Cerberus, the private equity fund that nearly ruined itself by making bad bets in Detroit, particularly on Chrysler, is considering taking its gun company interests public. According to The Wall Street Journal (subscription required), the firm "is in advanced preparations for an initial public offering of Freedom Group Inc." The company has about $900 million in sales.

The move may be a profitable one for Cerberus. Gun company Smith & Wesson (NASDAQ: SWHC) trades at just above $5, near the high end of its 52-week range. That gives the company a market cap of $300 million on sales of about $345 million. On a ratio-and-proportion basis, that would make Freedom worth close to $800 million.

Like many other institutional investors, China's sovereign fund pushed much of its asset base into cash during the market downturn. That hurt the hedge funds where much of the money had been placed and industries the Chinese had begun to invest in around the world.

China is beginning to deploy large amounts of capital from China Investment Corp. (CHIC) again. The fund has about $300 billion in assets.

For a company named after a mythical, multi-headed hound, Cerberus is definitely in the dog house with its investors. The huge private equity firm is being deserted by many of its key clients, continuing a trend of fund flight that has intensified in the past year. Several media outlets reported that 71% of the investors in the firm's two large funds want their capital returned. The money these clients have with Cerberus totals $5.5 billion, putting the New York-based investment manager in a tough position.

Who thought there was big money to be made in investing in commercial mortgage-backed securities, especially those being sold by the U.S. government under its public-private investment partnership (PPIP)? There has not been much interest in the federal program from established financial firms. It is hard to say why. They may be concerned about the increase in mortgage defaults or the scrutiny that comes from doing business with Uncle Sam.

Starwood Property Trust, however, thinks that there will be huge profits in the federal program and has raised money through an IPO. As Reuters reports, "Starwood Property, a unit of private equity firm Starwood Capital Group, sold 40.5 million shares, raising $810 million, one of the deal's underwriters said." The demand for the share was apparently tremendous. The stock began trading today under the symbol STWD.

It is the last big buyout left from 2007, the leveraged deal to take Bell Canada (NYSE: BCE) private. The transaction is worth almost $52 billion. Like several LBOs before it, banks are negotiating to get a better price, or kill the deal.

According to The New York Times, "The negotiations over the Bell Canada buyout began to fray late Friday." Banks in the deal, including Citigroup (NYSE: C), want higher interest rates and other concessions. The private equity firms trying to close the transaction, which include Providence Equity Partners and Madison Dearborn Partners, may elect to sue the banks to close. The tactic was used in the buyout of Clear Channel (NYSE: CCU). It worked, but the price still ended up lower than the original offer.

Since the banks have no shame in walking away from these deals, in many cases, observers probably hope courts will force closing on the terms that each party signed up for. But that is merely a child's fantasy. BCE trades at just under $39 after hitting $44 last November.

After hard negotiating and a threat of court visits, watch for a deal to get done below $40.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

Washington Mutual (NYSE: WM) may be rescued from the situation that its low capital base threatens the company's future. According to The Wall Street Journal, "private-equity firm TPG and other investors are close to a deal to invest $5 billion."

Washington Mutual may have to take the money, but it is awful news for the value of the company's shares. There had been rumors that JP Morgan (NYSE: JPM) might buy the company, but those will now end.

Since the bank's current market cap is only $9 billion, the investment represents huge potential dilution. The company's shares now trade at just over $10. On a straight dollar-for-dollar basis, the new capital would take the share price below $7, a 52-week low. Even if some of the money comes in as convertible preferred, the company's shareholders are facing a capital table which will push shares down.

The news is another example of investors losing three quarters of their money in a financial company due to the subprime crisis and then losing more when a private equity company or sovereign fund offers new capital. It is better than Chapter 11 though.

Douglas A. McIntyre is an editor at 247wallst.com.

E*Trade (NASDAQ:ETFC) did something odd. It made a former vice chairman of JP Morgan (NYSE:JPM) its new CEO. It would be hard to imagine that he has much experience in the discount brokerage industry. Donald Layton has been non-executive chairman of the company since Citadel Investment Group put $1.75 billion into the brokerage firm last November.

