KUHN CAPITAL Monday, March 19, 2018
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Going, Going, Gone… Private


The majority owners of Omaha-based West Corporation -- the $1.6 billion call center operator (dunning, customer service, sales leads, conference calls, etc.) -- are cashing out with a $4.1 billion offer from private equity players TH Lee and Quadrangle. If this is such a great deal, why are some people unhappy?

In fact, the deal looks like a poster child for going private. Founders Gary and Mary West, owners of 56% of the company’s outstanding shares, will sell 48%, keeping 8% going forward. At about $42.85 per share, their payday is nearly $1.5 billion in cash at close. For them to realize this present value by gradually selling off their shares in the public market would of course be nearly impossible. Doing so could trigger stock price declines and even if the stock declined for other reasons, the owners would still become red meat for class action scammers like Milberg and Lerach. Why take the chance?

As an additional bonus, going private gets the SEC, Sarbanes-Oxley and maybe Eliot Spitzer (“the people’s lawyer” according to his website) off your back.

For the PE firms, West is nearly a lay-up: steady and growing operating cash flow (about $280 million in 2005, up 21% per year since 2003), low debt (only 20% of equity), and a reasonable price (about 10x EBITDA). The PE buyers ought to be able to leverage up to 80% of the $4.1 billion purchase price with bank debt, leaving them owning 92% of the company’s future cash flows for about $760 million.

Even the public shareholders are happy: they get a 16% premium over where the stock was on May 16.

What’s not to like? Well, the public exchanges and stock traders don’t like the deal since they’re losing something to trade, and the regulators don’t like it because they’re losing someone to regulate. Frankly, we don’t like it much either because, at least partly due to an unholy combination of legal and regulatory over-reaching, one of the great engines of middle-class American wealth creation -- the public market -- is increasingly finding itself on the sidelines.

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