Stub equity refers to practice of letting public shareholders continue to own equity in company that is taken private (an equity rollover)

• Used in some recent European going private deals

• e.g., Apollo Management's offer for Countrywide plc,
  a UK real estate firm

• Offered by KKR in Harman International (Pending)
• Added to buyout of Clear Channel (Pending)

• Click through above links for detail, including direct access to deal terms

Stub equity can address shareholder complaints
that takeover price is too low

• Some institutional shareholders may not be able to participate because of restrictions on their ability to hold illiquid investments

Public stockholders can elect not to cash out

• Can exchange some or all of their CCU shares for shares in the newly incorporated acquisition company

• For up to 30% of post-merger equity,
  subject to proration
• Up to $1.2B of post-merger equity
  (when valued at $39.20 per share)
• Stub equity will be SEC-registered but won't be exchange listed

• Bain / TH Lee - sponsored deal
• For more on this deal, see Clear Channel

Merger agreement provisions

• Select amended sections of merger agreement

• 3.01(b)  Merger consideration
• 3.01(c)  Election procedures
• 3.01(g)  Proration
• 3.03      Treatment of stock options
• 3.09      Additional consideration

Registration statement  

• Form S-4  5.30.07  

• Table of contents

Public stockholders can elect not to cash out

• Can exchange some or all of their HAR shares for shares in the newly incorporated acquisition company

• For up to 27% of post-merger equity,
  subject to proration
• Up to 8.3mm shares representing $1B of post-merger equity (when valued at $120 per share)

• KKR-sponsored deal
• For more on this deal, see Harman International

Company founder to take 50% cash / 50% roll-over

• Sidney Harman 13D amendment 4.27.07
• Election agreement

Merger agreement provisions

• Section 2.01(a)  Merger consideration
• Section 2.02      Election procedures
• Section 2.03      Proration

KKR recapitalizations

• KKR used stub equity in at least two deals in the 1990s

• KinderCare

• Form S-4  1.07.97

• Amphenol

• Form S-4  4.15.97

• Bruno's Inc

• Form 8-K  4.27.95
• Schedule 13D  4.28.95
• 13D Amendment #1 5.19.95
• Form S-4  7.17.95
• Definitive proxy statement 7.18.95
• 13D Amendment #2 5.19.95

• These S-4 filings include deal documents,
  but are in older EDGAR format
• Stub equity may have been used in these deals to achieve leveraged recap accounting treatment

Law Firms

• Weil Gotshal  June 2007
• Stikeman Elliott  June 2007

Private Equity