According to The Wall Street Journal "Citadel has nearly a 20% stake, and tapping Mr. Layton is a sign Citadel is getting antsy for results." The brokerage firm still have $12 billion of home loans on its books. It is hard to assign them a value while real estate prices are still dropping and default rates are rising.

Citadel may want to sell the discount brokerage firm but that would cause potential problems with other E*Trade investors. What would be left over is a company with a large pool of mortgages which are still falling in value. Getting a return on the discount brokerage operation might be a good idea on paper but separating it from the balance of the company is no "slam dunk". Shareholders don't want to be left holding that mortgage bag.

Douglas A. McIntyre is an editor at 247wallst.com.

The Blackstone (NYSE: BX) and General Electric (NYSE: GE) buyout of mortgage and vehicle leasing company PHH fell apart. The reason given was lack of available financing. In truth, PHH (NYSE: PHH) is in a business that is currently as far out of favor on Wall Street as an industry can get.

According to Bloomberg, "GE agreed on March 15 to buy PHH, sell the mortgage division to New York-based Blackstone and keep the vehicle-leasing unit. The acquisition price was $31.50 a share." PHH shares currently trade below $18.

The company's third-quarter results were reason enough to cause a buyer to walk. Revenue fell almost 10% to $484 million, and the net loss increased over five-fold to $38 million.

No one should be surprised if the shares go below $15 and stay there for some time.

Douglas A. McIntyre is an editor at 247wallst.com.

Shareholders at United Rentals (NYSE: URI) have a right to be mad. Hedge fund Cerberus Capital Management offered to buy the company. Shares rose from about $27 to over $34.

Then Cerberus walked. United Rental stock fell to $20.76 and has not recovered much. The entire matter headed to court. The legal battle was to begin today in Delaware Chancery Court. That has been delayed while the two sides talk.

Cerberus said that it was within its right to break off the contract. According to The Wall Street Journal, "the delay could help United's flagging stock price, as well as clear up some of the negative public perception of Cerberus, a Wall Street buyout shop that provided little detail for why it walked away from its agreement."

In other words, it may have been in the financial interests of Cerberus to walk out, but its may be a shaky legal ground.

Private equity firms have broken a number of these buyouts now, and, in some cases, contracts allowed them to do so. The court system is likely to catch up to them at some point soon. If settlement talks with United do not work out, it may be in this case.

Just one announcement that an LBO shop has had to pay hundreds of millions in damages would send a real shudder through the industry.

Douglas A. McIntyre is an editor at 247wallst.com.

Recent private equity IPO Blackstone (NYSE: BX) cannot get its shares to move up for love or money. That may be because the company is not as well-run as people thought it was.

It now appears that Blackstone's investment in Financial Guaranty Insurance Corp. is in trouble. According to The Wall Street Journal, "Like other bond insurers that guarantee interest and payment in the event of default, FGIC is under scrutiny by credit-ratings firms over whether it has enough capital." In other words, the company needs more money. Blackstone may have to put up $200 million in an aid package.

Over the last six months, Blackstone's shares are down over 40%. Part of that is because of investments like FGIC, and part is because the private equity business is slowing due to tight credit markets and the inability to take some of its investments public to provide liquidity.

What this boils down to is that Blackstone was really nothing special. Its IPO appeal was not based on management, it was based on an overheated private equity market. Now its management seems ordinary and its industry seems troubled.

Blackstone was never a good investment, and that becomes more apparent with each passing day.

Douglas A. McIntyre is an editor at 247wallst.com.

This would not happen in the U.S., or most other places for that matter. But China is China, and the rules there are different. Goldman Sachs (NYSE: GS)'s "China partner, Fang Fenglei, is moving forward with plans to set up a private-equity fund that could complicate his relationship with Goldman as both hunt for investments in China," according to The Wall Street Journal. Fang will probably get to keep his title as chairman of the investment banking joint venture, Goldman Sachs Gao Hua Securities.

But why? Feng is about to take dollars out of Goldman's pockets. Feng's new fund will be partners with an investment arm of the Chinese government. Who is going to get first look at the best deal, Goldman or a fund run by the locals? The Journal points out that insiders already have an advantage. "Foreign private-equity investors have found their ability to close deals hampered amid booming Chinese stock prices and mounting concern within China about foreigners buying into important industrial assets."

