private equity

GlaxoSmithKline to Sell Off Drink Brands

April 24, 2013 by NewsMaker Leave a Comment

The plan was announced on Wednesday alongside first-quarter results that saw sales at Britain’s biggest drugmaker drop a slightly smaller-than-expected 3 percent from a year ago.

GSK launched a strategic review of the two drink brands earlier this year, ruling nothing in or out for their future. Most analysts had focused on the idea of a sale, which is likely to attract interest from private equity and trade buyers.

Chief Executive Andrew Witty told reporters there had been significant interest in the products, though the decision to pursue a sale was “subject to appropriate value realisation”.

Japan’s Suntory Holdings has been tipped as a possible buyer after previously buying soft drinks maker Orangina Schweppes for more than 300 billion yen ($3.0 billion) and New Zealand’s No. 2 beverage firm Funcor Group in 2009.

A Suntory spokeswoman declined to comment on the company’s potential interest but, when asked about a recent report that it was in talks with banks about assembling a knockout bid, said: “We don’t acknowledge this report as factual.”

Private equity firms are also hungry for deals and the strong cashflows generated by Lucozade and Ribena could attract the likes of Blackstone, BC Partners, PAI, Lion Capital, Bain Capital, CVC Capital Partners and KKR.

Officials at the private equity houses declined to comment.

Lucozade and Ribena no longer fit well in GSK’s portfolio, since the company is focusing its consumer health operations increasingly on emerging markets, where both brands are relatively weak.

Although GSK does not break out detailed sales for the two products, they bring in nearly 600 million pounds a year, with much of that generated in Britain.

Both are veteran products – Lucozade was launched in 1927 and Ribena introduced just 10 years later – but remain popular. Assuming potential buyers are prepared to pay two times sales, that would point to a valuation of some 1.2 billion pounds.

Analysts at Deutsche Bank said they believed the two brands should bring in more than 1.5 billion pounds.

MATURE PRODUCTS SPIN-OFF?

GSK also said it was creating a new global established products portfolio, consisting of around 50 medicines with annual sales of some 3 billion pounds, including stomach acid treatments Tagamet and Zantac, Imitrex for migraine, and anti-nausea treatment Zofran.

Witty said placing these so-called “tail” products in a division that would report separately from next January opened various options, but he declined to say if the division might be sold off at a later stage.

Jefferies analysts, however, said the formation of the portfolio “looks like a precursor to a spin-off to us”.

GSK’s group sales in the first quarter fell 3 percent to 6.47 billion pounds, generating flat core earnings per share (EPS) of 26.9 pence.

Analysts, on average, had forecast sales of 6.40 billion pounds and core EPS, which excludes certain items, of 25.0p, according to Thomson Reuters I/B/E/S.

The three months to end-March were always going to be tough, due to a difficult comparison with a year earlier when GSK booked revenue from over-the-counter products and an incontinence drug that have since been sold.

GSK is expecting better times ahead as its pipeline starts to deliver – and it reiterated its 2013 expectations for sales growth, at constant exchange rates, of around 1 percent and core EPS growth of 3-4 percent.

Witty is banking on a number of new drugs to revive its fortunes in the next few years, including six that have already been submitted for approval in lung disease, melanoma, diabetes and HIV/AIDS.

Hopes for its new drug pipeline received a boost last week when a U.S. advisory panel recommended approval of Breo for smoking-related lung damage. The Food and Drug Administration is due to decide on the drug – a follow-on to GSK’s top-seller Advair – by May 12.

At 01:30 p.m. British time, GSK shares were little changed at 1,681 pence.

(Additional reporting by Anjuli Davies and James Topham; Editing by Kate Kelland and Mark Potter)

Article source: http://www.nytimes.com/reuters/2013/04/24/business/24reuters-glaxosmithkline-results.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: bain capital, blackstone, private equity

DealBook: 2 Rivals Complicate Deal for Dell

March 25, 2013 by NewsMaker Leave a Comment

Two rival bids for Dell Inc. have emerged, threatening to complicate or change — or upend — an effort to take the embattled computer maker private in a $24 billion deal under the leadership of Michael S. Dell.

