebounds.
Stettler thinks that makes sense: ``The idea is that KKR got a good price and Siemens wants to participate a bit on the upside.''
Meanwhile, Huth stressed that none of MPM is for sale.
``We will not sell part of it,'' he said. That includes the darling Netstal-Maschinen AG, which makes injection presses for packaging and optical discs in NÃ¤fels, Switzerland. Before last year's Apax deal vanished, Swiss billionaire Christoph Blocher was ready to grab Netstal for what was reported to be a princely sum of 500 million Swiss francs ($278 million).
Huth said KKR has not talked to Blocher about Netstal. ``It's not for sale,'' he said.
Blocher did not respond to e-mailed questions.
For now, the 6,300 employees of MPM - two-thirds of them in Germany - are wondering how their world will change under KKR ownership. KKR is the outfit that pioneered the leveraged buyout depicted in the book and movie Barbarians at the Gate, which chronicled KKR's role in the power struggle to control RJR Nabisco in 1988.
More recently, KKR shopping trips have been to Europe. The $1.7 billion Siemens deal was KKR's eighth European purchase. And it was the largest one - for two days, until KKR announced July 28 it was paying $3.56 billion for French plug and switch maker Legrand.
According to KKR literature, each company in its portfolio is independently managed and financed, with its own board of directors that includes KKR people. Cash flow from one company cannot be used for another company. KKR said it takes a long-term view, focusing on cash flow and financial results over a number of years.
Huth said top management at MPM will remain the same.
KKR typically grants key executives an ownership stake. MPM board member Scheele said executives were scheduled to meet Aug. 21 in London to hear KKR's presentation.
``We don't know the conditions yet. We don't know the people who would be considered to participate,'' he said earlier in the week.
Stettler, the London analyst, said executives of the largely German MPM will have to get used to KKR's American-style management. ``They'll definitely come in and try and cut costs very aggressively. The idea is to bring in performance-based pay,'' he said. ``It'll be a big cultural change.''
Stettler, while not speaking specifically about MPM, said German and American mind-sets can clash. In Germany, he said: ``There's a lot of corporate restructuring. Lots to do. The businesses tend to be undermanaged. This is a generalization, but they're run by engineers. The U.S. says, try to make as much money as possible today.''
A leveraged buyout uses borrowed funds - money that has to be paid back. Huth said Siemens agreed to finance part of the deal, known as vendor financing. That is unusual in buyouts, he said.
KKR ownership raises some questions about how MPM companies will be run. So far, employees say the new owners have not notified them about any coming changes in things like travel or research and development. One employee said MPM could face pressure on R&D spending, not from new owners, but because of the poor market. ``This is an issue every competitor has to think about,'' he said.
Two MPM managers in the United States said they do not expect changes in day-to-day operations.
Wilhelm SchrÃ¶der, who heads the largest MPM unit, Krauss-Maffei Kunststofftechnik GmbH, said KKR is committed to letting the machinery companies ``run as they are.''
``Multibrand strategy will be the key to success in the future, as it has been in the past,'' said SchrÃ¶der, who is chairman of the managing board.
KKR has invested in a sprawling range of companies, from KinderCare day-care centers to media giant Primedia Inc. to sporting goods maker Spalding Holdings Corp.
KKR is a newcomer to plastics machinery, but the firm has invested in several plastics processing companies, including packaging makers Owens-Illinois Inc. and AEP Industries Inc., baby products maker Evenflo Co. Inc. and the AlphaGary compounding operations.
An executive at Owens-Illinois countered Stettler's version of a KKR that shakes things up. Things have run smoothly since KKR's $4.68 billion leveraged buyout of the publicly traded, Toledo, Ohio, company in 1987, according to Terry Wilkison, executive vice president and general manager of the plastics group. After spinning off its health-care subsidiary, Owens-Illinois went public again in 1991.
``They've truly allowed us to operate, basically, independently. We meet strategic targets and have strategic plans with them,'' he said.
Wilkison, an O-I veteran, said KKR has encouraged management to add value to the firm, including through acquisitions.
``If the company's being managed well and meeting targets, they don't interfere with you,'' he said.