According to a fresh report out of CNBC's David Faber, Alltel may soon be acquired by Verizon Communications Inc. (NYSE: VZ). Faber just noted that the companies are in advanced talks to acquire the current private equity held telecom operator by TPG and GSCP, which are Texas Pacific Group and Goldman Sachs Capital Partners.
Alltel went private last year and has somewhere in the vicinity of 13 million wireless subscribers. The value of that deal was in the 427 to $27.5 billion range, and interestingly enough this new deal may not be at any or at much of a premium to that price.
If there is any company that can acquire this and not have all the credit rating issues and not run into multiple bank debt issues like private equity, then it is Verizon. There are a couple of other players like AT&T (NYSE: T) or some foreign-owned carriers that could swing it too. Read more about the full implications for the sector and which other companies might be affected by this deal at 247WallSt.com.
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.
There is good news and bad news in a financing pact for Washington Mutual (NYSE: WM) that has been outlined this morning. It has outlined details of a financial aid or rescue finance package.
The company is raising a total of $7 billion via direct stock sales to an investment vehicle managed by TPG Capital, which includes other top institutional holders.
While this financing pact is great in that it provides needed liquidity, the share placement price is essentially at the low of the stock since the malaise began. The company has also slashed its dividend down to $0.01 and outlined details of its losses.
TPG as the anchor will buy $2 billion in newly issued securities. WaMu is issuing 176 million shares at $8.75 and 55,000 contingently convertible perpetual non-cumulative preferred stock at a purchase price and liquidation preference of $100,000.00 per share with an exercise price of $8.75 per share.
This financing package is more similar to an old fashioned rights offering that is at a deep discount and highly dilutive. You can read the full story from 247WallSt.com..
If you look over "at-risk" mergers, the acquisition of Myers Industries, Inc. (NYSE: MYE) looked about as hopeful as waiting for the Titanic to pull into port. This merger was announced almost one-year ago as a $1.1billion deal, and the market cap is $478 million.
The company has announced this morning that it has received notice that GS Capital Partners, the private equity arm of Goldman Sachs (NYSE: GS), does not intend to proceed with the proposed acquisition of Myers. As a result, Myers Holdings and GS Capital have mutually agreed to terminate their merger agreement, with an effective date of April 3, 2008.
After looking back over its past earnings release, it appears that raw materials costs are probably part of the problem for the rubber and plastics maker. Myers had also received a $35 million payment from GS Capital Partners to extend the merger date to April 30.
Myers Industries continues to focus on its sound business growth plan and fundamentals directed at sustainable, profitable growth. The company noted it "is confident in its ability to continue value generation for customers and shareholders."
The buyout price was originally set at $22.50, and shares closed on Thursday at $13.60. The 52-week trading range was $9.73 to $22.73, so this one was fairly well telegraphed that it was a goner. About the only hope here was that a lower buyout would come. Hoping in the same sentence as investing is generally one of the worst investment policies out there.
There has been quite a bit of buzz around the trends in special purpose acquisition companies, or SPAC's, of late. In fact, it seems that about two of every three IPO filings that get filed are from SPAC's. These SPAC IPO's offer the public essentially a call option to participate in private equity that will end up being publicly traded stocks. Ultimately, these will become operating companies or within 24 to 30 months investors will receive their cash back minus a few percentage points.
Attention is still being given to the fact that J.W. Childs Acquisition I Corp. was filed to raise $200 million. This was two weeks ago too. Some have asked if J.W. Childs is testing the water here or if this is because they would have trouble raising a private equity fund on their own. If you want a confusing explanation, the answer is "both and neither."
SPAC's are changing as well. In the past, Goldman Sachs (NYSE: GS) has avoided SPAC's and blank check offerings. The reason is that the stigma behind these from the 1990's wasn't a good one. All things change in time. Goldman Sachs just filed for its SPAC initial public offering this week. They also made the terms slightly more tight than most other underwriters.
Opinions on traditional private equity firms going into SPAC launches vary already and they will vary only more in the future. But this strategy makes life easier for the private equity firm. For starters, they don't have to go run through all the hoops associated with raising a private equity fund. They don't have to use their own sales or biz0dev team to go spend the 90 to 180 days or longer due diligence period. This allows them to make the brokerage underwriting firm go do the leg work and allows them to distribute units that are publicly traded to retail and/or institutional clients. It also gives the private equity firm a two-year time frame as breathing room to go pick their deals.
Arguably, it even allows the firms to go through other private equity firms' portfolios to see if there are businesses or units that can be bought that would have otherwise been stuck as a buried entity.
There are many critics of SPAC's and traditional blank check IPO's. But this may be a trend you don't have to like. You just have to accept it for what it is.
While Goldman Sachs Group, Inc. (NYSE: GS) managed to beat earnings handily, there is a key metric for private equity investors. That metric isn't that Goldman Sachs beat greatly lowered earnings targets nor that shares are up 8% after earnings.
