McGraw-Edison Co., an Illinois-based maker of electrical, automotive and industrial equipment, agreed to be taken private yesterday in a $1.3 billion transaction that would be one of the largest leveraged buyouts in U.S. corporate history.
Forstmann-Little & Co., a New York-based investment company that specializes in leveraged buyouts, said it would put up about $300 million of the purchase price, with the rest coming from bank loans. Members of McGraw-Edison's top management would likely become part-owners of the company, the firm said.
In a leveraged buyout, a company is purchased with mostly borrowed money using the company's assets as collateral. The loans are then paid back out of the company's cash flow. An investment company and members of management typically are key owners of the company under the new arrangement.
McGraw-Edison said the transaction was worth $59 a share to its current stockholders, a large premium over the company's recent stock price. McGraw-Edison stock jumped 11 to 55 1/2 yesterday following announcement of the planned deal.
"The shareholders are getting a good deal," said Nicholas P. Heymann, an analyst at Drexel Burnham Lambert. "It's a healthy price."
Based in Rolling Meadows, Ill., a suburb of Chicago, McGraw-Edison is an old-line industrial company that makes heavy-duty electrical equipment for use by utilities and commericial customers; a variety of auto parts, including headlights, brakes, dashboard displays and switches; and a number of other products, including fuses, industrial floor-care equipment and lighting devices. Last year, McGraw-Edison had revenue of about $1.7 billion.
"They are not in growth businesses," said Gail Landis, an analyst at Sanford C. Bernstein & Co. "They tend to be in mature industrial businesses."
The company has been undergoing restructuring in recent years, moving out of some consumer-products areas and into more profitable industrial businesses. It suffered financial setbacks during the recession, but analysts said it has been recovering strongly in most areas of its business.
Heymann suggested the company would continue adding and subtracting businesses after it is taken private. He said the company might try to sell its utility-equipment operations, which have suffered from a slowdown in power-plant construction.