Avolon enters talks with Bohai over $2.6bn sale

Aircraft lessor Avolon moved a step closer to a $2.6 billion (€2.36 billion) sale that could earn chief executive Dómhnal Slattery more than €32 million when it opened exclusive talks with Chinese suitor Bohai on Monday.

Bohai tabled a $31-a-share bid for the Irish aircraft leasing business last month, topping an earlier approach from another Chinese investor, Avic, worth $30 a share.

Avolon said it has agreed with Bohai to enter exclusive talks about a possible acquisition of the company for $32 a share, or just over $2.63 billion.

The price is a 60 per cent premium on the $20 a share at which Avolon floated on the New York Stock Exchange last December.

Taking the Dublin-based company’s $5 billion debt into account, it puts its overall enterprise value at $7.6 billion.

Mr Slattery, Avolon’s founder and chief executive, stands to earn €32.16 million for his 1.108 million shares in the company if the deal goes ahead.

Chief commercial officer John Higgins would receive €14 million for his stake, and financial officer Andy Cronin and operating officer Tom Ashe would both receive about €6.5 million for their holdings.

Biggest payday

However, the biggest payday will be reserved for private equity firms

Cinven

,

CVC Capital Partners

,

Oak Hill Capital Partners

and Singapore’s sovereign wealth fund, which backed Avolon when Mr Slattery set up the business in 2010.

They will receive more than $1.9 billion of the total for their 74.39 per cent stake in the company.

The private equity investors sold $27.2 million worth of shares in Avolon when it floated last December. None of the group’s executives sold shares at that time.

The price values the 22.39 per cent held by the biggest shareholder of the four, Oak Hill, at just short of $590 million. Cinven’s stake is worth $499 million, CVC’s $460 million, and Singapore’s $407 million.

Investors who bought shares on the New York market own the rest of the equity.

Avolon’s statement stressed that there are no assurances that a deal will be done or that its board will approve Bohai’s offer.

However, an agreement such as this to enter exclusive talks generally signals that a deal is not far off.

Definitive agreements

The talks are set to last until September 7th. Avolon said that the pair will negotiate definitive agreements on terms that they have already discussed and accepted.

“Bohai’s offer is subject to completion of satisfactory and customary due diligence,” the company noted.

The Chinese group will place a $50 million good faith deposit into an escrow account within two days, adding to $25 million already held in connection with the offer made by Bohai for the Irish company last month.

“Upon execution of definitive documents in connection with the transaction, the $75 million deposit will be increased by Bohai to $250 million, payable to Avolon in the event the transaction is not consummated under certain circumstances,” the statement added.