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Blackstone close to $5.5 billion-plus Gates takeover: sources

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[March 26, 2014]  By Soyoung Kim and Greg Roumeliotis

NEW YORK (Reuters)  Blackstone Group LP <BX.N> is close to a deal to buy industrial conglomerate Gates Global Inc for more than $5.5 billion, people familiar with the matter said, in what would be one of the largest leveraged buyouts so far this year.

The buyout firm is in the final stages of negotiations with Gates' private equity owners, Onex Corp <OCX.TO> and the Canada Pension Plan Investment Board (CPPIB), and the two sides are aiming to finalize an agreement by early next week, the people said on Tuesday.

Blackstone is preparing to do the deal on its own after another buyout firm, TPG Capital Management LP <TPG.UL>, with which it had teamed up to submit a joint bid two weeks ago, decided not to back a higher bid to meet Gates' price expectations, the people said. The pair had bid around $5.4 billion then, one person said.

The final deal price could not be learned, but the transaction is now expected to value the auto parts and building products maker at between $5.5 billion and $6 billion including debt, according to the people.

Blackstone has yet to complete confirmatory due diligence and a deal has yet to be signed, cautioned the people, who asked not to be named because the matter is not public.


Representatives for Blackstone and CPPIB declined to comment, while Onex, TPG and Gates did not immediately respond to requests for comment.

Reuters reported last week that Blackstone was working on a higher takeover bid for Gates after its previous offer was turned down as too low by Onex and CPPIB.

A deal for Gates would mark the second-largest private equity deal reached so far this year following Cerberus Capital Management LP's $9.4 billion merger of its Albertsons supermarket chain with Safeway Inc <SWY.N>, which was announced earlier this month.

Previously known as Tomkins Plc, Gates filed for an IPO in December, more than three years after it was taken private for $5 billion in 2010.

Reuters first reported in November, citing people familiar with the matter, that Onex and CPPIB were seeking to hire banks to explore both an outright sale of Gates to another company and a public offering.

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Blackstone and TPG were among a few buyout firms that were shortlisted to bid for Gates, Reuters reported in January. The two buyout firms later teamed up to pursue a joint bid at TPG's request, but TPG ultimately could not narrow the price gap with sellers.

Denver-based Gates has manufacturing operations in 29 countries. It sells products ranging from power transmission systems to acrylic bathtubs in more than 120 countries.

Gates serves a broad range of sectors, including oil and gas, mining, construction, agriculture, transportation, automotive and manufacturing.

The company generated $2.9 billion in sales and $536 million in adjusted earnings before interest, taxes, depreciation and amortization in the 12 months ended September 28, according to a regulatory filing.

Onex, CPPIB and Tomkins' management invested $2.2 billion as equity when they took Tomkins private for $5 billion, including debt. In September 2012, CPPIB agreed to acquire Tomkins' air distribution division, which makes products for air-conditioning systems, for about $1.1 billion.

(Editing by Steve Orlofsky and Matthew Lewis)

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