bloggingbuyouts

When The Blackstone Group (NYSE: BX) went public, many observers -- myself included -- were concerned by the total lack of corporate governance checks and balances.

But at the time, the private equity industry was so hot that Blackstone could do no wrong, and no one cared enough to complain. Now that KKR is mulling a plan to list on the New York Stock Exchange, things could be different. The wheels have come off the industry, at least for now, and the arrogant attitude of "We'll tell you what we feel like telling you and you'll like it" may not play so well.

Blackstone Group co-founder Peter Peterson has elected to donate $1 billion -- which he calls the "vast majority" of his "net proceeds" from the company -- to his very own Peter G. Peterson Foundation. The foundation's mission statement on its website reads:

Our mission is to increase public awareness of the nature and urgency of key economic challenges threatening America's future and accelerate action on them. To meet these challenges successfully, we work to bring Americans together to find sensible, sustainable solutions that transcend age, party lines and ideological divides in order to achieve real results.

I received an interesting email alert this morning from The Blackstone Group (NYSE: BX) regarding the addition of a new Board of Directors member. The addition is Richard H. Jenrette.

Board member additions are usually not stock events or at least not actionable events, but Mr. Jenrette is founder of DLJ, or Donaldson Lufkin & Jenrette ("DLJ"). That firm was founded in 1959.

DLJ wasn't exactly an institution that went without problems through the years, but it was built essentially from scratch to a multi-billion dollar behemoth in the financial sector with operations in trading, brokerage, investment banking, advisory, clearing, and more. Ultimately it was acquired by Credit Suisse Group (NYSE: CS), and its discount brokerage operations were acquired by E*TRADE Financial Corp. (NASDAQ: ETFC).

Mr. Jenrette is also also a former Chairman of the Securities Industry Association and has served as a director or trustee of The McGraw-Hill Companies, Advanced Micro Devices Inc., the American Stock Exchange, The Rockefeller Foundation, The Duke Endowment, the University of North Carolina, New York University and the National Trust for Historic Preservation.

Waste Management, Inc. (NYSE:WMI) is switching around the merger game in the garbage and trash collection sector. The company has announced today that it has made a proposal to Republic Services, Inc.(NYSE: RSG) to acquire Republic for $34.00 per common share in cash.

The company said that its proposal represents a premium of approximately 22% over the closing price of Republic stock from before the offer was submitted. Waste management believes that its all-cash proposal offers a better value to Republic stockholders than the recently announced Republic-Allied Waste Industries, Inc. (NYSE: AW) transaction.

The company said its board is committed to maintaining an investment grade status and is committed to continuing its annual dividend of $1.08 per share.

Waste Management noted that the Republic-Allied merger agreement expressly contemplates alternative proposals from third parties and defines a process for Republic to respond to those proposals.

The company believes that a transaction with Republic would close early in 2009. Waste Management also noted that it believes all of the financing needed to complete the transaction will be available on satisfactory terms believes it will maintain its investment grade status on a combined basis.

You could imagine that this would definitely run into antitrust issues and would definitely require certain divestitures.

Almost everyone thought of the Penn National Gaming Inc. (NASDAQ: PENN) private equity LBO merger as dead money for quite some time. It only officially became a dead merger this morning. This was the last of the big multi-billion deals still officially on the books that was put together back before we had a full blown credit crunch.

PNG Acquisition Company Inc. was the buyout entity, which was indirectly owned by certain funds managed by affiliates of Fortress Investment Group LLC (NYSE: FIG) and Centerbridge Partners, L.P.

The buyout price of $67.00 per share was older than Methusela. Since January, this stock slid steadily from over $60.00 down to under $30.00. The deal was a known to be dead by everyone. But there is actually a silver lining here for the company. Penn National will get $1.475 Billion in cash out of this.

Affiliates of Fortress, affiliates of Centerbridge, affiliates of Wachovia, and affiliates of Deutsche Bank will all be holders of those notes. To top it off, Fortress Investment Group's Chairman & CEO, Wesley Edens, will join the Penn National Gaming Board of Directors.

Keep reading for on the fly analysis, guidance, and ramifications at 247wallst.com.

Landry's Restaurants, Inc. (NYSE: LNY) has announced that it has entered into a definitive agreement with Fertitta Holdings, Inc.

Fertitta has agreed to acquire all outstanding common stock for $21.00 per share in cash. This represents a premium of approximately 37% over the closing share price of the company's common stock on April 3, 2008. This was the last day before disclosure of the revised offer made by Mr. Fertitta to acquire the company. The total value of the transaction is approximately $1.3 billion, which includes approximately $885 million of debt.

Fertitta is a newly formed entity wholly owned by the company's Chairman, President, CEO and original founder, Tilman J. Fertitta. Mr. Fertitta beneficially owns approximately 39% of the Company's outstanding shares of common stock.

Continue reading the implications and analysis at 247WallSt.com.

