The barbarians are going for even bigger gates [Update]

As reported yesterday, Kohlberg Kravis Roberts (KKR), one of the biggest private equity groups in the world, offered 40bn EUR (51bn USD) to take over Vivendi, the French entertainment and telecommunications group. Although sources close to the talks said that the negotiations were “dead and not coming back”, this deal would represent the biggest buy-out transaction ever if completed.

Just a few months ago, we discussed the biggest buy-out to date in our finance classes here at INSEAD – the 31bn USD take over of RJR Nabisco, an American tobacco and food conglomerate, a deal portrayed in the highly acclaimed book Barbarians at the Gate and a TV movie by the same name. What’s remarkable about this deal is that it remained the biggest leveraged buy-out deal for almost 18 years, only to be surpassed in July of this year, when a deal was announced to take over HCA, the largest operator of hospitals in the US, in a 33bn USD transaction (including debt). In all of these deals, KKR was the lead investor.

Where will it all end? Although private equity firms are experiencing increasing competition and governments around the world seemed determined to increase the level of regulation significantly, some have suggested that only the sky is the limit. Dan Primack, editor of the daily newsletter PE Week Wire, believes that 80bn USD are a reasonable ceiling for future LBOs, while both the Financial Times and BusinessWeek suggest that even Microsoft, one of the biggest companies by market capitalization, could become a suitable LBO target.

Interesting times ahead.

Update: Although the HCA deal finally closed on November 17 for $33bn, it is no longer the biggest LBO ever: The Blackstone Group, another PE firm, just announced the take-over of Equity Office Properties Trust, a Chicago-based real-estate management group, in a deal valued at $36bn.


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