New York private equity house Kohlberg Kravis Roberts & Co., is preparing to take its first profits in glass container manufacturer Owens-Illinois Inc. nearly 18 years after buying the company for USD…
New York private equity house Kohlberg Kravis Roberts & Co., is preparing to take its first profits in glass container manufacturer Owens-Illinois Inc. nearly 18 years after buying the company for USD 4.7 billion. Owens-Illinois said 23 November 2004 that KKR plans to sell 25 million of its 36 million shares in a secondary stock offering. The sale would cut KKR“s stake from about 25% to about 8%. The sale will arrive 17 years and nine months after KKR“s leveraged buyout of Owens-Illinois. The 19 parts debt to one part equity financial structure of the March 1987 deal would be inconceivable in today“s more fastidious capital markets. By comparison with some of its other holdings, Owens-Illinois, which KKR bought 11 years after it was founded in 1976, has been a disappointment. KKR paid USD 180 million for the stake, which had a market value of USD 765.4 million based on the 22 November 2004 closing price of USD 21.26 on the New York Stock Exchange. Spread over 17 years, KKR“s 325% unrealized gain equates to a low double-digit compounded annual rate of return. KKR took the company public in December 1991 at USD 11 a share, and the stock reached a historic high of over USD 48 a share in mid-1998. Executives at KKR declined to comment on the upcoming stock sale or about Owens-Illinois. KKR may well have kept its stake because of Owens-Illinois“ asbestos liabilities, which have held down earnings and its share price. Asbestos-related lawsuits and set-asides to satisfy future claims have cost the company hundreds of millions of dollars over the years. In 2003 alone, asbestos took USD 450 million from pretax earnings. However, a bill going through Congress that should cap future asbestos personal injury claims has given a boost to the Owens-Illinois“ share price. The bill would create a trust fund to compensate asbestos victims. The shares have rebounded sharply in 2004 after trading for less than USD 11 in February, below its IPO price. The stock also received a boost from Owens-Illinois“ recent USD 1.2 billion sale of its poorly performing blow-molded plastic container unit to Graham Packaging Co. LP. The unit accounted for about one-third of Owens-Illinois“ USD 6.1 billion in 2003 revenues. “Things are looking a lot better,” Scharf said. “The company“s operating margins and sales volume have improved.” KKR“s sale of Owens-Illinois stock follows a series of realizations dating to mid-2003 that have generated more than USD 7.4 billion in proceeds for KKR and its investors.