Goldman Sachs noted that it ranked first in global mergers and acquisitions for its fiscal year to date. But there was a key drop in investment banking revenues. Its $1.17 billion in revenues in the investment banking segment were 32% lower than the first quarter of 2007 (year over year) and were down 41% from the fourth quarter of 2007 (sequentially). That signals a slower annual trend but an even slower trend in the near-term has occurred.
More specifically, its net revenues in Financial Advisory Services were $663 million, down some 23% from the first quarter of 2007, reflecting a decrease in industry-wide completed mergers and acquisitions. Its net revenues in its Underwriting segment were $509 million, 40% lower than the first quarter of 2007. On that it notes significantly lower net revenues in debt underwriting, due to a decrease in leveraged finance and mortgage-related activity in difficult market conditions.
The bad news is that is not showing any immediate reprieve in the arena of private equity lending, nor in the number of mergers. The good news is that we should have already known this. There is a giant de-leveraging transition happening on Wall Street (and Main Street for that matter). This may be the new norm for the time being.
2006 and 2007 were more fun to cover the M&A frenzy, but the deals started getting stupid. This is not at a all the death of of private equity nor will it be the death of M&A. The billionaires might have to make more normalized acquisitions from here on out, and they might even even have to use mostly their own money.
Carl Icahn is one of the top billionaire activist investors that traders actively watch (and follow with real money trades). On Thursday, an Icahn Enterprises (NYSE: IEP) subsidiary announced the closing of its sale of four Nevada casinos to a Goldman Sachs (NYSE: GS) managed real estate fund called Whitehall Funds.
Valued at $1.2 billion, the sale includes the Vegas-strip Stratosphere, two off-strip Arizona Charlie's casinos and Aquarius Casino in Laughlin.
Last month the transaction was approved by the Nevada Gaming Commission, so Icahn is definitely getting the funds. Here is a full list of Icahn's most current top holdings, and Mr. Icahn is buried in some of these positions. He may want to average down rather than go after new targets.
These investors will contribute roughly $710 million, with a maximum of $775 million, in a formula to be determined after the company sells certain investment portfolio assets as required under the terms of the agreement. It also entered into a pact with Goldman Sachs for financing of up to $500 million in debt and it is expected to obtain an additional $200 million in debt financing prior to the close of the transaction. MoneyGram also expects to have $350 million outstanding or available under its existing credit agreement and will seek the proper amendments and waivers to its current package.
On top of this, it has coordinated a new extended pact with Wal-Mart Stores (NYSE: WMT) to provide payment services and money order services at some 3,500 stores through 2013.
Upon closing the transaction, it is expected that the investors will receive a combination of nonvoting preferred stock with an aggregate liquidation preference equal to approximately $710 million and common equivalent stock representing approximately 19.9% of the currently outstanding shares. The nonvoting preferred stock received at the closing will have an initial interest rate of 20% (up to 22% max) and will have contingent value rights tied to the future value of the common stock.
The convertible voting preferred stock will pay a cash dividend of 10% or may accrue dividends at a rate of 12.5% in lieu of paying in cash. The company expects it is likely that dividends will be accrued and not paid in cash for at least four years. The convertible voting preferred stock will be convertible into shares of common stock of the Company at a price of $5.00 per share, which is expected to give the Investors an initial equity interest of approximately 63%, assuming a $710 million investment.
This is obviously going to change all of the earnings expectations as a result of higher interest, but it also will keep the blood-letting down to a minimum from here.
MoneyGram shares are rallying sharply in pre-market trading. Shares closed at $5.31 yesterday, and shares are up some 21% to $6.45. Its 52-week trading range $3.68 to $30.85.
Semiconductor design startup Intrinsity Inc. said Monday it raised $31.5 million in a fifth round of venture capital, a strong endorsement of the company's three-year transition into a "chipless" company devoted solely to licensing its intellectual property.
Late-stage investors Goldman, Sachs & Co., Altitude Capital Partners and Northwater Capital Management Inc., all of New York, joined the round, which also included previous investors Adams Capital Management of Austin, Texas, and Hillman Co. of Pittsburgh. The deal brings total investment in the 11-year-old company, which is based in Austin, to nearly $100 million, and will allow it to expand existing licensing programs and continue developing design tools and proprietary code for creating ultra-fast programmable chips, primarily for the wireless telecommunications infrastructure industry.
Rob Kramer, managing partner at Altitude, said the firm was attracted to the deal based on the strong royalty agreements Intrinsity has in place for licensing its high-speed, low-power embedded processor cores, along with the company's opportunity to generate additional licensing business. Altitude is a three-year-old firm that invests solely in companies with an IP-licensing model, and Kramer said Intrinsity has quickly amassed a number of long-term deals that ensure a healthy revenue stream, even as it continues to develop new technology.
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) "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 toThe 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.
Despite all the rumors, the $24.7 billion buyout of Alltel (NYSE: AT) got done. With the credit crunch and botched deals, the stock definitely showed volatility. But, the private equity folks at Texas Pacific Group and Goldman Sachs (NYSE: GS) certainly didn't lose interest in the company. The stock price on the transaction was $71.50.
