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To: MoneyPenny who wrote (51117)	1/24/2006 7:30:01 AM
From: shades	Respond to of 110194

=DJ FOCUS: Private Equity Rides European Privatization Wave . By Nicole Lee Of DOW JONES NEWSWIRES LONDON (Dow Jones)--European governments are increasingly turning to buyout houses to finance and manage companies that are providing essential public services, from mail delivery to waste incineration. Behind the move to privatize assets and outsource more services previously provided by the state is the growing budgetary pressure European governments are facing, particularly as populations age and the social security burden increases. So although some European politicians remain wary of private equity firms - Franz Muntefering, chairman of Germany's Social Democratic party, famously dismissed the investment giants as asset-stripping "locusts" last year - the privatization trend is likely to create more opportunities for private equity investment. Over the years, private equity has built a strong track record owning and managing European companies and, in the end, "so long as regulation is in place to ensure an asset is not exploited, there's no reason why financial buyers would be viewed negatively relative to a trade buyer," said Neil King, a partner with U.K.-based global private equity firm 3i PLC's (III.LN) infrastructure team. Among the state-owned assets likely to be put up for sale in 2006 are several transport businesses whose steady cash flows are expected to attract private equity investors. Just this week, the Dutch Finance Ministry said it sees no obstacles to privatizing national bus operator Connexxion. London-based 3i is one of several likely bidders for Connexxion, people familiar with the matter said earlier. Also likely to entice private equity bidders is ferry operator Scandlines, owned jointly by the Danish government and by German state-owned railway operator Deutsche Bahn AG (DBU.YY). The company, reportedly valued at up to EUR800 million, is expected to kick off the sales process in the next quarter. Aside from transport, other state-owned assets that could draw private equity firms include Europe's gas and electricity networks, said Hugo Peek, managing director, power and utilities, at ABN Amro Corporate Finance, part of Dutch bank ABN Amro Holding NV (ABN). The value of these deals could be in the tens of billions of euros, he estimated. "Some governments - for example, the Dutch - believe that to prevent utilities from using their ownership of these networks to cross-subsidize their commercial activities, they need to demerge the utilities," Peek said. "Privatizing the grids is a next step - and private equity parties are considered to be neutral parties who wouldn't have that conflict of interest." Cash-Rich Private Equity Firms Can Offer Higher Prices One reason why private equity firms are increasingly welcomed as buyers of state-owned assets is because these cash-rich firms can afford to pay higher prices. Just this month, three private equity firms - European house CVC Capital Partners (CVC.YY), U.S.-based Kohlberg Kravis Roberts & Co. (KKR.XX), and Dutch investment firm Oranje-Nassau Groep B.V. - outbid a corporate buyer, Spanish building group Fomento de Construcciones y Contratas SA, to snap up Rotterdam-owned Dutch waste-management company AVR for EUR1.4 billion including debt. CVC last June fended off a rival bid from Dutch postal and logistics company TNT (TP) to buy a 22% stake in state-owned Post Danmark A/S for 1.27 billion Danish kroner, in the first-ever private equity investment in a European national postal operator. As buyout firms have raised multi-billion-dollar funds, "the transaction size they vie for has risen considerably and the price levels private equity can afford to pay are very attractive to sellers," said ABN Amro's Peek. ABN Amro advised KKR and Oranje-Nassau in the AVR transaction. European governments are also more accustomed to private equity's standard method of using leveraged finance to boost returns, and are comfortable with leverage as long as it can be shown that such financial engineering doesn't harm buyout firms' ability to invest in and maintain those businesses, he said. European governments understand that "private equity firms focus on value creation, not simply cost-cutting - and they generate jobs by supporting management teams to create more efficient companies able to accelerate growth," said Rob Oudman, director of corporate finance at French bank BNP Paribas. BNP Paribas advised CVC in the AVR transaction. It isn't just governments that seem to be won over by private equity's financial firepower. Sometimes, as in the AVR deal, management and even labor representatives come to favor a buyout over an offer from a corporate buyer. "The management and labor representatives shifted from wanting a strategic buyer to wanting a private equity buyer because they thought there would be more opportunities to expand and have management responsibilities with a financial buyer rather than by becoming a subsidiary of a strategic partner," said Wim Van Sluis, alderman of economic affairs, ports, labor, environment and physical infrastructure at the Rotterdam municipal authority.