Cerberus withdraws $8bn offer for ACS
By James Politi in New York
Financial Times
updated 5:11 a.m. ET Oct. 31, 2007

Cerberus Capital Managementon Tuesday night withdrew its offer worth $8bn, including debt, to acquire Affiliated Computer Services, the US technology group, blaming the credit squeeze and the refusal of the company's board to negotiate a deal.

The move by Cerberus came in a letter to ACS's special committee of independent directors, which was formed to evaluate the offer when it was first tabled in March.

Teaming up with Darwin Deason, ACS chairman and founder, Cerberus was offering $62 per share in cash for the company, a significant premium to Tuesday's closing share price of $50.85. The independent directors' unwillingness to negotiate a deal with Cerberus could attract criticism from several large ACS shareholders that have been pushing the company to sell itself.

In the letter to the ACS board, Cerberus first blamed the deterioration in the credit markets.

But the US private equity group also blamed the board's attitude for the bid's withdrawal, according to people familiar with the matter.

ACS and Cerberus declined to comment.

Mr Deason's presence in the bidding group complicated the board's decision on the offer.

At the time the offer was made, a debate was raging on Wall Street regarding the financial incentives managements across corporate America were reaping in private equity takeovers.

This placed extraordinary scrutiny on leveraged buy-outs led by company executives, who were at times accused of placing their own interests above those of the company as a whole.

In turn, special committee members were becoming increasingly sceptical of management buy-outs such as the one attempted by Mr Deason and Cerberus.

Although a deal was never struck, the withdrawal of the Cerberus offer for ACS shows how some of the private equity transactions proposed during healthy debt markets early this year are faltering.

Others include the $8bn deal for KKR to buy Harman International, the high-end audio systems group, and the JC Flowers-led purchase of Sallie Mae, the student lender. Nevertheless, other large buy-outs are being completed, including the $26bn purchase of First Data and the $45bn acquisition of TXU.