The Blackstone Group’s 1994 Private Equity Leveraged UCAR Acquisition

November 27, 2011 by wilsonneelynyc

By Attorney Wilson Neely

I first gained exposure to private equity acquisitions in 1994, with more than a decade of corporate-related experience under my belt at Simpson Thacher & Bartlett LLP. My initial work in private equity involved oversight of The Blackstone Group’s leveraged recapitalization of UCAR International Inc.

This leveraged acquisition entailed Union Carbide Corporation (UCC) and Mitsubishi Corporation’s sale of newly issued common stock, comprising 75 percent of outstanding UCAR shares, to Blackstone Capital Partners II Merchant Banking Fund L.P. Valuing UCAR’s equity holdings at $820 million, the $1.1 billion deal effectively allowed the refinancing of the UCAR’s existing debt profile.

In 1994, UCAR was owned by UCC and Mitsubishi through a joint venture arrangement. The largest graphite and carbon electrode manufacturer worldwide, with production facilities spanning four continents, UCAR products were used in electric arc furnace production of steel and in other high-temperature applications. These technologies allowed scrap steel to be melted and reused in mini-mills.

The Blackstone-UCAR transaction represented one of only a handful of 1994 leveraged acquisitions valued at more than $1 billion. The deal was a culmination of UCC’s successful three-year strategy to rehabilitate its money-losing subsidiary UCAR. Union Carbide Corporation had brought in its Japanese partner in 1991, selling a 50 percent stake to Mitsubishi for $233 million. Mitsubishi redeemed $406 million from the 1994 transaction, while UCC received a special dividend of nearly $347 million (along with retention of a 25 percent stake in UCAR).

The following year, UCC sold its remaining UCAR stake for nearly $200 million, with UCAR management selling 22 percent of the company in a public offering that netted $227 million. This major private equity deal benefited all parties involved. Blackstone, UCAR’s management, UCC, and Mitsubishi all derived significant profits from the 1994-1995 transactions. Perhaps the biggest beneficiaries from the deals were UCAR shareholders, who enjoyed significant stock gains following its 1995 IPO. I have remained involved with The Blackstone Group in numerous undertakings since, participating in a tremendous growth of the private equity sector.

About the Author: Associated with Simpson Thacher & Bartlett, LLP, in New York since 1982, Wilson Neely is currently a Senior Corporate Partner with the firm.

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