Yankee Candle Co., a maker of scented candles, agreed to be acquired by Chicago-based Madison Dearborn Partners LLC for $1.4 billion in a buyout that will help fund new stores and products.
Yankee Candle shareholders will receive $34.75 in cash, 21 percent more than Tuesday's closing price of $28.72, the company, based in South Deerfield, Mass., said in a statement Wednesday. The transaction, valued at $1.7 billion including debt, is expected to be completed by the first quarter of 2007.
"The agreement recognizes that Yankee Candle is an excellent company with strong cash flows and growth prospects," said Clifton Robbins, Chief Executive Officer of investment firm Blue Harbour Group, which has about a 10 percent stake in the company. "We applaud Yankee Candle's board on today's very positive development for shareholders."
Yankee Candle put itself up for sale in July at a time when sales to gift stores were dropping and costs for promotions, wax and shipping were rising.
On Wednesday the company, which has more than 19,000 stores in North America and Europe, said third-quarter earnings slid to $14.9 million from $15.4 million a year earlier.
Madison Dearborn, which has bought 16 retail companies, is the second buyout firm to acquire Yankee Candle. Three years ago New York-based buyout firm Forstmann Little & Co. sold its remaining stake in Yankee Candle to Goldman Sachs Group Inc., helping Forstmann post an almost five-fold gain. Forstmann acquired 90 percent of Yankee in April 1998 for $500 million.
Buyout funds try to generate profits through cost cuts and make investments to secure the long-term strategic position of companies they acquire before selling the business after three to five years.
Yankee Candle chief operating officer Bruce Besanko said in an interview the company planned to expand its brand and that of "Illuminations," a candle maker with 15 stores, a catalog and an Internet business, which it bought for $22 million this year.
Shares of Yankee Candle had gained 12 percent this year as of Tuesday compared with the 13 percent gain in the Russell 2000 Index. The company was started in 1969.
Buyout firms with access to cheap financing have announced more than $465 billion of purchases this year. Some have approached company executives with the promise that their businesses can do better as a private company, doing away with analysts' earnings expectations and the costs and regulatory oversight of Sarbanes-Oxley accounting and governance laws.
Madison Dearborn, with 24 investment professionals, raised $6.5 billion for a buyout fund this year. The firm, named after the intersection near its headquarters, prefers to make acquisitions without partners, a practice now popular among the largest buyout firms. Of its last 12 takeovers, only two have been with partners.
"We think Yankee Candle is well positioned for growth," said Rob Selati, a Madison Dearborn managing director, in an interview Wednesday. "We're backing the existing management team."
Yankee Candle shares surged $5.01, or 17 percent, to close at $33.73 Wednesday on the New York Stock Exchange.
Contributing: Courtney Dentch