Scotia Capital played matchmaker between Kohlberg, Kravis Roberts & Co., and Masonite International Corp. after KKR officials asked Scotia bankers if they had a relationship with the Canadian company. Back in October 2003, KKR representatives met with Scotia bankers to inquire whether the bank could arrange a meeting with Philip Orsino, president and ceo of Masonite. The answer ultimately was yes, according to a circular sent to Masonite shareholders, and following an introductory meeting between Orsino and KKR’s Paul Raether, Scott Nuttall and Tagar Olson, the private-equity firm began a more than year-long courtship of the door-maker.
Fast forward 15 months and Scotia is pitching up to $2.35 billion of fully underwritten high-yield debt at a bank meeting this month in New York to finance KKR’s C$3.1 billion acquisition of Toronto-based Masonite. KKR is forming a company called Stile Acquisition Corp. to buy Masonite’s shares for C$2.275 billion. Stile will also refinance Masonite’s $576 million of bank debt and cover $120 million in fees and expenses related to the transaction. JohnAmbruz, executive v.p., strategic development for Masonite and KKR officials did not return calls.
The deal had its tough moments. According to the circular, Orsino terminated discussions with KKR last March, but talks picked up again in July. Then, in November, KKR became uncomfortable with the declining dollar. That decline prompted the buyout firm to offer C$39 per share, down from C$40-42 per share. Orsino said the company’s board would not accept anything less than C$40 per share and would entertain a price of C$43.50. After some back and forth, KKR came in at C$40.20 per share. KKR though would require management to remain in place and to invest in approximately 5% of the equity of the acquisition vehicle at the same price per share as KKR would pay. Shareholders can vote on the deal on Feb. 18 with two-third majority vote required.
The Scotia debt comprises a $350 million revolver, a $1.175 billion “B” loan and $825 million of junior debt, probably comprising senior subordinated notes. Scotia has committed to provide an unsecured bridge facility of up to $850 million if the note sale does not go ahead.
So far Deutsche Bank, Bank of Montreal, SunTrust Bank and UBS have joined the senior debt. The revolver is expected to have a six-year maturity and the term loan eight years, with pricing of LIBOR plus 2 1/2% on the term debt, however, one banker said terms have not yet been decided. The bridge has pricing of LIBOR plus 6% with pricing increasing by 1% every three months. KKR will put in $575 million of equity into the transaction.