bloggingbuyouts

The complicated legal fight over the implosion of the private equity buyout of Huntsman (NYSE: HUN) has been settled. The firm was able to get $632 million in cash and $1.1 billion in financing from Credit Suisse (NYSE: CS) and Deutsche Bank (NYSE: DB).

Basically, Huntsman claimed that these financial firms failed to uphold their responsibilities in backing the takeover from Hexion Specialty Chemicals, which was struck in July 2007 at $28 per share. Now, Huntsman is trading at $5.92, primarily because of the plunge in the global chemicals sector.

With a market capitalization of $82 million, a $300 million buyout price would be a lot to pay for Playboy Enterprises (NYSE: PLA). But The New York Post reports that's the price the company is looking for as it quietly shops for a private equity firm interested in the flailing icon.

Keith J. Kelly reports that "Sources said the sellers are looking for far more than the company's market capitalization because that would ensure Hef has enough on hand to maintain his lavish lifestyle."

In the middle of 2007, the private equity industry started to crumble as the credit crunch shocked the U.S. financial system. Since then, it's been particularly tough for deal makers.

Yet, according to a cover article in BusinessWeek, the good days may be here again. In fact, private equity may even help the economy out of its funk.

Buyout funds managed by private equity giants Apollo Management LP and Blackstone Group LP (NYSE: BX) are among a growing number of limited partnerships that have experienced sharp declines in value, reports the Wall Street Journal, which highlights the economy's impact on such funds, as well as the influence of mark-to-market accounting.

Apollo and Blackstone recently disclosed to investors the values of their last buyout funds at year-end. Apollo Investment Fund VI LP, a $10.1 billion investment vehicle that closed in 2005, was held at 34% below cost. Perhaps the most notable Fund VI deal is Harrah's Entertainment Inc., which has struggled with its debt covenants. Apollo and TPG Capital LP acquired Harrah's in January 2008 for $27.8 billion.

Apollo Management acquired Realogy -- the parent company of real estate brokerages like Century 21 and Coldwell Banker -- at precisely the top of the real estate bubble.

So far the results have been about what you might expect. Now Apollo is pumping another $150 million in (subscription required) to keep the deal afloat through 2009. The company says that combined with the big cost cuts it's implemented over the past three years will be enough to save the company. Investors disagree, with some of the bonds trading for as little as 11.5 cents on the dollar suggesting a high probability of bankruptcy.

For deals of $2 billion or less, private equity firms are showing interest. However, the problem is cheap valuations.

This is what the board at Chemtura (NYSE: CEM) found out the hard way. Late last year, the company retained Merrill Lynch (NYSE: MER) to explore "strategic alternatives." While some private equity firms showed interest – like Blackstone Group LP (NYSE: BX) and Apollo Management LP -- there wasn't much appetite to pay a premium. So, Chemtura has ended the process. Instead, the company will focus on restructuring, such as divestitures.

Chemtura has an interesting mix of businesses, such as plastic additives, pool and spa products and the lubricant components. For 2007, the company generated $3.7 billion in revenues.

However, with the energy crisis, the environment has been particularly tough for Chemtura. Just look at rival Dow Chemical (NYSE: DOW), which has increased prices two times during the past month.

Of course, Wall Street was disappointed with the Thursday's news on Chemtura's potential buyout, as the stock price plunged 22% to $6.34.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

The potential collapse of the $10.6 billion buyout of Huntsman Corp. (NYSE: HUN) is hardly a shock.

For one thing, rising oil prices are crushing specialty chemical makers. Another thing is that the deal was announced almost a year ago, an eternity for the closing of a merger and acquisition. The Wall Street Journal argues that private equity shop Apollo Management and its Hexcion Specialty Chemicals Inc. are making a "novel" argument to get out of the deal.

"In a complaint filed in the Delaware Court of Chancery, Hexion said Huntsman's poor financial results -- increased net debt and lower-than-expected earnings -- would render the combined company insolvent," the paper said, adding that legal experts expect Huntsman to file a countersuit. Of course, shares of Salt Lake City-based Huntsman were plunging in premarket action and will likely open much, much lower. CNBC's David Faber points out that the Huntsman deal was "held out" to be the strongest of the LBO deals. That's scary.

