It's a school reunion of sorts for junk bond pioneer Michael Milken.
Shares of educational chain KinderCare Learning Centers Inc., a company that Milken helped to finance during the 1980s in his Drexel Burnham Lambert days, soared more than 100% on Monday after privately held Knowledge Learning Corp., which is majority owned by Milken and his brother, Lowell, said it would acquire KinderCare in a deal worth $1 billion.
The deal, expected to be completed by year-end pending regulatory approval, would combine two of the nation's largest child-care center operators -- Portland, Ore.-based KinderCare and Golden, Colo.-based Knowledge Learning. The Milkens hold a majority stake in Knowledge Learning through their investment vehicle, Knowledge Schools Inc.
The deal includes $550.3 million, or about $25.94 a share, in cash for all of KinderCare's stock plus the assumption of $490 million in debt. In Monday's over-the-counter Bulletin Board trading, KinderCare's thinly traded shares zoomed $12.75 to close at $24.75.
The combined company would have 1,980 centers serving more than 200,000 children and employing 45,000 workers, nearly tripling Knowledge Learning's current reach. About 235 of the centers are in California, said Tom Heymann, chairman and chief executive of Knowledge Learning.
Shareholders of KinderCare -- including affiliates of buyout giants Kohlberg Kravis Roberts & Co. and Oaktree Capital Management, which own more than 90% of its outstanding stock -- have agreed to the terms.
"The goal of Knowledge Learning is to constantly improve the quality of education our children receive," Heymann said. "This deal will enable us to do that through economies of scale in developing curriculum, training staff and other efficiencies."
Heymann would head the combined entity, which would keep the Knowledge Learning name but also continue to use KinderCare as a consumer brand.
KinderCare raised expansion financing through Michael Milken and Drexel in its early days before it was sold to a shareholder group in 1989, according to research firm Hoover's Inc. Debt drove the company into bankruptcy protection in 1992, but it emerged a year later and was acquired in 1997 for $525 million by a group headed by KKR, the world's biggest buyout firm.
Michael Milken, who was convicted of securities fraud in 1990 and served two years in federal prison stemming from his Drexel activities, will not be an officer or director at Knowledge Learning, Heymann said.