May 27, 2024

DealBook: Dell in $24 Billion Deal to Go Private

The decision to take Dell private puts the company more firmly under the control of Michael S. Dell.Justin Sullivan/Getty ImagesThe decision to take Dell private puts the company more firmly under the control of Michael S. Dell.

Dell announced on Tuesday that it had agreed to go private in a $24 billion deal led by its founder and the investment firm Silver Lake, in the biggest leveraged buyout since the financial crisis.

Under the terms of the deal, the buyers’ consortium, which also includes Microsoft, will pay about $13.65 a share. That is roughly 25 percent above where Dell’s stock traded before word emerged of the negotiations of its sale.

Dell’s board is said to have met on Monday night to vote on the deal.

As a newly private company — now more firmly under the control of Michael S. Dell, who is contributing his stake of nearly 16 percent to the deal — the computer maker will seek to revive itself after years of decline. The takeover represents Mr. Dell’s most drastic effort yet to turn around the company he founded in a college dormitory room in 1984 and expanded into one of the world’s biggest sellers of personal computers.

But the advent of new competition, first from other PC manufacturers and then smartphones and the iPad, severely eroded Dell’s business. Such is the concern about the company’s future that Microsoft agreed to lend some of its considerable financial muscle to shore up one of its most important business partners.

Analysts have expressed concern that even a move away from the unyielding scrutiny of the public markets will let Mr. Dell accomplish what years of previous turnaround efforts have not.

Nevertheless, the transaction represents a watershed moment for the private equity industry, reaching heights unseen over the past five years. It is the biggest leveraged buyout since the Blackstone Group‘s $26 billion takeover of Hilton Hotels in the summer of 2007, and is supported by more than $15 billion of debt financing raised by no less than four banks.

Article source:

DealBook: China Investment Corp. in Talks for Alibaba Stake

Alibaba's headquarters outside Hangzhou, China.Nelson Ching/Bloomberg NewsAlibaba’s headquarters outside Hangzhou, China.

The China Investment Corporation is in advanced talks to pour as much as $2 billion into the Alibaba Group to help finance the Internet company’s efforts to buy back a stake from Yahoo, a person briefed on the matter said on Thursday.

C.I.C., a $200 billion Chinese sovereign wealth fund, is one of several potential partners from whom Alibaba would raise money to pay for the stake repurchase. On Sunday, Alibaba announced a long-awaited deal to buy back half of Yahoo’s 40 percent stake in the company for $7.1 billion.

To finance the purchase, Alibaba is raising about $4.6 billion in total. The Chinese Internet company is holding talks with a number of other firms, including Temasek, a Singaporean sovereign fund; DST Global, the Russian investment firm; and the Blackstone Group, according to people briefed on the discussions.

The pact with Yahoo values Alibaba at about $35 billion, though that figure could rise if the Chinese company is able to raise financing at a higher valuation.

Over the last several years, Alibaba has undertaken a number of moves that could lead to a transformation of the Chinese Internet giant, including an initial public offering down the road. On Thursday, Alibaba was finalizing the takeover of its publicly traded subsidiary,

Jack Ma, chief of Alibaba Group.Chinafotopress/Getty ImagesJack Ma, chief of Alibaba Group.

But the biggest move has been securing an agreement with Yahoo over the stake repurchase, beginning the unwinding of an often tense partnership.

Yahoo’s investment in Alibaba in 2005 helped the Chinese company become a premier Internet and e-commerce player in that country, but the two have clashed over a number of matters. Perhaps the bitterest conflict began in 2010, when Alibaba decided to spin off Alipay, its online payment business. Yahoo protested that it was not properly consulted before the move, setting up a battle that was resolved only last summer.

Several years ago, Alibaba sought to buy back some of the stake Yahoo held, but the American company backed out late in the process. The abrupt end to the discussions was said to rankle Jack Ma, Alibaba’s chief executive, who felt that the break had hurt his relationships with companies that had agreed to back that first repurchase agreement.

The two resumed talks late last year, hoping to reach a deal on a complicated transaction known as a cash-rich split, which would have amounted to a tax-free asset swap. But those talks ran aground earlier this year over a number of concerns, including breakup fees and the valuation of Alibaba..

The two tried again in March, aiming for a simpler deal in which the Chinese company would buy back some of its stake directly. Talks between the two companies — led by Alibaba’s chief financial officer, Joe Tsai, and his Yahoo counterpart, Timothy R. Morse — proceeded smoothly in the final attempt at negotiations, with many details being decided fairly quickly.

