By Ryan Dezember And Chelsey Dulaney
Warren Buffett's Berkshire Hathaway Inc. has agreed to buy an
8.7% stake in Axalta Coating Systems Ltd. from Carlyle Group LP,
which locks in a return of more than double the cash that Carlyle
invested in the auto-paint maker.
Through the $560 million sale to Berkshire, a large offering of
shares last week and a November initial public offering, Carlyle
has pocketed about $2.9 billion selling Axalta stock while
retaining a roughly 46% stake in the company.
The private-equity firm in 2013 bought the business from DuPont
Co. for $4.9 billion and the assumption of $250 million of worker
pension costs. It funded the deal with $1.35 billion in cash and
borrowed money.
Carlyle sold stock when it took Axalta public in November and
last week further pared its stake through a secondary offering of
40 million shares at $28 apiece. Carlyle is selling another 20
million shares to Berkshire for $28 a share.
Axalta shares closed 9.8% higher at $31.11 Tuesday.
Such a jump is uncommon when large blocks of stock in a
particular company hit the market, though Mr. Buffett has said that
Berkshire's preferred holding period for the stocks it picks is
"forever." Berkshire has agreed not to sell any of its Axalta stock
for 90 days, Axalta said Tuesday.
Berkshire, which also owns paint company Benjamin Moore &
Co., will become Axalta's largest shareholder behind Carlyle.
Mr. Buffett "is a longer-term, value investor, so that gives
Axalta the stamp of approval," KeyBanc Capital Markets analyst Ivan
Marcuse said.
KeyBanc analysts last week recommended the stock to clients due
to Axalta's potential to gain market share in emerging markets,
lower raw material costs and steady cash flow with which to pay
down its debt load from the buyout.
It wasn't always clear that the deal would be so lucrative for
Carlyle, which specializes in separating out-of-favor units from
big companies in deals that are often called carve-outs.
Competition was fierce when DuPont put the unit up for sale in
2013, and Carlyle wound up paying hundreds of millions of dollars
more than some of its rivals offered.
But the deal drew criticism from DuPont investor Trian Fund
Management LP, which has argued that the conglomerate left money on
the table for Carlyle at the expense of DuPont shareholders.
"DuPont divested its Performance Coatings business in a highly
competitive process and the transaction was widely recognized by
the market and Wall Street for its strong valuation relative to
precedent transactions and the market environment at the time of
the sale," a DuPont spokeswoman said.
Carlyle replaced 12 of Axalta's 17 top executives and launched
factory expansion projects on four continents. When the Washington,
D.C., firm took Philadelphia-based Axalta public in November,
shares in the offering priced in the middle of the expected range
at $19.50. But the stock took off soon after the IPO.
Write to Ryan Dezember at ryan.dezember@wsj.com and Chelsey
Dulaney at chelsey.dulaney@wsj.com
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