In a press release, Huntsman CEO Peter Huntsman said, "These actions appear to be a blatant attempt to deprive our shareholders of the benefits of the Merger Agreement that was agreed to nearly a year ago." The company added that it intends to "vigorously enforce" its rights under the merger agreement and seek to consummate the merger under the agreed upon terms.

United Rentals Inc. (NYSE: URI) has announced a major self tender offer this morning and is is seeing shares surge in pre-market trading. It isn't going private, but it is cleaning up its books and retiring a large portion of its common stock and preferred shares. It seems it is doing what the old private equity acquisition couldn't do.

The company has announced its plans to tender for up to 27,160,000 shares of common stock through a modified dutch auction. This will be at a price of not less than $22.00 and not greater than $25.00. Shares closed at $19.50 yesterday and its 52-week trading range is $14.83 to $34.98.

The number of shares to be repurchased in the tender offer represents approximately 31.4% of the total outstanding number of shares. If fully subscribed, the total purchase price for the common stock would be roughly $679 million. There is also the retirement of preferred shares outstanding as part of this deal, which ties into Apollo Investment Funds and the associated board members will resign from the board of directors as part of the transaction.

Continue reading the full details and analysis at 247WallSt.com.

Shares of Chemtura Corporation (NYSE: CEM) are seeing some love early Tuesday. A report out of the WSJ from last night is putting the stock in play as a potential takeover target. The report notes that Blackstone Group LP (NYSE: BX) and Apollo Management LP are in talks to acquire the specialty chemical maker.

The company's market cap is almost $1.9 billion, so it would seem within the realm of deal sizes even in an environment where private equity types have not been able to do many deals. Whether or not the deal is made, that is yet to be seen.

Chemtura products are used in flame retardants, polymer additives, PVC additives, agriculture, plastics, and more.

Even on a deal this size, do we need club deals in a private equity environment in need of simplification? Either way, until we have an announcement. this should be treated as just a rumor.

Metals USA Holdings Corp. filed to come public this morning via an initial public offering. The company is taking the proposed ticker of "MUX" on NYSE. For filing purposes, it intends to sell up to $200 million in common stock.

The company is one of the largest metal service center businesses in the United States, and is a leading provider of value-added processed carbon steel, stainless steel, aluminum, red metals and manufactured metal components.

This is a private equity held company, and investment funds affiliated with Apollo Management, L.P. are the principal stockholders. Some proceeds will go to the company and some to shareholders, although those percentages have not been set. It also looks like the company will repurchase some or all of $300 million of senior floating rate notes with the proceeds.

Read the full story from 247WallSt.com.

Jon Ogg produces and edits the "10 Stocks Under $10" newsletter and he does not own securities in the companies he covers.

They say private equity is the smartest of smart money, able to generate massive profits out of thin air. Well, the folks at Apollo Management probably aren't feeling too smart today, as their $1.3 billion investment in Linens 'n Things has taken a significant turn for the worse.

Linens 'n Things has now confirmed the growing speculation that it would declare bankruptcy. As Zac Bissonnette reported in April, the company lost $242 million in 2007, after the company had gone private in February of 2006. In the last few months, it was said to be having trouble with its suppliers, which rightly feared providing it with credit and merchandise.

The odd thing is that many private equity funds saw the housing and credit crunch coming. It would stand to reason that a billion dollar chain that feeds on the housing market may not be the best investment towards the end of a great speculative housing boom, but I guess the people at Apollo thought they could work their magic whatever the market conditions.

The good news is that Linen Holdings has secured $700 million in financing from GE Capital. This should enable the company to continue operating as it restructures, although it will close 120 stores. But at least the majority of its 17,000 employees still have hope that they won't lose their jobs, at least not right away.

Without even looking at the numbers or knowing anything about the deal, most people could probably tell you that Apollo Group's acquisition of Realogy, parent company of Century 21 and Coldwell Banker, at the height of the real estate boom is probably not doing too well.

And that's just the beginning of the private equity giant's woes. There's also the Linens n' Things deal on the brink of bankruptcy and Claire's Stores. The New York Times takes a look at the company and its top man, Leon Black, who continues to invest aggressively in spite of the troubled market. Apollo came close to buying billions in debt from Citigroup last week.