It appears that a new détente has emerged between the two. Yahoo, for instance, has agreed to give up certain voting powers and an ability to name a second director to Alibaba’s board as part of the stake repurchase agreement announced on Sunday.

That may help allay concerns by Chinese regulators that Alibaba is controlled by foreign investors, worries the company has been keen to eliminate.

News of Alibaba’s talks with C.I.C. was reported earlier by Reuters.

Article source:

DealBook: Delta and TPG Said to Weigh Bids for American Airlines

The American Airlines baggage area at O'Hare Airport in Chicago.Scott Olson/Getty ImagesThe American Airlines baggage area at O’Hare Airport in Chicago.

9:05 p.m. | Updated

As American Airlines trudges through its bankruptcy proceedings, potential suitors are coming out of the woodwork.

Delta Air Lines and TPG Capital, the private equity firm, are considering separate bids for AMR Corporation, American’s parent company, according to two people briefed on the matter.

Delta has hired the Blackstone Group and is weighing a potential bid, according to a person briefed on the matter who was not authorized to speak about it publicly. Blackstone advised Delta in that airline’s own bankruptcy and on its merger with Northwest Airlines.

TPG is also taking a look, according to a person briefed on the matter. TPG is no stranger to airlines, having invested in Continental and Midwest Air and having made an unsuccessful bid for Qantas of Australia alongside the investment bank Macquarie. The firm also worked with AMR on a proposed investment in Japan Airlines that was eventually rejected.

US Airways is also reportedly considering a bid, according to Bloomberg News, which cited a person familiar with the process.

American’s restructuring is still in its early days. The company has yet to outline its plan to the bankruptcy court. It is expected to formally present a new strategy in the next few months. The company, among other things, seeks to reduce its costs by renegotiating contracts with its labor groups.

A purchase of American Airlines would have to be reviewed by the creditors’ committee and approved by a judge.

American, meanwhile, signaled on Thursday it was “not necessarily” looking to terminate its pension plan although that option was on the table. The company has been coming under increasing pressure from some of its labor groups as well as the Pension Benefit Guaranty Corporation in recent days to rapidly state what it planned to do with its employee pension plan.

American has argued that its pension plan, which is underfunded, was very expensive, and that it spent more than other airlines do. However, the PBGC pointed out in a statement on Thursday that Delta paid an average of $13,210 per employee in pension costs, almost two-thirds more than American’s prebankruptcy cost of $8,102.

Some airlines, like United Airlines, that have gone through bankruptcy restructuring in the past decade have terminated their pension plans for some of their labor groups. But not everyone did. Delta terminated its pension plan for pilots but not for other labor groups, like flight attendants. Northwest Airlines kept its plan going after its bankruptcy.

“American should have to prove in court that this drastic step is necessary,” said Joshua Gotbaum, the pension benefits agency director.

The interest in American Airlines was reported earlier by The Wall Street Journal. A bid from Delta, which would create the top carrier in the country, would draw intense scrutiny from the Justice Department and might have trouble being approved without significant concessions.

Article source:

DealBook: Blackstone Posts $342 Million Loss Amid Tough Markets

Stephen A. Schwarzman, the head of the Blackstone Group.Antoine Antoniol/Bloomberg NewsStephen A. Schwarzman, the head of the Blackstone Group.

8:28 p.m. | Updated

Not even the Blackstone Group’s high-flying real estate arm could save the investment giant from an unexpectedly rough quarter.

Blackstone said on Thursday that it lost $341.9 million in the third quarter, as markdowns of its holdings overwhelmed moderate gains in management fees.

The loss, reported as a nonstandard metric known as economic net income after taxes, was a marked contrast from a profit of $339.3 million in the third quarter of last year. Blackstone also posted $124.1 million in negative revenue, as management fees were more than offset by the reversal of performance fees triggered by declining asset values.

On a generally accepted accounting principles basis, Blackstone reported a net loss of $274.6 million and negative revenue of $124.1 million for the quarter.

“The third quarter presented extremely challenging market conditions, dominated by risk aversion and volatility,” Stephen A. Schwarzman, Blackstone’s chairman and chief executive, said in a statement.

As one of the biggest publicly traded private equity shops, Blackstone is often regarded as a proxy for other alternative investment firms. So some of its now-publicly traded peers, including Kohlberg Kravis Roberts and Apollo Global Management, may also report weaker results.

The third-quarter loss interrupted what had been strong growth in Blackstone’s business, including a tripling of its profit in the second quarter this year. Much of that had been driven by the firm’s huge real estate division, which owns properties ranging from Hilton Worldwide to swaths of office buildings.

