Buyout firms may pre-empt Saint-Gobain unit IPO

By Quentin Webb and Nina Sovich

LONDON/PARIS (BestGrowthStock) – Private equity firms could jump in ahead of a planned flotation of Saint Gobain’s (SGOB.PA: ) glass-bottle arm and seek a 4 billion euro-plus deal that would be Europe’s largest post-crisis buyout.

Late on Wednesday, the world’s largest building materials group outlined plans to list the unit, dubbed “Verallia,” in the second quarter of next year at the earliest.

Compagnie De Saint-Gobain SA is squarely focused on supplying parts to build sustainable homes and has flagged the unit, which churns out 25 billion bottles and jars a year, as non-core since 2007.

Saint-Gobain talked solely of a listing, and is consulting with unions about the project in the coming weeks. That might limit its options to pick an alternative route, despite the attractions of shedding 100 percent in one go.

But analysts and people familiar with the matter say major buyout firms could propose a leveraged buyout (LBO) of over 4 billion euros ($5.6 billion) ahead of a listing.

That would be the biggest European LBO since KKR and Co (KKR.N: ) led the $21 billion takeover of Alliance Boots (ABN.UL: ) in 2007, Thomson Reuters data shows — one of private equity’s last epic deals before the credit crisis hit.

The prospect of such a deal underscores a recovery in private equity’s appetite to buy and sell companies in sectors exposed to swings in the economy — aided by a big improvement in the bank and bond funding available to back such takeovers.

OHIO RIVAL

Verallia ranks second only to Ohio-based Owens Illinois Inc (OI.N: ) in producing glass bottles and jars.

Based on trading multiples for peers, Verallia could be worth about 4.4 billion euros including debt, UBS analysts say.

Both Owens and Britain’s Rexam Plc (REX.L: ), the drinks can No. 1, trade at about 6.5 times expected 2010 earnings before interest, tax, depreciation and amortization (EBITDA), UBS reckons.

Credit Suisse puts an enterprise value of about 4 billion euros on the business. Both Swiss banks say the planned IPO could be used to flush out private equity or trade bidders, attracted by the unit’s strong cashflows.

Saint-Gobain did not name any banks that would help it prepare for a listing, but people familiar with the matter say it has previously consulted JPMorgan, BNP Paribas and Bank of America Merrill Lynch about options.

“JUNK” BONDS

Private equity firms that have the financial firepower and packaging industry affinity to do such a deal include Apollo Management LP (APOLO.UL: ), Blackstone Group LP (BX.N: ), CVC (CVC.UL: ) and TPG (TPG.UL: ), people familiar with the matter say.

Some have done preparatory work in recent months, the sources added. The private equity firms either declined to comment or could not be reached for comment by Reuters.

The financial crisis all but curtailed dealmaking in cyclical sectors but private equity firms are starting to buy and sell companies such as Spanish can-maker Mivisa and Dutch chemicals distributor IMCD.

A rebound in acquisition financing has helped, with some bankers now saying a 5 billion-euro deal in Europe is achievable.

Bigger deals are likely to lean heavily on high-yield bonds, rather than just loans. Doughty Hanson & Co (DOUHA.UL: ) recently sold metal packaging firm Impress to Irish entrepreneur Paul Coulson’s Ardagh Glass (ARDG.UL: ), in a 1.7 billion euro deal that Ardagh is funding with “junk” bonds.

($1=.7110 Euro)

(Reporting by Quentin Webb in London and Nina Sovich in Paris; additional reporting by Simon Meads in London and Gilles Guillaume in Paris; editing by David Cowell)

Buyout firms may pre-empt Saint-Gobain unit IPO