Pier One Inc. (NYSE: PIR) has made an offer to acquire rival Cost Plus, Inc. (NASDAQ: CPWM). Cost Plus confirmed this today. Unfortunately, nether stock is reacting with anything resembling an overwhelming response. It may seem like a game changing deal on the surface.

As far as the terms before any dilution, this would have been a 31% premium for Cost Plus before any dilution metrics come into play. The buyout terms are for 0.6 shares of Pier One for each share of Cost Plus. When you factor in the share drop at Pier One, this looks like a resounding thud.

The problem is that Pier One shares have fallen and therefore lowered the potential buyout price compared to any cash offer buyout deal. With a 16% drop to $5.55 per Pier One share, this works out to a mere $3.33 for Cost Plus.

Continue reading the full summary and analysis from 247WallSt.com.

Jon C. Ogg

Some companies get it, some don't. Circuit City Stores, Inc. (NYSE: CC) has been in the camp of companies that don't get it. That may have finally changed today.

The company appears to have finally capitulated and realized its days under its own efforts may be limited. There are two separate announcements this morning, but in reality it is all part of the same issue.

This will allow the company to deal with the activist pressure, and may ultimately lead to the company either being run by a better team or become a subsidiary of another company. The company just issued a release that it has reached an agreement with Wattles Capital Management.

Blockbuster Inc. (NYSE: BBI) and Carl Icahn may finally get their way.

Keep reading the full story at 247WallSt.com.

Jon Ogg is also a producer and editor of the "10 Stocks Under $10" weekly newsletter for 247WallSt.com.

Vinum Capital Management has announced the launch of a $250 million fund targeting the California and west coast wine industry, Vinum Capital Partners I, LP. The fund will focus on mid-size premium and super-premium wine properties that produce 20,000 to 150,000 cases per year.

The California-based company plans to acquire wine companies, grow and expand them, and ultimately sell the assets in this industry that receives relatively little attention from equity investors. Vinum put together a solid team with significant experience in the wine industry, totaling $1 billion in winery-related transactions.

I"ll say one thing after reading this new -- every worker in private equity probably wants to get hired by this fund.

Investment partners for the fund include Justin Faggioli, former COO of Ravenswood, Scott Setrakian, former Director of Golden State Vineyards and an M&A and financing expert, G. Craig Vachon.

The portfolio management team for the fund lists Bill Foster from Beringer, Jonathan Pey from Robert Mondavi and Fosters Wine Estates, Doug Rogers from Gallo, Southcorp, and Brown-Forman Wines, and Bob Steinhauer from Beringer.

If you have kept up with the wine, beer, and spirits industry, you'll get the significance of this as both Beringer and Mondavi are formerly public companies. Fosters acquired Beringer earlier this decade. Constellation Brands (NYSE: STZ) also acquired Robert Mondavi.

Jon Ogg produces and edits the Special Situation Investing Newsletter for 247WallSt.com.

We've been digging around for the the coming layoffs at private equity firms to get a good handle on just what the economic downturn and credit crunch will mean to all the B-School kids who wanted to be the next multi-millionaires and billionaires. While no hard numbers are out industry-wide yet (at least that you can hang your hat on), there are some things trickling out.

The Deal Journal, of the Wall Street Journal, noted in a post today that American Capital Strategies (NASDAQ: ACAS) plans to let go an unspecified number of staffers in middle markets. As you can see in the chart below, they have had their fair share of pain in the process.


Dan Primack, of Private Equity Hub, also wrote a piece noting that no one is getting hired in finance anymore, so he linked to an M&A article about "how to get fired."

Our own Zac Bissonnette wrote here on BloggingBuyouts at the end of February about how M&A was down so much that dealmakers were set for big layoffs.

But here we are at the end of April and no major firings have come the way of dealmakers. Since they cannot all jump into "distressed mortgages and loans" and since they cannot all go to work for a SPAC immediately, it seems only a matter of time and that time is sooner rather than later.

The one thing you can bet on is that there won't be press releases out of private equity firms. They are private for a reason, well most are still private. When the news does come out it's probably safe to assume that the firms will say this is merely a reflection of the current conditions or something of the like. Just keep in mind that companies don't fire waves or groups of workers if they think they will be needed in a few months time.

Who knows, maybe they will just announce worker furloughs through the end of summer.

Mark Mobius, one that I consider a seer and leading pioneer among emerging market fund managers, has said he is in talks for private equity investment in Iraq. According to Reuters (and others), he is getting closer to plunking funds down into Iraq.

He said various small manufacturing and food companies that are worth looking at to provide investments. If Mobius invests in Iraq, his investment group will be one of a few companies to invest in Iraq projects since the U.S. invasion. One brave investor, Godvig-Capital Management, has a hedge fund called the Babylon Fund that focuses on Iraq.

Mr. Mobius manages approximately $40 billion in emerging market assets through Templeton Asset Management, a part of Franklin Resources Inc. (NYSE: BEN). He is in the process of developing a $300 million fund for emerging markets.