But the value of a slew of holdings, from real estate to Blackstone’s portfolio companies, declined, in some cases so much that the firm had to erase performance fee gains reported earlier this year.

Prolonged economic malaise would only continue to hurt the value of Blackstone’s holdings, which also include the likes of BankUnited of Florida and the software company SunGard. The turmoil would also stifle the market for initial public offerings of such companies, making it harder for private equity firms to sell their holdings and begin reaping returns. And shakier markets have made some banks more reluctant to finance leveraged buyouts, making it harder for Blackstone and others to conduct their core business of deal-making.

The global market troubles affected nearly every part of Blackstone’s business. Its private equity and real estate arms reported negative revenues, while its hedge fund of funds and GSO credit-trading unit showed steep declines in revenue. Blackstone’s financial advisory unit, which advises on mergers and corporate reorganizations, reported flat revenue.

Still, Blackstone’s top management has found some investment opportunities as asset prices have declined. The firm spent $4.8 billion worth of capital in the quarter, in its busiest period of activity since the heights of the private equity boom.

On Wednesday, Blackstone announced that it had acquired a 44 percent stake in Leica Camera, the high-end camera maker. And its GSO unit announced earlier this month that it would expand by buying the European money manager Harbourmaster Capital.

More deals could follow. Blackstone has $33.4 billion of uninvested capital, commonly known as “dry powder.” Its private equity unit alone held $16.9 billion in funds available.

Article source:

DealBook: Blackstone Reports a Loss Amid Tough Markets

Stephen A. Schwarzman, the head of the Blackstone Group.Antoine Antoniol/Bloomberg NewsStephen A. Schwarzman, the head of the Blackstone Group.

The Blackstone Group said Thursday that it lost $341.9 million for its third quarter, wounded by market volatility and a tough environment for private equity firms to make money.

Blackstone’s results were driven by markdowns in the value of the firm’s private equity and real estate holdings. The loss was a sharp swing from a $339.3 million profit at the same time last year, and the firm reported negative revenue of $124.1 million as well.

On a generally accepted accounting principles basis, Blackstone reported a net loss of $274.6 million and negative revenue of $124.1 million for the quarter.

Still, the investment giant still managed to increase its assets under management 32 percent, to $158 billion.

“The third quarter presented extremely challenging market conditions, dominated by risk aversion and volatility,” Stephen A. Schwarzman, Blackstone’s chairman and chief executive, said in a statement.

As one of the biggest publicly traded private equity shops, Blackstone is often looked at as a proxy for other so-called alternative investment firms. The gyrations of the markets and the increasing reluctance of banks to lend money to riskier borrowers has made it difficult for these firms to carry out their core business of deal-making.

And a prolonged economic malaise is likely to hurt the value of their diverse holdings. Blackstone alone counts Hilton Worldwide, BankUnited of Florida and the software company SunGard among its portfolio companies.

Most of Blackstone’s core businesses — private equity, real estate and hedge funds — suffered in the quarter, hurt by declining performance fees and investment income. The firm’s buyout arm reported $285.1 million in negative revenue, while the enormous real estate division reported $15.2 million in negative revenue.

Its hedge fund of funds and its GSO debt-trading business reported significant declines in revenue for the quarter as well.

Blackstone’s financial advisory unit, which advises companies in mergers and in corporate reorganizations, reported flat revenue for the quarter at $87.4 million.

Still, should economic conditions improve, Blackstone has plenty of uninvested capital that it can deploy. The firm reported $16.9 billion in dry powder held by its private equity arm and $10.1 billion in its real estate unit.

Article source:

DealBook: K.K.R. 2nd-Quarter Earnings Fall 25%

George Roberts, left, and Henry Kravis, co-founders of Kohlberg Kravis Roberts.Gary SpectorGeorge Roberts, left, and Henry Kravis, co-founders of Kohlberg Kravis Roberts.

Kohlberg Kravis Roberts said on Wednesday that its second-quarter profit fell 25 percent as growth slowed in its main investment businesses.

The private equity giant reported $245.3 million in economic net income after taxes atop $117.6 million in fees. That amounts to an after-tax profit of 36 cents a stock unit; analysts had, on average, expected a profit of 41 cents, according to the market researcher Capital IQ.

Economic net income is a nonstandard profit measure used by publicly traded private equity firms that excludes some stock-based compensation costs. On a generally accepted accounting principles basis, K.K.R. earned $39.6 million for the quarter.

The firm said assets under management grew to $61.9 billion. Much of that growth resulted from an increase in the value of K.K.R.’s investments, as well as from newly raised capital.