The Times piece has an interesting quote from Black: "You can get equity-type returns from debt instruments that may be a better play than pure equity right now, where you can't get leverage."

Apparently the lack of liquidity in debt has made that market a lucrative stomping ground for vultures. If Black and other are content to look for value buying back debt they issued a few years ago at 40 cents on the dollar, we could see the private equity slowdown continue for awhile -- that would be bad news for stock market investors who look to buyout shops to take companies private at substantial premiums.

A recent article out of The Economist that was featured on CFO.com this morning, "The Comeback of Private Equity," discusses that private equity firms could be an uncertain remedy for the credit crunch.

The private equity industry possesses two main characteristics as of late. First, huge leveraged buyouts are being replaced with purchases at distressed prices with less leverage. The second private equity factor lies in the fact that these companies have a lot of cash and capital to spend. With all this capital and all the distressed debt, private equity firms can buy loads of debt at low prices.

TPG has just gone after a major finance deal and The Carlyle Group recently closed a $1.4 billion fund that capitalized on low prices. TPG, Blackstone and Apollo are currently negotiating with Citi to pick up $12 billion in frozen loan off their balance sheet. Yet another example-Apollo, a firm with a historical focus on distressed debt, plans to go public.

While this shift in the market may help alleviate some of the credit crisis and earn private equity some returns, the jury is still out. Some regulators are wary of this new trend in private equity, wondering who will run the banks.

The article also points out that the true value of a private equity firm depends on its ability to improve portfolio company performance, not in "working magic" for financial institutions.

While I agree on the verdict still being out, this is actually a relief to see. Frankly, the cash has to be put somewhere and the good news is the debt markets have thrown out the baby with the bathwater. There will be real winners and real losers in this. There always are. But this will kick back a steady flow of funds or will at some point, and those funds will either be paid to partner/client groups or will be used to fund investments when a better climate is present. We won't be seeing any major club deals like we used to for $10 billion and $20 billion or more.

Someone has to act as a vulture. The issue always boils down to "at what price is this worth the risk?".

Sometimes brilliant people armed with spreadsheets screw up badly. Sometimes, as in the case of Linens n' Things, they screw up really badly.

In February of 2006, Apollo Management agreed to take Linens n' Things private for $1.3 billion. Now, less than two years later, the company is poised to file for bankruptcy, according (subscription required) to the Wall Street Journal. The company employs 17,000 people, with 590 stores in 46 states. The company lost $242 million in 2007.

The Journal reports that "Linens also is working to avoid or delay filing for bankruptcy protection by meeting Monday with its lenders and largest vendors to work out an agreement, but a deal is unlikely."

Linens n' Things is a victim of two of the economic woes generating the most media attention: the housing downturn and the credit crunch. In addition, lower-cost suppliers of similar products like Wal-Mart (NYSE: WMT) are taking market-share. People who are having trouble paying their mortgages tend not to obsess over thread count.

On another note, housewares retailer Pier 1 Imports (NASDAQ: PIR) appears to be making strong progress on its turnaround, with its first comparable sales gain in 17 quarters and a return to profitability -- its first quarter in the black in 12 quarters.

But its huge debt load makes it tough for Linens n' Things to weather economic storms.

Apollo Management, which is one of the largest private equity firms, has traded on Goldman Sach's (NYSE: GS) private exchange, GSTrUE OTC. Unfortunately, the shares are down 40% (since August). Of course, other alternative asset managers – such as Blackstone (NYSE: BX) and Fortress Investment Group (NYSE: FIG) – have suffered plunges as well.

So what's the next step for Apollo? Well, the firm plans to trade on the NYSE. The IPO filing calls for raising $475 million of capital.

Apollo got its start in 1990 and profited handsomely from distressed investments (keep in mind that this was after the buyout boom). Now, the firm manages $40.3 billion and has recently raised a fund for $12.5 billion. Over the past 18 years, Apollo has generated an impressive 29% net internal rate of return.

In 2007, Apollo's revenues spiked 84% to $637.9 million. Economic net income fell 59% to $152.8 million.

However, returns may come under pressure. After all, Apollo binged on a variety of dicey deals, such as Linens 'n Things and Realogy. Wall Street investors may be somewhat skeptical.

To get the full details on the offering, you can find Apollo's IPO prospectus at the SEC's website.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.