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Lion Capital and the Blackstone Group: The
Orangina Deal
On the rainy London evening of Thursday, November 17, 2005, two men waited for a phone call. Although this was happening all over the city, the situation and the stakes were different here. Lyndon Lea, managing partner of Lion Capital, and David Blitzer, a senior managing director at the Blackstone Group’s London office, wanted to offer to Todd Stitzer, CEO of Cadbury Schweppes, a deal that might make everyone’s life much easier. The night before, they’d been told Stitzer would see them that day. Day was slipping into night, and there had been no call. Lea at Lion, formerly Hicks, Muse Europe, had just closed an €820 million fund. He had partnered with the London office of U.S.-based Blackstone, which had raised over $14 billion for private equity investing in its history,1 in an auction for Cadbury Schweppes European Beverages (known for the purposes of this case as Orangina). Along with the Orangina drink in its distinctive bulbous bottle, the European division of the Cadbury Schweppes global confectionary and beverage company owned such brands as Apollinaris water, Schweppes tonic and soda water, and a host of regional brands. According to rumors on the street, it had long been “about” to be sold. Cadbury had finally made its divestiture intentions official in September 2005. Since then, the Lion-Blackstone consortium had gone through two rounds of bidding as the pool of contenders fell from 40 to seven to three. Orangina had the potential to be a signature deal for both firms: the first consumer deal for Blackstone’s London office and an important win for newly formed Lion, signaling its arrival in the realm of iconic brands with billion-euro price tags. Both firms, however, needed to avoid a third round of bidding. They were at the upper range of their valuation, especially as Orangina’s sales had been falling for the past five years. In addition, another round would likely see their opponents combine, greatly reducing the chance that they themselves would win the deal. The two investors had wrangled this meeting with Stitzer in hopes that they could offer him their own best price in exchange for certainty. It was a high-stakes gamble. Would their offer be enough? Would the meeting even occur?

1 Blackstone had raised funds for a large number of investment purposes. As of November 2005, its private equity group had raised $14.6 billion including a communications fund; at the time, the firm was raising Blackstone Capital Partners V, which ended up closing in August 2007 at a record $21.7 billion.

________________________________________________________________________________________________________________ Professors Felda Hardymon and Josh Lerner and Research Associate Ann Leamon prepared this case. HBS cases are developed solely as the basis for class discussion. Some numbers have been disguised. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2006–2008 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

This document is authorized for use only in MBA40 - Corporate Finance 2 by Renzo Cenciarini, at Bocconi University from January 2015 to July 2015.

For exclusive use at Bocconi University, 2015

Lion Capital and the Blackstone Group: The Orangina Deal

European Private Equity2
European private equity historically tended to favor buyouts over venture investing, a trend very apparent in 2005 (see Exhibit 1a for commitments to venture and buyout funds and Exhibits 1b and 1c for investment activity). Investment banks had money available to lend, both because they had become more comfortable with the lending for private equity investments and because such activity had been immensely profitable. Buyout firms had raised huge funds after a very successful investment cycle. Finally, profit-seeking shareholders, the demographics of aging owners, and the European Union’s anti-trust regulations combined to break up the old conglomerates. Due to antitrust rules, strategic investors often found it difficult to purchase these entities, providing an additional opportunity for private equity firms.

By 2005, buyout activity and prices had recovered from the pummeling of the 2001 NASDAQ slump to new records, with the European3 total for the year looking likely to hit a new record of €120 billion in value and close to 1,300 deals, compared with 2004’s €80.1 billion in value and 1,272 deals.4 The U.K. was expected to account for over half of the number of deals (663), but slightly less than one-third of the value (€35 billion), as had been the case for a number of years. France and Germany traded off the second- and third-place positions; in 2005 it appeared that France would best its neighbor both in activity and in monies disbursed.5 Propelled by increased fund sizes, more private equity firms, and bank eagerness, the average deal size had soared from €85 million to €128 million in Continental Europe and from €43 million to €53 million in the United Kingdom.6 The increasing availability of leverage had contributed to this activity. Some observers had voiced concerns that increased leverage (that for deals in excess of €500 million had reached 5.9x EBITDA, compared with 4.7x in the United States) might put the market at risk.7 In addition, total equity committed by buyout firms had fallen to 31% of the deal’s price, compared with levels exceeding 35% over the previous five years.8 But these worries notwithstanding, a syndicated €1.475 billion debt package for Yellow Brick Road, a yellow-pages operator, had no trouble raising bank interest despite total leverage of 9.2x 2005 EBITDA.9

A number of other factors also combined to increase buyout activity. For one, there were more players. Big American firms such as Carlyle and Blackstone had set up European offices, and by mid2004, U.S.-based funds represented 26% of the private equity deals done in Europe (by value), up from 12% in 2002.10

2 Some background for this section was drawn from Hardymon, Lerner, and Leamon, “Montagu Private Equity,” HBS Case

No. 804-051, pp. 2–3.
3 “European” refers to both the Continent and the U.K.
4 Data from Centre for Management Buyout Research,, accessed July 18, 2006. 5 Data from Centre for Management Buyout Research,, accessed June 9, 2006. 6 Data from Centre for Management Buyout Research,, accessed June 9, 2006. 7 Matthew Craft, “LBO Firms Push the Leverage in Europe,” Corporate Financing Week, January 23, 2006, p. 1. Data from Standard & Poor’s.