“In an increasingly challenged global economic environment, our business continued its growth trajectory across all segments,” Henry R. Kravis and George R. Roberts, the firm’s co-founders and co-chairmen, said in a statement.

K.K.R.’s second-quarter performance trailed that of its main rival, the Blackstone Group, which more than tripled its profit for the period, thanks to its huge real estate arm.

Since becoming a public company, K.K.R. has focused on building up its operations outside of its core leveraged buyout business. The firm has raised billions of dollars for energy and infrastructure investments, and it has bolstered its nascent credit trading division.

Still, K.K.R. pointed to successes in its traditional private equity business. The unit increased assets under management to $47.1 billion, offset by payments made to its investors through the sales of portfolio companies and assets.

Article source:

DealBook: Keeping an Eye on the Ball

Chris Trotman/Getty ImagesDavid Einhorn of Greenlight Capital attended the Mets vs. Phillies game at Citi Field on Saturday.

Lots of questions have been asked about David Einhorn’s purchase of a minority stake in the Mets: Will his investment shore up the Mets’ finances? (Maybe.) Does the deal allow him to take majority control of the Mets? (Yes.) And will he eventually take over the team? (Probably.)

But on Wall Street, a very different question is quietly being asked: Will Mr. Einhorn, one of the great value investors of his generation and an obsessive stock picker, take his eye off the ball? (Pun intended.) It is a question that invariably is raised whenever a wealthy financier seeks to live out his childhood fantasy by acquiring a professional sports team, a race horse or even a yacht.

“An obsessive focus on work is part of what makes hedge fund managers succeed,” said Sebastian Mallaby, the author of “More Money Than God: Hedge Funds and the Making of a New Elite.”

DealBook Column
View all posts

He noted that “David Swensen, the great hedge fund talent scout who runs the Yale endowment, says that he looks for this not-quite-normal single-mindedness when he decides where to commit Yale’s money. So it clearly is a red flag when a hedge fund manager starts to take too much pleasure in his hobbies.”

Wall Street players have long collected sports teams, some successfully, some less so. In 2002, Stephen Pagliuca, the managing partner of Bain Capital, helped lead a group of friends to buy the Celtics, who then went on to win the championship in 2008. Bain continued to thrive, but not to the same extent of rivals like the Blackstone Group and others.

Meanwhile, Thomas Hicks, a leveraged buyout baron who founded Hicks, Muse, Tate Furst, bought the Texas Rangers in 1998. His firm nearly went under after a series of bad telecom investments he made in 1999; he left the firm in 2004. And just three years ago, Stanley Druckenmiller, the famed hedge fund manager, sought to buy the Pittsburgh Steelers. He eventually withdrew his bid, but perhaps it was a signal that he had already shifted his interests away from the markets. Last year, he announced he would shut his firm.

In an apparent effort to pre-empt any red flags and to demonstrate his commitment to money management, Mr. Einhorn’s firm, Greenlight Capital, sent a private letter to its investors last week within minutes of the announcement that he was personally in negotiations for the Mets stake: “David will continue to have the vast majority of his net worth invested in Greenlight products: the hedge funds, Greenlight Masters and Greenlight Re. His role as president and portfolio manager of Greenlight Capital will not change in any way.”

So far, Mr. Einhorn’s investors, at least publicly, have only praise for him. Several privately questioned whether he could remain focused on his investment funds at the same time that he thrust himself into the public eye as the potential future owner of the Mets.

Some pointed out that Mr. Einhorn has proved he can multitask. He has written a best-selling book about one of his investments, competed in the World Series of Poker, finishing 18th, and is an active director of several charities.

And he’s never exactly shied away from the press. He took to the airwaves in spring 2008, presciently questioning the numbers at Lehman Brothers. Just last week, he called for the firing of Steven Ballmer, Microsoft’s chief executive.

None of that compares with being the owner of a sports team in New York City, the media capital of the world. On Saturday night, when Mr. Einhorn attended the Mets vs. Phillies game at Citi Field, the virtually unknown financier — to most sports fans, at least — was bombarded by cameras and questions. Pictures of him drinking a beer in a luxury box appeared on television and in newspapers. He was wearing a Mets cap — and, in perhaps a nod to his investors, a polo shirt embroidered with the Greenlight logo. (Hedge funds rarely get that kind of marketing exposure.)

He can expect more flash bulbs over the next two years. According to people involved in the negotiations, he will have the right to acquire a 60 percent stake in the Mets from the Wilpon family. The only way the Wilpons would be able to block him would be to repay the $200 million investment he made for 30 percent of the baseball team. Mr. Einhorn would get to keep his stake for free.

