CDR Expected To Acquire ServiceMaster

New York, NY, March 19, 2007--Private-equity firm Clayton, Dubilier & Rice is expected to acquire home-services operator ServiceMaster Co. for about $4.8 billion, according to people familiar with the matter.

Clayton Dubilier has had a long history with large-scale consumer-oriented companies, having previously invested in copy-store chain Kinko's, car-rental operator Hertz, and water-treatment company Culligan. The deal shows the competitive advantages of private-equity firms, which have proved the most active acquirers in today's markets. Using cheap and plentiful debt, these firms have been able to upstage other corporate acquirers for big-ticket assets.

ServiceMaster represents new territory for the New York-based firm, serving as a large foray into the demographics and economics of homeownership. Its brands include the Terminix pest-removal service, home-lawn-care business TruGreen, and handyman service American Home Shield. All told, ServiceMaster generated $3.4 billion in annual revenue last year and net income of about $170 million.

Clayton Dubilier is expected to pay ServiceMaster's shareholders about $15.63 for each share, a 16% premium to where the Memphis, Tenn., company's shares closed Friday. The company's stock had already climbed 13% after the company announced it was exploring its options back in November.

As part of the deal, Clayton Dubilier will also assume about $700 million of ServiceMaster's existing debt, while keeping the company's current management in place. The company's chairman is expected to be George T. Tamke, who previously headed up Hertz and Culligan.

The private-equity fund is expected to contribute about $800 million of its own equity into the deal, with Bank of America, Citigroup, and J.P. Morgan Chase adding an additional $200 million each. J.P. Morgan's involvement is of particular note because the bank had previously separated its private-equity and banking arms for fear of competing with its other clients.

In purchasing ServiceMaster, the company's new owners will be presented with plenty of opportunity, but also some intriguing business problems. As a nationwide services business, ServiceMaster's brands carry plenty of name recognition but still have relatively low market penetration.

For that reason, the company has relatively protected cash flows and much room for new growth, say people familiar with the buyout plan. That growth might be elicited via new marketing campaigns, but also via tighter information controls over the various business units. New product changes might also be in the offing, including a change in pest-control methods from one that uses a baiting method to one that uses a liquid, these people say.

ServiceMaster's corporate culture has been historically tied to evangelical Christianity (the company's name is keyed to the notion of "Serving the master.") People close to the firm say that the new owners plan to remain neutral on this, not going out of their way to either promote or end it.

ServiceMaster was advised by Morgan Stanley, Goldman Sachs Group Inc., Greenhill & Co., Wachovia and the law firm Sidley Austin. Clayton Dubilier was advised by Bank of America, Citigroup, J.P. Morgan, and law firm Debevoise & Plimpton.