8 Craft, data from Standard & Poor’s.
9 “Leveraged flow cheers the traders,” Euroweek, October 14, 2005, p. 1. The total purchase price was €1.825 billion, per 3i

Group,, accessed September 15, 2006. 10 Joanna Hickey, “US presence in European buyouts grows,” European Venture Capital Journal, October 1, 2004, p. 1.

This document is authorized for use only in MBA40 - Corporate Finance 2 by Renzo Cenciarini, at Bocconi University from January 2015 to July 2015.

For exclusive use at Bocconi University, 2015
Lion Capital and the Blackstone Group: The Orangina Deal


In addition, the sources of capital for European buyouts had shifted since the late 1990s. Previously, banks had been the exclusive providers of the senior debt used in buyouts. Since the start of the twenty-first century, European banks had started to follow the example of their U.S. counterparts, in which they syndicated the debt for a transaction, relying on Collateralized Loan Obligation Funds (CLOs) and money from hedge funds, mostly U.S.-based but some European. This institutional capital had grown from 5% of the market in the late 1990s to more than 60% by late 2005. Another trend that had appeared in both the European and North American markets was “clubbing,” or syndication not only of the equity financing for the deal but of the groups making the purchase. The largest European club deal to date had occurred in late 2005, when the consortium of Apax, Kohlberg Kravis Roberts, Blackstone, Permira, and Providence Equity Partners acquired TDC, the Danish telecoms company, for $15.3 billion, a sum that they could only contemplate by joining forces.11 Some practitioners pointed out that larger companies were now available to private equity firms, but only through auctions, which required that firms club to access the necessary funding. With an increasing number of private equity firms in the market, proprietary deals became both precious and rare. Small firms tried to position themselves as specialists to provide a measure of differentiation, but even then, a large number of deals ended up at auction. Another recent trend was the tendency of firms to exit their investments through secondary sales to other private equity houses. Some held that these sales were a natural way of financing a company to a larger value-accretion point, where it might go public. Those limited partners who were invested in funds on both sides of the transaction, however, might question the practice.12 As 2005 drew to a close, with private equity firms raising more and more money and companies commanding higher and higher prices, one private equity investor summed up the general sentiment by saying “The European market is insane.”13

Background: Lion Capital
Lion Capital began as Hicks, Muse Europe, which was founded by the Texas-based buyout firm of Hicks, Muse, Tate & Furst (HMTF) in 1998. The U.K.-born, Africa-raised, and Canada-educated Lyndon Lea co-founded the operation, joining from Glenisla, the European affiliate of Kohlberg, Kravis and Roberts. The first Hicks, Muse Europe fund closed in 1999 at €1.5 billion. The parent organization had earned an impressive reputation since Tom Hicks raised his first private equity fund, Hicks & Haas, in 1984. Building on Hicks & Haas’s success, Hicks then teamed with John Muse, Charles Tate, and Jack Furst, raising HMTF I in 1991. The firm’s success stemmed from a combination of factors: a then-innovative “buy-and-build” strategy, where the firm acquired a “platform” company and expanded it through acquisitions; careful focus on a small number of industries, such as television, outdoor advertising, manufacturing, food, and consumer branded products; and a geographic concentration on the U.S. heartland, which was underserved by private equity firms. In 1998, HMTF raised its first international fund, $960 million for Latin America, and the

11 The TDC transaction was the world’s second-largest buyout to date; the largest was KKR’s 1988 buyout of RJR Nabisco for $25 billion. Edward Evans, “Europe draws eyes of buyers,” International Herald Tribune, December 1, 2005,, accessed October 25, 2006. 12 John McCrory in Angela Sormani, “Secondary buyouts: implications for LPs?” European Venture Capital Journal, November 1,

2004, p. 1.
13 “TDC Buyout Marks Latest in Surging Europe Prices,” Corporate Financing Week, December 5, 2005, p. 1.

This document is authorized for use only in MBA40 - Corporate Finance 2 by Renzo Cenciarini, at Bocconi University from January 2015 to July 2015.

For exclusive use at Bocconi University, 2015

Lion Capital and the Blackstone Group: The Orangina Deal

European fund followed quickly thereafter.14 As with most international firms, all partners shared in the profits of all deals, not just those of their own region.15 By mid-2004, the European division had done a number of noteworthy deals and enjoyed some significant successes with such deals as champagne makers G.H. Mumm and Champagne PerrierJouet, yellow-pages operator Yell, and Premier Foods (see Exhibit 2 for results).16 Hicks, Muse Europe I was expected to be a top-decile fund.17

During the same period, however, HMTF...

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