Exclusive: KAR suspends sale efforts after talks fail

NEW YORK Tue Nov 13, 2012 7:09pm GMT

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NEW YORK (Reuters) - KAR Auction Services Inc (KAR.N) has ended efforts to sell itself for now, after talks with private equity firm Clayton Dubilier & Rice LLC broke down over price and other deal terms, several people familiar with the matter said.

Shares of the vehicle auction company dropped 6.9 percent to $17.36 on Tuesday, valuing KAR, which is still majority owned by several private equity firms, at roughly $2.4 billion.

KAR had been in talks with bidders since at least this summer about a possible sale, and had entered into advanced discussions with CD&R, the sources said.

CD&R had lined up financing for a deal but Carmel, Indiana-based KAR rejected the price tag and proposed deal terms, they said.

Kelso & Co, Goldman Sachs Capital Partners (GS.N), ValueAct Capital LLC and Parthenon Capital LLC collectively own about 78 percent of KAR.

The firms took KAR private for $3.7 billion in 2007 and relisted the company in 2009, raising $332 million.

KAR's ADESA and rival Manheim, a unit of Atlanta-based Cox Enterprises, together have an estimated 70 percent share of the U.S. used-car wholesale auction market, according to Standard & Poor's.

The main shareholders did not respond to requests for comment. KAR and CD&R declined to comment.

"We believe several fast money accounts may have been invested for a takeout and those accounts are likely exiting shares causing the large decline this morning," CJS Securities analyst Robert Labick wrote in a note on Tuesday.

"We believe this creates an excellent entry point for long-term investors to build positions in an orderly manner," he added.

The collapse of the buyout talks came even as financing remains cheap amid robust U.S. debt markets, allowing private equity buyers to pay top dollar for assets and leading to a rebound in U.S. leveraged buyouts this year.

Still, private equity deal volumes remain much lower than in the heydays of the buyout boom before the financial crisis of 2008, as many companies are still hesitant to sell amid economic uncertainty and volatile markets.

Several private equity firms have also been eyeing exiting investments they made several years ago. Exits through initial public offerings, however, have been harder in the past few months, driving more firms to sell assets to other private equity firms and buyers in the sector.

KAR attracted buyout interest from CD&R, Apollo Global Management (APO.N) and KKR & Co LP (KKR.N), sources have previously told Reuters.

CD&R was seen as the lead bidder for KAR because it already owns BCA, Europe's largest vehicle auction and remarketing company, the sources said.

In addition to a disagreement over price, there was an impediment over a complex structure proposed by CD&R, which did not plan to keep all the diverse business lines within KAR after an acquisition, some sources said.

Private equity was seen as the most likely buyer for KAR, with any buyer in the sector likely to be hampered by tough competition in the used-car wholesale and salvage auction markets.

(Editing by John Wallace, Matthew Lewis and Jeffrey Benkoe)

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