July 19th, 2010
Candover looks for salvation
Candover looks for salvation: WSJ 16.07.10 Hester Plumridge
Candover Investments shareholders have had a terrible crisis—and it isn't over yet. The U.K.-listed private-equity group's shares have fallen 70% from their 2008 peak. Now bondholders have dashed hopes of a takeover by Alberta Investment Management Corp. at a premium of some 50% to the current share price. The Canadian pension fund was offering close to Candover's December 2009 net asset value of 1,038 pence ($1.604) a share on condition it didn't have to repay £194 million in bonds. Equity investors are left with a dilemma.
Candover's bonds have been at the heart of its troubles. It raised the debt in 2007 to help fund a €1 billion ($1.29 billion) commitment to its 2008 buyout fund, the first time it had tapped the bond markets. But when the markets turned, Candover was forced to make write-downs on its investments, leaving it close to breaching covenants. It was forced to close the 2008 fund early with just one investment.
Candover's stand-alone options aren't appealing. Given its track record, it is unlikely to be able to raise new funds or make new investments. That leaves its management with little to do except gradually sell off its current portfolio and return the cash to shareholders.
With the shares currently trading at a 35% discount to net asset value, this strategy does offer some upside—at least on paper. Asset values are rising. On Thursday, Candover sold Belgian hygiene-products manufacturer Ontex for €1.2 billion, close to its December 2009 valuation—albeit at a 30% loss on its initial investment. It is currently in discussions about a sale of Spanish theme-park operator Parques Reunidos.
Even so, shareholders can't be sure they will get back net asset value from a portfolio realization, given the uncertainty over markets, the timing of disposals and Candover's ability to retain management. Their best bet is to hope that Alberta Investment or some other bidder returns with a new offer. But if buyers are denied the leverage provided by bondholders, investors will have to settle for less.
Write to Hester Plumridge at Hester.Plumridge@dowjones.com