The private equity giant Blackstone Group and the investor Carl C. Icahn have each separately submitted preliminary takeover proposals before a deadline set by a special committee of Dell’s board intended to drum up other offers, people who had been briefed on the matter but were not authorized to speak publicly said.

Both proposals are valued at more than the offer of $13.65 a share by Mr. Dell and his private equity partner, Silver Lake.

The Dell committee may announce Monday whether it believes either bid is likely to lead to a superior offer, one of the people briefed on the matter said.

But much work remains for Dell’s special committee and the two new bidders. Both of the new proposals are highly preliminary, meant to keep talks going after the 45-day so-called go-shop period.

Neither proposal has firm financing lined up, instead relying on “highly confident” letters from their banks that they can raise the money. Blackstone and its group are working with Morgan Stanley, while Mr. Icahn, who has also built a substantial stake in Dell, is using the Jefferies Group. That means that a final bid from either suitor is weeks away. And Dell’s special committee must also determine whether any such proposal would be superior to the all-cash offer by Mr. Dell and Silver Lake.

Nonetheless, the emergence of two competing bids is a surprising setback to the buyout effort. Few would have predicted Dell, a struggling personal computer maker, would have attracted so much interest when Mr. Dell and Silver Lake announced their takeover offer early last month. Analysts and investors had widely believed that Mr. Dell, who founded the company that bears his name nearly 29 years ago in his college dormitory, would prevail.

At the least, the preliminary bids may lead to a higher offer for Dell shareholders, some of whom have vocally opposed the current bid as undervaluing the company.

Strictly speaking, neither Blackstone nor Mr. Icahn would take Dell completely private, unlike the bid by Mr. Dell and Silver Lake. Both envision leaving part of the company public through what is known as a stub, which would allow current shareholders to keep a stake.

Blackstone proposed paying more than $14.25 a share, working with two technology-focused investment firms, Francisco Partners and Insight Venture Partners. While the private equity firm did not specify what percentage of Dell would remain public, it proposed letting shareholders sell their entire holdings if so desired. Blackstone has also weighed selling part of Dell’s business, like its financial arm, to help pay for any deal.

Mr. Icahn outlined a plan to pay $15 a share for about 58 percent of the company, meaning that other investors would be allowed to sell only part of their stakes.

Should the special Dell committee choose an offer from either suitor, Mr. Dell and Silver Lake would have just one chance to match or top that bid.

The appearance of Blackstone as a potential spoiler is one of the few times that a private equity firm has “jumped” another’s deal. Blackstone and others in the private equity industry are fighting off an antitrust lawsuit in the Federal District Court in Boston that cites this apparent industry custom as evidence of collusion.

The appearance of Blackstone and Mr. Icahn was also one of the rare instances when a go-shop period actually attracted another suitor. By one deal maker’s reckoning, fewer than 20 percent of these efforts for a deal worth more than $1 billion have found an alternative offer.

Letting some shareholders remain invested in Dell could go a long way toward appeasing one of the most vocal critics of the current deal: Southeastern Asset Management, the company’s biggest outside investor, with a stake of about 8.4 percent. Southeastern has declared publicly that it will not accept Mr. Dell’s offer, and floated the idea of a public stub.

Blackstone has spoken with Southeastern, people briefed on the matter said.

Mr. Icahn, who disclosed in a letter last Friday to the Dell special committee that he owns 80 million shares, or less than 5 percent of the company, had previously told the committee that he opposed Mr. Dell’s current bid. Neither Mr. Icahn nor Blackstone offered specifics about how they would run Dell after the deal is completed. While Mr. Dell has committed to negotiating with any party that the special board committee deems likely to produce a superior proposal, he is free to leave his post as chief executive.

Blackstone has approached possible replacements for Mr. Dell. But at least one of them, Oracle’s president, Mark V. Hurd, has expressed little interest.