Yes, the Chinese want to keep the best part of the steak for themselves. It is a closed system, so it can do that. But Goldman does not have to make it easier.

Douglas A. McIntyre is an editor at 247wallst.com.

It appears that Ford (NYSE: F) may finally have a buyer for Jaguar and Rover. The Wall Street Journal reports that Indian conglomerate Mahindra & Mahindra will tie up with private equity operation Apollo Management to buy the car units. Not all of the roadblocks to the deal have been pushed aside. The Journal writes "Labor leaders in the United Kingdom are seeking assurances that the brands' new owner would protect jobs and factories in the country."

Ford paid a little over $5 billion for the two units, and industry estimates put their current value at $1.5 billion. So the sale would mark another step in the humiliating downsizing of Ford.

The probability of a sale also raises an interesting question. If Ford's management is so much better than it was a year ago and it has a much better labor deal with the UAW, why sell the units at all? If a company in India can improve the fortunes of the two brands, why can't Ford?

It is not too late for the No.2 U.S. car company to work on fixing the units itself. The poor results of Jag and Rover are already in the stock. Improving their results ought to help shareholder value.

Douglas A. McIntyre is an editor at 247wallst.com.

The gunfight at the OK Corral. Private equity firm JC Flowers tried to back out of its deal to buy student loan company Sallie Mae (NYSE: SLM). Then the firm came back with an offer $10 below the original $60 a shared price.

The whole matter put the Sallie Mae board in a bind. Take a lower price. Or take nothing and watch the shares fall. The stock trades just above $49 now.

But SLM got a big vote of support in its efforts to push Flowers to honor the original deal. Three of its big institutional shareholders said that the private equity firm has to do the right thing and write the $60-a-share check. The firms include Barrow, Hanley Mewhinney & Strauss, New York hedge fund QVT Financial and Capital Guardian Trust Company. "We strongly support your decision to hold firm to your contract and a $60-per-share sale price and hope you will continue to reject any overtures to renegotiate the contract price or the structure of the consideration," QVT Managing Director Nick Brumm said in a letter obtained by The New York Post.

Now, it would appear that Flowers is on the hot seat. These large investors are saying that it is liable for the $25 billion deal. No one should be surprised if they decide to take the buy-out operation to court.

With $25 billion on the table, the action has turned very unfriendly.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Another private equity deal is crumbling. Acxiom (NASDAQ: ACXM), which was to be bought out by ValueAct Capital Partners LP and Silver Lake Partners for $2.25 billion , is now negotiating break-up fees with the firms. The private equity companies had made a $27.10 in cash offer for the data management company.

According to The Wall Street Journal "one of the issues likely to be discussed is whether the company has breached the deal's material adverse-effect clause." Operating income at the company did drop 89% in the June quarter and the company has made some lay-offs.

But, Acxiom's board may believe that one weak quarter is not material, especially if the trend of the company's business is up. At some point one of the private equity withdrawals is likely to bring a large suit both from a company and its shareholders.

Acxiom's stock holders are facing a share price that is below $20 and will probably drop further on the announcement. They may not take kindly to that.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Billionaire Nelson Peltz may have thought he had the inside track to buy Wendy's (NYSE: WEN) since his Triarc Group already owns Arby's.

According to The Wall Street Journal, Mr. Peltz will have competition from a group including Thomas H. Lee Partners LP, Oaktree Capital, and First National Financial. The head of First National once ran the Carl's Jr. and Hardee's chains. And, a third group has come to the table, this one backed by Kelso & Co. and Oak Hill Capital Partners.

Unlike several private equity deals that are falling apart because of tight credit markets, the Wendy's deal looks like it may be done at a nice premium for shareholders. Wall Street anticipates that the company could go for $37 to $41 a share. Wendy's stock is under $34.

Why is this deal different from others? Perhaps because the most visible bidders have a great deal of experience in the fast food business. This may give them more confidence that they will know which parts of the company can be improved to yield better cash flow.

That makes Wendy's shareholders more fortunate than those in other companies being pursued for buy-outs.

Douglas A. McIntyre is a partner at 24/7 Wall St.