June 2, 2008 3:00 am
Turkey is preparing a law to make private equity acquisitions of Istanbul-listed companies easier, giving a boost to a planned $1.55bn offer by a BC Partners-led consortium to buy out minority shareholders in the Migros supermarket chain.
The offer follows the purchase by the private equity consortium of the Koc group's 50.8 per cent controlling stake in Migros, which closed on Friday.
The deal valued the 1,000-store chain at $3.15bn, Turkey's biggest leveraged buy-out. It is the largest LBO to be announced and closed since the credit crisis made such deals much harder to finance last July, according to Dealogic.
But it could face problems, including from Turkey's political crisis that threatens to close down the governing party, and the currency risk of financing the deal with euro debt. Migros's cash flow is in Turkish lira.
Another worry is that bidders cannot force Turkish minority investors to sell via a so-called squeeze-out. This makes it harder for private equity to transfer debt to a listed target and benefit from the tax-deductibility of interest, a key part of the LBO model.
"You can't do a squeeze-out yet in Turkey, though the government is drafting a law which could potentially allow this," said Mr Stathopoulos, senior partner at BC Partners. He said his London-based group was confident of securing a large percentage of Migros shares following the tender offer. But he insisted the deal was not relying on a de-listing of Migros to be successful.
Whatever the outcome of BC Partners's tender offer, doubts remain whether the Turkish regulator will approve the transfer of debt from the acquisition vehicle. BC Partners leads a consortium that includes Turkven, a Turkish buy-out firm, and DeA Capital, the private equity arm of Italy's De Agostini group
The €1bn ($1.55bn) of debt is being provided by Turkish lenders Garanti Bank, Is Bank, Vakifbank and AkBank, which have been less affected by the credit crisis than many big US and European banks.
Mr Stathopoulos said debt service requirements have been hedged to address the currency risk. He admitted: "When you invest in emerging markets you take currency risk and one way to partially hedge against this as an investor is to wait, so you have to take a longer term view of the investment."
He said Migros, with 14,800 employees and revenues of TL4.5bn ($3.7bn) last year, benefited from its leading position in a country of 70m people.
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