Shareholders vote to take Aramark private - a second time

$6.3 billion buyout bid for foodservice firm led by CEO is overwhelmingly approved

December 21, 2006|By MCCLATCHY-TRIBUNE

PHILADELPHIA -- Aramark Corp., the largest U.S.-based foodservice company, will be taken private after shareholders overwhelmingly approved a $6.3 billion buyout bid yesterday.

It marked the second time that a group of investors led by chairman and chief executive Joseph Neubauer moved to take Aramark off the stock market. The first time, in 1984, was to thwart a "hostile takeover attempt that could have been the end of the company," Neubauer told a meeting of shareholders in Philadelphia.

This time, Neubauer and the investors think going private can create more value for the business than was reflected by Wall Street in its stock price.

Of 606 million votes cast - mostly by proxy - 592 million, or 97 percent, supported the bid to put Aramark in private hands. Fewer than 100 attended the shareholder meeting.

The purchase price, approved by Aramark's board in August, of $33.80 per share represents a 20 percent premium above Aramark's closing price on April 28 - the last trading day before the buyout proposal was announced on May 1.

The company most recently went public at $23 a share on Dec. 11, 2001. Since then, the stock price averaged $25.26 until April 28.

"We didn't feel the company and its owners were being fully rewarded," Neubauer said, in a statement to shareholders at the Marriott. "Our predictability, stability and historically strong cash flows provide us options - options we are willing to examine, explore and execute," he said.

"As a private company, we believe Aramark's economic value will be more directly aligned with our performance."

Private-equity firms involved with Neubauer in the Aramark deal are GS Capital Partners, CCMP Capital Advisors, J.P. Morgan Partners, Thomas H. Lee Partners and Warburg Pincus LLC. The group will assume $2 billion of Aramark debt as part of the deal, which is expected to close at the end of January.

Shareholder Glover Powell, 44, a tax preparer and former Aramark employee, attended the shareholder meeting. "The buyout is going to be good for the existing shareholders because I don't think the markets truly reflected the value that Aramark brings," he said. "I came to exercise my vote" in favor of the deal.

Neubauer, 65, whose stake in the company he has headed for 23 years is worth $808 million under the deal, has agreed to roll shares worth up to $250 million into the private company. The remainder of his 23.9 million shares, as of August, would be cashed out for more than $500 million. Neubauer and other Aramark executives are expected to stay at the company.

Aramark, which began in 1936 as a seller of peanuts, now sells food in sports venues, convention centers, school districts and universities and hospitals. It also operates hotels and restaurants in national parks.

Aramark, with clients in 18 countries, 240,000 employees and annual sales of $11.6 billion, began in the 1930s "with a few vending machines in Southern California," Neubauer said.

In 1959, the company "needed more public equity to fuel growth through acquisitions" and went public for the next quarter century, its shares trading on the New York Stock Exchange.

In 1984, Neubauer led a management buyout of Aramark, then known as ARA Services, for $889 million. But in 2001, "facing an important liquidity and growth challenge," Neubauer said, the company went public again, raising $743 million.

"Recently, we've seen a rise in private ownership" and companies going private, said Harbir Singh, a management professor at the University of Pennsylvania's Wharton School. Leveraged buyouts appeal to companies with "stable cash flows" and "not a significant need for new capital - and if the management team believes there's a higher valuation down the road that they can generate," Singh said.

Another reason is entrepreneurial. "The management group and investor group can take significant equity positions in the company and thereby participate more in the upside," Singh said.

In Aramark's case, "they have done this before so they probably know that they can do it again successfully," Singh said.

Aramark shares closed up 11 cents to $33.46 on the New York Stock Exchange.

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