Six years after acquiring a 93% stake, private equity firms Blackstone and Bain plan to take Michaels Stores public again. In October 2006, the two firms bought nearly all of the common shares, but value investor Highfields Capital continues to own 6.3% of the arts and crafts retailer. The PE stake was valued at more than $6 billion, and the IPO could be one of the largest retail sector IPO of 2012. In order to determine which investors may purchase the new shares, lead bookrunners JPMorgan and Goldman Sachs should identify current debt holders and shareholders in 2006 before the merger.
The Capital Group Companies are Michaels Stores’ largest public debt holders, owning $236 million worth of these bonds. The top ten institutional owners all domicile in the United States, and, due largely to the Cap Group’s holdings, West Coast US investors make up close to half of all debt owned by institutional holders.
The third quarter of 2006 was the last full quarter when Michaels Stores shares were publicly traded. At that time, Capital Research & Management was the next largest active shareholder after Highfields. As part of the Capital Group Companies, this Cap Re entity has since split into Capital Research Global and Capital World. Since its parent is a top debt holder, it could likely purchase shares once they trade again. Also, these two investment subsidiaries are two of the top three active holders of the Retail sector equity assets.
Michaels Stores belongs to the Retail sector within Consumer Discretionary. Fidelity is the largest active investor in this industry, owning $34 million in equity assets. It holds $60 million in Michaels Stores debt issues, making it one of the top holders in these securities. Though it was not among the ten largest active equity holders before the retailer was bought by the private equity firms, it may be a potential buyer now, given its investments in the industry.
Hedge fund Farallon Capital Management was the third largest active Michaels shareholder in 2006, owning a $217 million position. Today, the fund holds just over $100 million worth in retail stocks, so the company’s bookrunners will need to evaluate whether the fund is a good buyer by learning why its investments in the industry are currently so low.
This report identifies potential buy-side targets for this initial public offering. Investment managers will not have to publicly disclose their equity stake in Michaels Stores until 45 days after the close of the quarter in which it begins trading. Until that time, this report remains purely speculative, and the institutions mentioned above serve as strong candidates for Michaels Stores share ownership, given their holdings in similar debt and equity securities.
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