Blackstone and Mr. Icahn could also have difficulty financing their offers. Mr. Dell and Silver Lake have lined up five major lenders to support their bid. It is not clear whether any banks would support a higher-priced offer that would lay more debt onto a company whose business is widely seen as deteriorating.

Another factor the special Dell committee must weigh is the cost of leaving some Dell shares publicly traded on the Nasdaq stock market. Underlying the premise of Mr. Dell’s bid is his contention that the changes needed to fix the company would upset public shareholders, further hurting its stock price.

Andrew Ross Sorkin contributed reporting.

Article source: http://dealbook.nytimes.com/2013/03/24/2-rivals-complicate-deal-for-dell/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: private equity, special committee, takeover

Deal Professor: An American-Made Business Model Has Less Success Overseas

December 18, 2012 by NewsMaker Leave a Comment

Harry Campbell

For years, the titans of finance have held out the promise that they could export their business model overseas and mint billions in the process. Yet, there are increasing signs that global deal-making was always a myth.

If you’ve been anywhere near a Wall Street conference in the last five years, you know the drill. Deal makers bemoan the United States as a mature and overregulated economy. They talk about heading abroad, as emerging market economies leave us far behind. To listen to them, one might think the rest of the world was a paradise out of “Atlas Shrugged,” where capital flows and where private equity, investment banks and other investors can freely seek opportunities.

So what country is No. 1 in initial public offerings so far this year? Yes, it is the United States, according to Renaissance Capital, with 75 I.P.O.’s raising $39 billion in total. Compare this activity with China, where 41 I.P.O.’s raised just $8.1 billion.

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And in mergers and acquisitions? Again, it is the United States, with 53 percent of the worldwide deal volume, up from 51 percent from last year, according to Dealogic. For investment banks, this means that the United States has a 46 percent share of the $63 billion in worldwide investment banking revenue, up from 34.6 percent in 2009.

With the slowdown in once-hot emerging markets, the tide is going out, baring all of the problems and issues associated with global deal-making.

China is a prime example. Huge amounts of foreign and state investment produced an economic miracle. And in that time, wealth was there to be had.

But let’s be clear about where that wealth came from. In the United States, deal makers make money primarily by buying underperforming assets, adding some financial wizardry and riding any improvements in the stock market. Sometimes, they get lucky by making a quick profit, but often private equity works to squeeze out inefficiencies and make operating improvements in companies and then takes them public a few years later.

In China, what increasingly appears to have been a stock market and asset bubble spurred by hundreds of billions in direct investment has created some spectacular early profits for deal makers. The private equity firm Carlyle Group, for example, has made an estimated $4.4 billion on an investment in China Pacific Insurance, which it took public on the Hong Kong Stock Exchange.

But now, with the Chinese I.P.O. market at a virtual standstill and the Shanghai market down more than 30 percent from its high last year, that avenue to riches is over. People are starting to say that investment in China resembles a “No Exit” sign.

Deal makers are left with a back-to-basics approach that looks to make money from companies through economic growth or improving their performance. Yet most of these investments are made with state actors and minority positions, meaning that there may be little opportunity to actually do anything more than sit and wait and hope. And you know what they say about hope as a strategy.

It appears that deal makers are starting to realize the problem. Foreign direct investment in China was down 3.67 percent from last year to $9.6 billion, and it is likely to remain on a downward trend.

And China has been among the friendliest places for deal makers. Other emerging markets have been less accommodating. Take India, which has been criticized for excessive regulation, high taxes and ownership prohibitions. David Bonderman, the head of the private equity giant TPG Capital, recently said that “we stay away from places that have impossible governments and impossible tax regimes, which means sayonara to India.” The comment about India highlights another problem with foreign deal-making: it’s foreign. Sometimes, the political winds change and local governments that initially welcomed investment change their minds. South Korea, for example, invited foreign capital to invest in its battered financial sector after the Asian currency crisis. But when Lone Star Investments was about to reap billions in profits on an investment in Korea Exchange Bank, a legal battle almost a decade long erupted as Korean government officials accused the fund of vulture investing.