Much of the outcome hinges on whether the Wilpons have to turn over their fortune to the trustee of the Madoff Ponzi scheme. All of this is a roundabout way of saying that’s likely to be grist for the sports media — and business media — as speculation runs rampant about whether the Wilpons will lose their team to Mr. Einhorn. The danger, of course, is that it becomes a distraction.

So far this year, Mr. Einhorn’s $7.9 billion fund is underperforming the market. His fund was down 2.6 percent at the end of last month, while the S. P. 500 was up 8.43 percent during the same period.

Mr. Einhorn, however, is a long-term investor. He has long told investors, successfully, to disregard short-term performance, a mantra he has said should be applied to the Mets.

“If I were invested in Einhorn’s fund, I would not pull my money out,” Mr. Mallaby said. “But it is natural for investors to be asking questions.”

Article source:

DealBook: Freescale Prices Its I.P.O. at $18 a Share

It hardly seems possible in the current environment where investors are clamoring for newly public companies like LinkedIn and Yandex.

But Freescale Semiconductor Holdings, the chip maker acquired in 2006 in one of the largest technology buyouts ever, cut the price for its offering to $18, people briefed on the matter told DealBook on Wednesday. That’s at the bottom of its already lowered price range.

Just recently, the company disclosed that its initial public offering could raise more than $1 billion. On Wednesday, Freescale raised just $783 million, reflecting weak investor demand.

Freescale is among a number of private equity-backed companies moving to go public in recent months, with buyout firms looking to exit deals they made at the height of the boom. A group of firms, including the Blackstone Group, TPG Capital, the Carlyle Group and Permira Advisers, bought Freescale in 2006 for $17.6 billion, a deal that was called “one of the ugliest buyouts ever.”

In many ways, Freescale looks like a number of private equity-owned companies that have recently gone public, including hospital operator HCA and Nielsen Holdings, the consumer ratings company.

Amid a heft debt load, Freescale has struggled to sustain profitability. Last year, the company notched a net loss of $1 billion in 2010, compared with a $748 million profit in 2009. The company, which sold 43.5 million shares on Wednesday, has said it plans to use the proceeds and cash on hand to help pay off its debt.

But investor interest for HCA and Nielsen was stronger. In early January, Nielsen priced its shares at $23, compared with earlier estimates of $20 to $22 a share. In March, HCA priced at the high end of its range.

By comparison, Freescale had to drop its price to attract investors. The offering of $18 a share came in far below initial expectations of $22 to $24.

Citigroup, Deutsche Bank, Barclays Capital, Credit Suisse and JPMorgan Chase are the main underwriters on the Freescale offering.

Article source:

DealBook: Blackstone Says Plain L.B.O.’s Are Too ‘Pricey’

While the Blackstone Group reported its best quarterly earnings since going public in 2007, the investment firm’s big gains came once again from its big real estate division.

So what about the business it’s best known for: private equity deals?

According to Blackstone’s president, Hamilton E. James, the traditional leveraged buyout just isn’t as attractive, for now.

That is reflected in the results of the private equity business. Revenue dipped slightly in the quarter, to $273.7 million, and its profit fell 9 percent, to $175.5 million.

Mr. James said on a conference call with reporters on Thursday that a litany of factors made it harder for private equity firms to buy companies of size. He acknowledged that strategic buyers had again returned to the fore, their treasuries bulging with cash and their lenders ready to loan money at attractive rates.

“There’s a lot of corporate competition that has come out of the woodwork,” he said. “That has made the plain vanilla buyout pricey.”

Bankers and private equity officials have said for some time that while buyout firms have plenty of cash to put to work — Blackstone said it had $16.9 billion available as of the quarter’s end — they still face a few constraints.

Banks still require equity checks of about 25 to 30 percent, meaning that a buyout firm would need to put up $2.5 billion to $3 billion in a $10 billion leveraged buyout. That is a lot for any one shop to commit to, requiring them to form consortiums (something investors are not too wild about these days) or find other sources of capital, like sovereign wealth funds or limited partners willing to co-invest.

And many deal-makers say corporate buyers can afford to pay more for any given deal, since they can squeeze out more cost savings than a buyout firm. In fairness, however, some private equity shops can combine an acquisition with an existing portfolio company to reap some of the same cost benefits.

In any case, Blackstone is turning to other opportunities for now, Mr. James said. The firm is more focused on investment opportunities in the energy sector, emerging markets and in “smaller companies needing growth.”

And Mr. James predicted that leveraged buyouts would eventually return, especially as corporations spent their cash piles.

Article source: