CJ CheilJedang Corp. is seeking to join hands with private fund management firm JKL Partners Inc. to acquire U.S. frozen food firm Schwan's Co. The two companies discussed 600 billion won (US$531.21 million) worth of joint investment last year, but the talks came to a rupture. However, they have resumed negotiations.
CJ CheilJedang has recently proposed that JKL Partners invest 200 billion won (US$177.07 million), which is equivalent to a 10 percent stake in Schwan's, according to investment banking (IB) industry sources on March 7.
JKL Partners’ participation is expected to take the form of a mezzanine investment, which refers to an investment in products sitting between bonds and securities. JKL Partners is expected to withdraw its investment through the listing of Schwan's on the stock market.
The two companies discussed the joint investment worth 600 billion won (US$531.21 million) last year but the deal fell through due to differences over the offering price decision rights for the listing and other issues.
CJ CheilJedang apparently resumed the talks to prevent the fall of its credit rating. CJ Group’s debt has been on the rise due to a series of mergers and acquisitions (M&As) it has undertaken. CJ CheilJedang saw its consolidated net debts reach 7.30 trillion won (US$6.46 billion) as of the third quarter last year. South Korea’s major credit rating agencies have hinted that the company’s credit rating will be downgraded when it takes over Schwan's.
CJ CheilJedang has recently lowered the acquisition cost by 200 billion won (US$177.07 million) to 1.88 trillion won (US$1.66 billion) by reducing the stake purchase from 80 percent to 70 percent. The company plans to raise 560 billion won (US$495.79 million) from U.S.-based Mizuho Bank through acquisition financing and 400 billion won (US$354.14 million) from capital gains from the sale of CJ Healthcare Corp. For the remaining 900 billion won (US$796.81 million), 500 billion won (US$442.67 million) will come from the funds raised through the corporate bond issue in January, 200 billion won (US$177.07 million) from JKL Partners and the remainder from its cashable assets and short-term financial products.
When the investment is resumed, NH Investment & Securities Co, which issued a letter of commitment with JKL Partners last year, is also forecast to join the deal. However, it is uncertain what decisions 19 investors, such as the Korean Teachers' Credit Union that considered participating in the deal through JKL Partners last year, will make.