No doubt, Alltel made some key strategic moves to make itself attractive to private equity sponsors. Perhaps the most important initiative was the spin-off of its wireline business in 2006. Basically, this provided more focus for the company.
To get some more perspective on the deal, I checked out the proxy disclosures. Alltel took the approach of a quicker auction – so as to minimize leaks as well as try to get a better valuation.
Alltel had its financial advisors put together a summary LBO (leverage buyout) analysis. The estimates ranged from $59.75 to $70.50. This assumed that the company could fetch 6.5x to 8x multiples on EBITDA by 2012, which would produce a return ranging from 17.5% to 22.5% per year.
All in all, this looks like a textbook example of a quality deal. Yet, there are certainly risks. After all, Alltel will need to manage a debt load of $23 billion.
Wall Street has its own brand of breaking up. There may not be 50 ways but there are at least two -- the easy way and the hard way. According to the New York Times, KKR and The Goldman Sachs Group (NYSE: GS) are splitting with Harman International (NYSE: HAR) the easy way, while J.C . Flowers is taking the hard route to killing its deal with SLM Corp (NYSE: SLM).
The easy way, in the Harman case, is for the buyers to buy $400 million worth of Harman bonds instead of paying $8 billion to own the company. Under the new agreement, the buyout deal struck in April will be dissolved, with no litigation or payment of the $225 million termination fee. Instead, KKR and Goldman will buy bonds that can be exchanged for Harman shares at $104, below the $120-a-share price of the original offer -- but much higher than its current $85.87.
Harman gets some cash and saves face while KKR and Goldman get out of investing in a cratering company -- HAR's earnings of 50 cents a share for the most recent quarter are expected to be less than half of the $1.02 analysts had forecast.
When KKR and Goldman Sachs walked away from the $8 billion buyout of Harman (NYSE: HAR), it looked like there would be a massive legal fight.
But that's been cleverly avoided. KKR and Goldman have agreed to buy about $400 million in Harman's convertible debt. The conversion rate is $104, which means that there is hope that the stock will make a comeback (the current stock price is about $86).
More importantly, KKR and Goldman will avoid paying a $225 million break-up fee.
True, it's not perfect. But, then again, this is a compromise, right? A legal fight would a big drain, in terms of money and time. Besides, this agreement is a sign of a new trend in private equity – that is, making minority investments. With a lack of big-time financing, it looks like private equity firms may have no other choice.
Goldman Sachs (NYSE: GS) is heading toward Japan in a partnered bid with Aetos Capital LLC to buy Japanese property company Simplex Investment Advisors in a 65% premium share bid, for the equivalent of about $1.1 billion to $1.35 billion, depending on your price calculations in current and closing prices of yen on the Japanese stock prices versus closing prices. The bid is for at least 80% of Simplex, and it appears that Nikko Cordial, part of Citigroup Inc. (NYSE: C) in Japan, is selling its 42.5% stake to the venture.
If you think the U.S. property weakness has been bad, the situation in Japan has been worse. Japan experienced its own bubble back in the 1980s, and only in recent years have things seemed to get better. Goldman Sachs has already been active in buying commercial and recreational properties in Japan over the last decade, but this would mark a larger leap into a property market that may hold relative values.
Goldman Sachs has raised over $4 billion this year for property acquisitions, so you can assume more land grabs are coming. Bloomberg has a pretty detailed piece that gives more background on the ongoing landgrabs in Japan. If you want to look up more data on Simplex Investment Advisors, it trades under the numeric stock ticker "8942" on the Tokyo Stock Exchange. Jon Ogg produces the SPECIAL SITUATION INVESTING NEWSLETTER and he does not own securities in the companies he covers.
"The Fed's moves do not mean we are out of the woods as far as further market corrections go; however, we do want to increase our exposure to the market, particularly top quality financial stocks," says Daniel Frishberg.
The host of BizRadio 1320 and editor of The MoneyMan Report is adding two stocks to his portfolio that he considers among the "best companies in the world" – the Blackstone Group (NYSE: BX) and Citigroup (NYSE: C).
He explains, "The market's action has been very impressive. Our Market-Ray indicator shows that demand was overwhelmingly positive and while supply dried up. That is a great recipe for higher prices."
He continues, "One thing that we believe is clear is that the Fed is more interested in global growth and the impact on Americans than the risk of inflation at this time. This will put a floor on certain asset groups such as financials."
One favorite financial holding, already in the advisor's portfolio, is Goldman Sachs (NYSE: GS). Now, to boost his exposure to the financial sector, Frishberg says, "We're adding two dominant stocks at cheap levels, Citigroup and Blackstone."
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Semiconductor design startup Intrinsity Inc. said Monday it raised $31.5 million in a fifth round of venture capital, a strong endorsement of the company's three-year transition into a "chipless" company devoted solely to licensing its intellectual property.
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