Buyout spats bruise many, damage trust

By Megan Davies and Jessica Hall

NEW YORK/PHILADELPHIA (Reuters) - Spats over the last remaining leveraged takeovers forged during the private equity boom have mostly been resolved, but Wall Street banks, buyout firms and the companies they target have been left more than a little bruised.

A crucial issue for future deals is private equity firms, banks and buyers finding ways to protect themselves and ensure others can't easily pull out of deals or litigate.

But some of the trust that once existed between major parties in the business is now in doubt.

It seems every banker, lawyer and private equity executive has a war story about deals that have been scuttled, delayed or revamped in the past year.

The private equity buyers are facing up to the idea that they probably overpaid during their zealous shopping sprees for companies in 2006-2007. Some of these investments may now run into trouble in an economic downturn which could be ugly and prolonged, especially given how debt-laden many are following the leveraged takeovers.

The Wall Street banks that financed the deals, meanwhile, had to write down billions in leveraged loans after getting stuck with debt they had trouble syndicating. They may be on the hook for more if companies in deals they financed fail to produce enough cash flow to pay off the debts and need restructuring.

For the shareholders of the companies where takeover-financing collapsed, the situation is already grim as share prices remain well below the original price of the deals.

"Private equity firms, by and large, have come out quite nicely, the banks have taken some hits and overall the sellers came out worse," said Joel Greenberg, partner and co-chair of law firm Kaye Scholer LLP's Corporate and Finance Department.

Deals which collapsed since the global credit crunch set in last year include audio equipment maker Harman International Industries Inc (HAR.N), equipment renter United Rentals Inc (URI.N) and student lender Sallie Mae, formally known as SLM Corp (SLM.N). On Thursday, Penn National Gaming Inc (PENN.O) said its $6.1 billion takeover had been terminated.

LBOs that have yet to close include Huntsman Corp (HUN.N) and Puget Energy Inc PSD.N according to FactSet MergerMetrics.

The deal between Huntsman and its buyers, Apollo Management and its Hexion Specialty Chemicals affiliate, remains locked in a legal battle. Apollo and Hexion have filed lawsuits to try to limit their liability if the deal collapses, while Huntsman has sued for breach of contract, defamation and other charges.

REVAMPED OR EVAPORATED

A few companies managed to renegotiate terms rather than abandon deals, such as the buyouts of Clear Channel Communications (CCU.N) and Canadian telecoms giant BCE Inc. (BCE.TO), which agreed a new deal on Friday.

"Boards never really thought they were signing up for a deal that could just evaporate," said Marilyn Sonnie, partner at law firm Jones Day. "But a lot of them did."

Behind the scenes of the buyout boom fallout were tough negotiations between private equity buyers and the banks as both sides tried to salvage the best outcome for themselves.