Bain Capital Wants to Prove It's Smarter Than Carlyle
(Bloomberg Opinion) -- Bain Capital has put shareholders in Osram Licht AG, a German LED light maker, on the spot.
The U.S. private equity firm is dangling a half-baked takeover bid that would top the 3.7 billion euro ($4 billion) offer tabled by Austria’s AMS AG, a manufacturer of sensors. But there are good reasons to doubt its credibility: Bain has simultaneously lost the support of fellow buyout titan Carlyle Group, which had backed a joint 3.4 billion euro deal in July. Bain has had to pull in another private equity firm, Advent International, as a last-minute substitute.
The original Bain-Carlyle transaction had Osram’s support until AMS bid more. Carlyle’s reluctance to help its former partner get back into the auction says a lot about the risks of this acquisition. Osram is not in good health. Some analysts think AMS has overreached. And a private equity consortium wouldn’t even benefit from the cost savings that an industrial buyer such as AMS could extract from a merger. It needs a very good reason to write a bigger check.
In fairness, the world has changed slightly in recent months, making a higher Bain bid a bit easier to justify. The autos sector served by Osram has rallied since mid-August. And financing conditions for this deal have improved, as AMS has demonstrated with its own offer. A buyout now might be able to raise more debt, and more cheaply, than Bain first envisaged.
Such factors evidently didn’t persuade Carlyle, though.
The snag for shareholders is that Bain and Advent aren’t yet good for the money. Indeed, it’s not even clear at what price they may bid. If the duo was ready to move now, it could probably get away with just matching AMS. Its bid would face fewer obstacles than the one from AMS, which needs a big rights offer to get done.
With a big heave, Bain and Advent might just get something on the table before AMS’s offer expires. They need to get clearance from the German financial regulator while Advent needs to do some due diligence of its own. If they can’t move quickly, Osram shareholders will be loath to let the AMS offer lapse, though there are two reasons why they might.
The first is that Osram’s board thinks the AMS offer and strategy is less good for stakeholders than a Bain-led private equity deal. If investors are serious about their responsibilities as good corporate stewards, they will weigh that seriously alongside the financial value they would receive by taking the Austrian offer. The second reason is that Bain and Advent are unlikely to want to damage their credibility by doing anything than coming back with a strong and generous offer.
It would help investors if they could at least have an indication of the number Bain and Advent have in mind. The duo is talking about a price that is “meaningfully” higher. It’s time now to come clean on the meaning of meaningful, and demonstrate that any such proposal would have solid financing. Otherwise Osram shareholders are being asked to take a massive punt that Carlyle is wrong.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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