Buyout battle for Ahold unit heats up
NEW YORK, March 8 (Reuters) - Several private equity teams, including a group made up of Bain Capital, Blackstone Group, and Wellspring Capital Management, have bid for the U.S. supply unit of Dutch food company Ahold NV (AHLN.AS) sources said on Thursday, in a deal that could fetch more than $6 billion.
Sources close to the process say that a team of Clayton, Dubilier & Rice (CD&R) and Kohlberg Kravis Roberts & Co. also bid for the unit, called U.S. Foodservice.
Buyout firm Thomas H. Lee Partners is also in the process, but sources say it is unclear who it is teamed up with. First round bids are in, sources say.
Amsterdam-based Ahold, the world's fourth-biggest food retail and food service group by sales, is struggling to get back on track after an accounting scandal in 2003 centered on U.S. Foodservice, which is seen as having few synergies with Ahold's core retail activities of running grocery chains.
U.S. Foodservice, which has 27,000 employees and 70 distribution centers throughout the United States, delivers food to retailers as large as McDonald's Corp. (MCD.N) and as small as neighborhood delis. The business is based in Columbia, Maryland.
Sources said that JPMorgan (JPM.N), the investment bank running the auction, is offering buyers a debt financing package of 7.5 times the company's earnings before interest, taxes, depreciation and amortization, a measure of cash flow. Analysts estimate U.S. Foodservice's 2007 EBITDA to be in the range of 453 million euros to 475 million, or around $600 million.
Assuming that the private equity firms pay at least 25 percent in cash for the company, that could put an estimated price tag on a deal of at least $6 billion.
Buyers can opt out of the financing JPMorgan is offering, and as in any auction, there is no guarantee of a sale.
U.S. Foodservice declined to comment. The private equity firms declined to comment, except for Wellspring, which did not return calls.
Analysts have said a slimmed-down Ahold could pave the way for a merger or alliance with smaller Belgian rival Delhaize.
Private equity firms buy and sell companies or divested units by borrowing most of the money. They typically seek underperforming or undervalued assets, restructure a business through costs cuts and streamlining, and sell it later for a profit.
In the case of U.S. Foodservice, the firms are pursuing a company with strong cash flow and a fairly simple operating plan. Several of the firms already have invested in food suppliers.
New York-based CD&R, for instance, sold a company called Alliant to U.S. Foodservice in 2001. Investors at the firm have been pursuing a buyout of U.S. Foodservice for at least a year, sources say.
Wellspring, which owns restaurant chain Checkers Drive-in Restaurants, Inc., also owns a company called Vistar Corp., formerly Multifoods Distribution Group, Inc., which is now one of the largest food distributors in the United States.
Wellspring is a small private equity firm compared to the rest of the buyout players in the U.S. Foodservice deal. In addition to its investment in Vistar, the firm has strong ties Blackstone.
Boston-based Thomas H. Lee Partners also has an angle into the deal, through food distributor Aramark Corp. THLee and an investor group paid $6.3 billion last year for Aramark, which provides food to sports stadiums, schools and hospitals. (Additional reporting by Foo Yun Chee)
