Lion Capital and Blackstone Group want to prevent third round bidding for Orangina while ensuring that they were not overpaying.
Analysis of Lion Capital and Blackstone Partnership:
Both Lion Capital and Blackstone are motivated by a strategic partnership because:
* Lion Capital would be able to participate in a larger deal, such as Orangina thus circumventing the 30% exposure limit. The partnership would also bring credibility to Lion Capital and help in its future marketing efforts (The Alllied Domecq episode proved this) * Blackstone’s London team lacked the experience within the beverage industry. Blackstone would now have access to experts at Lion (Javier Ferran) within the consumer space who will help them in the due diligence process. The team at Lion’s has enjoyed significant past successes within the consumer sector and have experience in developing strong consumer brands. This ensures that a successful turnaround of Orangina is possible. * A partnership will also help lower financial risk for both parties. Further since they have worked together on the Allied Domecq deal they have a very good rapport with each other.
As an equal partner, Lion faces the risk of being exposed to Orangina’s huge debt burden. Further because of the huge equity, Lion capital would need to syndicate the difference between the exposure limit and €300MM. Blackstone faces a risk of being persuaded by a “bullish” team at Lion into paying a high price for Orangina and not being able to attract higher returns.
The Orangina deal is attractive because it provides an opportunity to create value from a mismanaged company through: * Cost reduction through better integration of corporate functions and streamlining operations. Price protection for sugar would yield savings from 2008. From Exh 8b, we see that Coca Cola’s EBITDA CAGR (‘02-‘05) has been 26%. This means that there are plenty of avenues for cost optimization at Orangina,...