And the political problems are sometimes not directed at foreign investors. South Africa, for example, is undergoing the kind of political turmoil that can stop all foreign investment in its tracks over treatment of its workers and continuing income inequality. Things are not much better in the more mature economies.

Europe is in the economic doldrums, and its governments are increasingly protectionist of both jobs and industry. France, for example, recently threatened to nationalize a factory owned by ArcelorMittal, which sought to shut down two furnaces. The national minister said the company was “not welcome.” It’s hard to see a deal maker profiting from buying an inefficient enterprise that it can’t clean up without risking national censure.

Buying at a low is the lifeblood of any investment strategy — but this assumes that there will be an uptick, and on the Continent, that is uncertain given the state of Greece and the other indebted economies in Southern Europe.

This is all a far cry from the oratory vision-making at conferences. Now that the global gold rush has ended, the belief that the American way of doing deals is portable is being upended.

We are left with a fragmented world where capital moves not so freely, the problems of politics and regulation are more prominent and investing in emerging markets becomes what it always has been: the province of more specialized investors who are in tune with the political and regulatory requirements. Regardless, the easy riches that many thought these countries would bring are now far out of sight.

And the winner in all of this is likely to be the much-maligned United States, where the economic conditions and regulatory environment first gave birth to these deal makers.

This is not to say that there will still not be global deal-making or that American multinationals will not continue to expand abroad. Of course, there will still be profits in deals overseas. But the vision that deal-making will instantly and seamlessly go global is increasingly exposed as one that was more a fairy tale than reality.

Article source: http://dealbook.nytimes.com/2012/12/18/an-american-made-business-model-has-less-success-overseas/?partner=rss&emc=rss

Filed Under: Economy News Tagged With: emerging markets, inefficiencies, private equity

Financiers Bet on Rental Housing

December 8, 2012 by NewsMaker Leave a Comment

It is February 2010. The anger behind Occupy Wall Street is building. Flicking through slides, Mr. Miller, a Treasury official working with the department’s $700 billion Troubled Asset Relief Program, lays out what caused the housing bubble: easy credit, shoddy banking, feeble regulation, and on and on.

“History has demonstrated that the financial system over all — not every piece of it, but over all — is a force for good, even if it goes off track from time to time,” Mr. Miller tells a symposium at Columbia University in remarks posted on YouTube. “As we’ve experienced, sometimes this system breaks down.”

But, it turns out, sometimes when the system breaks down, there is money to be made.

Mr. Miller, who arrived at the Treasury after working at Goldman Sachs, described himself as a “recovering banker” in the video.

Today, he has slipped back through the revolving door between Washington and Wall Street. This time, he has gone the other way, in a new company, Silver Bay Realty, which is about to go public. He is back in the investment game and out to make money with a play that was at the center of the financial crisis: American housing.

As the foreclosure crisis grinds on, knowledgeable, cash-rich investors are doing something that still gives many ordinary Americans pause: they are leaping headlong into the housing market. And not just into tricky mortgage investments, collateralized this or securitized that, but actual houses.

A flurry of private-equity giants and hedge funds have spent billions of dollars to buy thousands of foreclosed single-family homes. They are purchasing them on the cheap through bank auctions, multiple listing services, short sales and bulk purchases from local investors in need of cash, with plans to fix up the properties, rent them out and watch their values soar as the industry rebounds. They have raised as much as $8 billion to invest, according to Jade Rahmani, an analyst at Keefe Bruyette Woods.

The Blackstone Group, the New York private-equity firm run by Stephen A. Schwarzman, has spent more than $1 billion to buy 6,500 single-family homes so far this year. The Colony Capital Group, headed by the Los Angeles billionaire Thomas J. Barrack Jr., has bought 4,000.

Perhaps no investment company is staking more on this strategy, and asking stock-market investors to do the same, than the one Mr. