Sources have told The Wall Street Journal’s Mike Spector that The Blackstone Group L.P. (NYSE:BX) has finalized a deal to buy Gates Global Inc. for approximately $5.4 billion. That deal could be officially announced as early as today, and it would be the second-biggest private-equity acquisition already this year. The first largest is Cerberus Capital Management’s $9.4 billion deal to buy Safeway Inc. (NYSE:SWY) and merge it with Albertsons.
Blackstone’s announcement could be delayed
The sources also said The Blackstone Group L.P. (NYSE:BX) is still in the process of negotiating with ONEX Corporation (TSE:OCX), which owns Gates Global. The parties have also been reportedly negotiating with the Canada Pension Plan Investment Board. Those negotiations have been said to be going on for weeks.
This would be the second attempt by The Blackstone Group L.P. (NYSE:BX) to buy Gates Global, as in March, both Blackstone joined with its rival TPG to make another bid. TPG ended up passing on the deal, as it expressed concerns about being part of a large buyout group in such a large takeover.
How Blackstone’s offer could be structured
According to The Wall Street Journal, the buyout group this time around is expected to place approximately $1.6 billion in cash into the offer. This would be one of the biggest equity checks in a private-equity buyout over the last several years. They would then finance the rest of the buyout. The sources did not state which other parties would be investing along with The Blackstone Group L.P. (NYSE:BX). Most of those other partners, however, are expected to be limited partners which already invest in Blackstone’s funds.
The source said The Blackstone Group L.P. (NYSE:BX) is interested in buying Gates Global, which makes auto parts, because it wants to take advantage of growing economies, especially in overseas markets like China. Many drivers are expected to need replacement parts for their vehicles after owning them for several years. In addition, Blackstone could also try to use the other industrial companies it already owns to improve Gates Global’s operations.
Gates Global weighs options
The rallying stock markets have led the ONEX Corporation (TSE:OCX) to consider the best course of action with Gates’ future. Private-equity owners have been considering whether they should sell companies or take them public through an initial public offering. Gates recently hired Goldman Sachs Group Inc (NYSE:GS) to consider the possibilities and decide which of the two courses of action to take.
If they choose an IPO, the value of auto parts supplier could be more than $5.5 billion. The share sales would then have to be timed correctly in order to maximize returns. On the other hand, if the owners sell the company, they could see a lower price but good profits and immediate cash.