KKR Defies Market Gloom With Biggest U.K. Deal Since Virus

(Bloomberg) -- KKR & Co. pulled off one of the biggest deals since the coronavirus pandemic roiled markets by agreeing to buy Pennon Group Plc’s waste-management arm Viridor Ltd. for 4.2 billion pounds ($4.9 billion) including debt.

The deal will result in net cash proceeds of about 3.7 billion pounds to Pennon, with an additional consideration of 200 million pounds contingent on future events, Pennon said in a statement on Wednesday. The buyout firm’s infrastructure arm beat out several private equity and infrastructure funds with a fully financed offer early in the auction, said people familiar with the matter, who asked not to be identified because that information was private.

Pennon shares fell 5.4% at 9:26 a.m. Thursday in London, valuing the firm at about $5.2 billion. The benchmark FTSE 100 Index rose 0.2%.

The sale of Viridor comes as dealmaking globally is threatened due to plunging stock markets and tightening credit conditions due to the growing health crisis. The transaction is also a sign that private-equity firms are still willing to deploy their capital on stable assets with predictable cash flows. Blackstone Group Inc. agreed to buy the iQ Student Accommodation business from Goldman Sachs Group Inc. and the Wellcome Trust for $6 billion last month in the largest-ever private real estate deal in the U.K.

Pennon invited non-binding bids for Viridor last week but KKR unexpectedly made a formal offer with committed financing right off the bat, leading to a quicker-than-expected agreement, the people said.

The buyout firm had initially approached the company to buy the unit last year, prompting Pennon to launch a formal sale process, the people said. KKR was keen to do the deal because the firm didn’t have a waste management business in the U.K. and found the sector to be attractive given the rising focus on green energy, the people said.

Viridor had drawn takeover interest from several suitors including KKR after Pennon kicked off a sale process, people familiar with the matter said in February. At about $5 billion, the deal is the biggest carveout of a division from a publicly traded U.K. firm since August 2018, when Whitbread Plc agreed to sell its Costa Ltd. cafe chain to Coca-Cola Co., according to data compiled by Bloomberg.

The Viridor division works with more than 150 local authorities and major corporate clients and has more than 32,000 customers across the U.K., according to its website. It provides recycling, renewable energy and waste management services.

Pennon intends to use proceeds to pay down debt and also return cash to shareholders, it said. It is also planning to announce a new dividend policy for the period from 2020 to 2025 when it reports full-year results on June 4.

Barclays Plc and Morgan Stanley advised Pennon on the sale while RBC Capital and UBS Group AG worked with KKR.

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