Mobius is the one who has been coined with the term "Invest when there's blood in the streets." Well, that means he sees many opportunities in Iraq.

Jon Ogg is a producer and editor of the Special Situation newsletter and the "10 Stocks Under $10" weekly newsletter for 247Wallst.com.

An article by South-African based Business Report summarizes private equity trends this year amidst the crunched credit markets and slowing U.S. Economy. While it isn't exactly 2007 or 2006, the numbers are still impressive.

According a Private Equity Intelligence Study cited in the article, in the first three months of 2008, private equity funds have raised $163.5 billion.

Last year, leveraged buyouts tripled the $73 billion posted in the same period this year. This article is also confirming what we have started seeing in many such private equity trends for the start of 2008, as it notes that leveraged buyouts are being replaced with distressed debt. That is amounting to $40 billion being raised by 31 firms so far. For example, Bain Capital's hefty $13.5 billion fund targets distressed debt, as well as venture and property.

IndexAtlas has announced the launch of the $50 million Art Industry Fund, an alternative private equity fund targeting only businesses that serve the art industry.

This will include such operations as auction houses, advisory services, financial and security firms, software and media companies. Each investment is intended to last four years and will range from $3 to $8 million. The fund is expected to close by December 31, 2009.

CEO and founder of IndexAtlas, Sergey Skaterschikov, believes the fund will generate an IRR of 35% and bases his investing strategy on his book, "Skate's Art Investment Handbook." Skaterschikov established IndexAtlas in 2001 and manages $400 million in fully invested funds and has advised on $2.4 billion in transactions.

There have been many such reports in here showing how there has been a convergence of private equity and venture capital. If this isn't a prime example of that, then nothing else is.

If I didn't know better, it almost sounds a lot like a Sotheby's (NYSE: BID) incubator fund, although it's not.

If you've ever wondered why so many low-P/E ratio technology companies haven't been gobbled up, there is a really good explanation: R&D, leverage, and volatility.

Business Week just ran a great cover story titled "When a Buyout Goes Bad" for this week's magazine. The case in hand is the old private equity buyout of Freescale, which was the chip business from Motorola Inc. (NYSE: MOT). This talks about a company that was turned around from the edge of the cliff by a great tech leader who created a great stock again. Then the $17.6 billion buyout came from a group led by The Blackstone Group (NYSE: BX), Carlyle Group, and Permira Advisers. This buyout came after being in a competing bid from a consortium led by KKR, Bain Capital, Apax Partners, and Silver Lake Partners.

Last year the company's revenues fell 10% while the chip sector revenues grew by 5%, then Motorola announced a spin-off or sale of its handset business, and then there is the issue of the $9.5 billion in debt that was clumped on top of the company to get the private equity buyout done.

Unless you are selling transistors and capacitors or just plain Jane DRAM, technology companies require heavy R&D commitments. This is why historically technology companies used to come public back before the 1990's "get rich from tech stock option awards" became the norm. The accounting changes required investor backers of a different group to mark down 15% of their $7 Billion stake as well. In fact, it notes that it is having a hard time ponying up the $1.2 billion for R&D and $400 million for capital expenditures needed for Freescale. And now there are inventory problems.

For me personally, I am not all that surprised that Freescale was a temporary success. One night right shortly before Freescale was spun-off by Motorola, I was flying from Austin to Chicago. I spoke to two workers that said they were low level managers for Freescale. When they called the company "Free-Fall" and told me about some of their pension or retirement issues and stock option plans getting mixed up (not for the better, at all), it left a bad taste in my mouth. Then when this one went private with that much debt and knowing what comm-chip R&D percentages of revenue were, I thought the billionaires were drinking too much of the cool-aid.

You should read that article as it puts it well into context. This is why niche technology companies generally end up being acquired by other niche technology companies or by larger tech companies that are competitors or that can complement each other. In mid to late-2006 you started seeing the private equity frenzy go into overdrive.

If you want good news or the silver lining, I do actually have some. I think that there will be another wave of public technology companies that get acquired. But the buyers will almost all be LARGER public technology companies. Private equity and technology can mix, but the deals need to be smaller deals with less leverage and in companies that require less R&D.

Private equity firm Behrman Capital has announced that General Peter Pace, retired USMC and former Joint Chiefs of Staff Chairman, took the role as Operating Partner with the firm. General Pace was also named as Chairman of the Board to Pelican Products, an advanced lighting systems and valuable equipment case manufacturer. He will also direct ILC Industries, Inc., a company that provides defense electronics (of course the defense angle).

Grant Behrman of the firm noted that General Pace has forty years tenure in the Marines and then as Chairman of the Joint Chiefs of Staff. Pace graduated from the U.S. Naval Academy and has an MBA from George Washington University.

Behrman Capital is a private equity investment firm with more than $2 billion of capital under management and it invests in management buyouts, leveraged "buildups" and recapitalizations of established growth companies. If you look through the private equity firm's portfolio companies, you can see why having a former general and Joint Chiefs of Staff Chairman would be a good thing.