Laureate's CEO Teaches Buyout 101
Laureate Education's (LAUR) Douglas L. Becker just became the latest CEO to buy out his company with a little help from big investors. The Baltimore education outfit's shares soared on Jan. 29 after news about Becker's $3.1 billion deal.
Becker had built up Laureate, the new name of Sylvan Learning Systems, into a network of campus-based and online universities all over the world. Now he's leading an investor group including Kohlberg Kravis Roberts & Co. (KKR), Citigroup Private Equity, S.A.C. Capital Management, LLC, SPG Partners, Bregal Investments, Caisse de depot et placement du Quebec, Sterling Capital, Makena Capital, Torreal S.A., and Southern Cross Capital. The investors will put in equity, while Citigroup and Goldman Sachs are providing debt financing. They expect their deal to close at the end of the second quarter of 2007, subject to approvals, according to a press release Jan. 28.
Becker had first approached Laureate's board with an offer in September, 2006. After engaging independent financial and legal advisors, the board authorized Becker to begin discussions with other potential financial partners about a higher bid. He made three other offers before reaching an agreement at $60.50 per share. It includes a "go shop" provision, which means that the company can still field other offers over the next 45 days with cooperation from Becker and Laureate management.
Corporate governance experts tend to advocate open bidding processes, which involve competition between multiple parties, as in the best interest of shareholders.
Once his transaction is completed, Becker expects his company to operate as it has in the past. It will remain headquartered in Baltimore and keep its senior management team on board.
After the news investors bid up the stock 11.7% to $60.80 per share near the close of Nasdaq trading Jan. 29.
Becker isn't the only CEO to say lately that private equity investors can help him run his business. Isadore Sharp, chairman and chief executive of the Four Seasons (FS) announced a $3.7 billion buyout of the hotel chain in November which involved his family holding company Triples Holdings, the Saudi Arabian Prince Alwaleed Bin Talal and Microsoft (MSFT) founder Bill Gates. Sharp had said in a conference call that he had his children in mind when he was doing the deal. "I began to think about the advantage of being able to select long-term partners and manage an ownership transition while I continue to be fully engaged in running the business," he'd said in a conference call.
In another recent example, Richard Kinder, the chairman and chief executive of pipeline operator Kinder Morgan (KMI), teamed up with private equity players in May to offer more than $13 billion to take the company private. Yet some shareholders filed suit to stop the deal, which they called inadequate, and the bid had to be raised to $15 billion.
Becker sounds happy so far. "I am very pleased to be joined by an outstanding group of investors, many of whom I have known and worked with in the past," he said in the press release. "These investors are known for partnering with management to help build and grow businesses with sustainable value - they possess extensive international experience, share a long-term view and are capable of investing substantial additional resources."