LKQ maintains $48-per-share price in acquisition of Keystone; United Natural Foods' stock climbs

By Sheri Kasprzak

New York, Oct. 5 - LKQ Corp. affirmed its $48-per-share price for Keystone Automotive Industries, Inc.

Meanwhile, leveraged buyout activity still remained light Friday, and one sellside trader said banks are already reeling from losses and aren't too eager to take on more losses.

"The banks making the loans are still taking write offs on paper they are stuck with so there is little way they will take on new losses at previous rates and terms," the sellsider said Friday afternoon. "There is an adjustment going on, better terms, higher rates will probably force [the private equity] crowd to actually use some equity in their buys."

In other merger news Friday, United Natural Foods Inc. agreed to buy Distribution Holdings, Inc.

The move sent shares of United Natural Foods up more than 4% on Friday.

The terms of the sale were not released Friday by press time.

LKQ reaffirms price for Keystone

In the LKQ purchase of Keystone Automotive, LKQ said it will only offer $48 per share for Keystone - a move that sent shares of both companies down on Friday.

The $48-per-share price tag is a 50% premium to the price at which Keystone was trading before the merger discussions began. But now the price is only a slight premium to the company's $47.80 closing stock price on Thursday.

"It's great for them [LKQ] if they can buy at almost exactly market," said one sellside trader Friday afternoon. "It's kind of a bad deal for Keystone since they're really not making any profit."

The sellsider added that Keystone is "basically handing themselves over," and the deal might not be such a bad thing if its stock was trading at the same level it had been when talks started.

By 2 p.m. ET Friday, shares of LKQ were down by 26 cents. The stock went on to lose 68 cents, or 1.93%, to close at $34.61 (Nasdaq: LKQX). The stock gained 44 cents in after-hours trading.

Keystone's stock edged down by 3 cents by 2 p.m. ET. The stock fell by 5 cents to close at $47.75 on Friday (Nasdaq: KEYS).

"We're making good progress toward the consummation of our acquisition of Keystone," said Joseph Holsten, chief executive officer of LKQ, in a statement.

"Once the approval of Keystone's shareholders is received, we will be able to move quickly to close this significant transaction."

Keystone's shareholders are set to vote on the transaction on Oct. 10. If the shareholders give the green light to the deal, the acquisition will close on Oct. 12.

"The negotiations with Keystone leading up to execution of the merger agreement lasted more than four months," said Holsten in the statement.

"During that time, Keystone's board pursued alternative buyers and convinced us to raise our price five times. The final price of $48.00 per share represents a 50% premium over the price at which Keystone traded immediately before our discussions began. Keystone retained JPMorgan as its financial advisor throughout the process. Prior to Keystone entering into the merger agreement, JPMorgan advised the Keystone board that $48.00 per share was fair, from a financial point of view, to Keystone shareholders."

LKQ, according to the statement, completed a $350 million equity offering to fund the acquisition. If LKQ's shareholders do not approve the transaction, Holsten said in the statement that the proceeds will be used to expand LKQ's network of aftermarket facilities.

LKQ provides recycled light vehicle original equipment manufactured products. Keystone provides aftermarket collision parts.

United Natural Foods purchase

Elsewhere in merger news, United Natural Foods agreed to buy Distribution Holdings, parent company of Millbrook Distribution Services. The full terms of the deal were unavailable Friday.

The merger is set to settle within the next 30 days.

The news sent shares of United Natural Foods up $1.17, or 4.15%, to close at $29.39 (Nasdaq: UNFI).

The transaction, United Natural Foods said in a statement released Friday, will accelerate United Natural's expansion into high-growth business segments and the establishment of an immediate market share in the specialty foods market.

"Millbrook's robust customer base will significantly enhance United Natural Foods' conventional supermarket business channel while both organizations' complementary product portfolios represent significant opportunities for cross-selling," said the statement from United Natural Foods released Friday.

"This pending transaction demonstrates our commitment to profitably grow the company while extending our competitive advantages and increasing shareholder value," said Michael Funk, United Natural Foods' CEO, in a news release.

"This combination will achieve our state goal to increase the company's footprint in the specialty foods segment and will extend the breadth, scale and capabilities of our distribution network."

Based in Leicester, Mass., Millbrook distributes ethnic, kosher, gourmet, organic and natural food products.

Dayville, Conn.-based United Natural Foods distributes natural food products.

Once the merger settles, Robert A. Sigel, Millbrook's CEO, will oversee the operations of Millbrook.

Foster sells Dakota Minnesota

In other news, L.B. Foster Co. sold its stake in Dakota Minnesota and Eastern Railway to Canadian Pacific Railway Ltd., a freight hauler, in a $148.8 million deal.

The sale sent shares of L.B. Foster up 57 cents, or 1.21%, to close at $47.70 (Nasdaq: FSTR). In after-hours trading, the stock fell by 2 cents.

Foster handed over its share of DM&E's preferred stock, warrants and common stock to Canadian Pacific in the transaction. Another $2.15 million was deposited into two escrow accounts to secure certain of DM&E's obligations.

Before the transaction, Foster had owned a minority equity interest in the railway.

L.B. Foster, based in Pittsburgh, is a subsidiary of Canadian Pacific Railway Ltd.

Foster may also receive $41.6 million if Canadian Pacific begins construction of the Powder River Basin expansion and up to $84 million if Canadian Pacific attains milestones related to the Powder River Basin coal thresholds. Canadian Pacific has noted that it may take several years to determine if it will proceed with the Powder River Basin expansion.

Foster is a Pittsburgh-based manufacture, fabricator and distributor of products for the rail, construction and utility sectors.

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