Duff & Phelps Corp., the Chicago financial advisory services firm that has been in private hands for all its 60 years, plans to sell about a 25 percent stake to the public.
The proposed stock offering will allow the company to reduce sharply the junk-bond debt from its March 1989 management-led leveraged buyout and provide substantial paper profits for the investors in that deal.
The planned sale comes as the public`s appetite for equity offerings shows no sign of abating and as securities industry stocks enjoy new favor.
Duff & Phelps also is coming off a particularly strong year. In 1991, it posted sharply higher revenues, cash flow and pretax operating income, as demand grew for its investment management, credit rating, research and financial consulting services.
According to a registration statement filed with the Securities and Exchange Commission on Friday but not disclosed until Monday, Duff & Phelps plans to sell 3 million common shares to the public. The size of the offering could increase to 3.5 million if underwriters exercise an overallotment option for 450,000 shares and the company issues 50,000 shares for use in its employee savings plans.
The company didn`t estimate a price range for the stock, but gave the maximum as $17 a share. At that price, net proceeds would be about $46.4 million, or $53.4 million if the overallotment option is exercised.
In March 1989, the merchant banking firm of Freeman Spogli & Co., 89 Duff & Phelps executives and some institutional investors acquired the company from its employee stock ownership plan for $128.5 million. The acquisition was financed largely by debt. The buyout group put in $30 million and received all 8.12 million of the company`s shares, or a per-share price of $3.70.
At $17 apiece, the buyout group`s stock will have a public market value of about $138 million.
Company management also holds options to acquire another 821,852 shares at $3.70 each.
A sale of 3 million shares would reduce the stake held by Freeman & Spogli to 49 percent from 67 percent.
Management`s stake would be reduced to 25 percent from 31 percent. The public`s stake would be about 25 percent.
The company was controlled by a private partnership from its inception in 1932 until 1985, when it was sold to an employee stock ownership plan for $40 million.
That sale came several months after the collapse of a deal to sell the firm to Security Pacific Corp.
The company`s original business was providing investment research on public utilities.
Today, its largest segment is investment management, with 1991 revenues of $30 million-or about 44 percent of total revenues last year of $68.3 million.
Credit rating is second largest, with revenues of $18 million.
The company`s results have improved every year since the 1989 buyout.
In 1991, cash flow rose by 46 percent, to $28.1 million, and pretax operating income increased 58 percent, to $23.5 million, from 1990 levels.
The company had net income of $6.8 million last year after a net loss of $655,000 in 1990.
Duff & Phelps plans to use offering proceeds to redeem about $40 million of its 15 percent senior subordinated notes due 1999. It plans to pay 110 percent of face amount, plus accrued interest, for the notes.
The company thus could cut its long-term debt to $51.4 million from $91.8 million, while its debt as a percentage of capitalization would fall to 51 percent from more than 90 percent.
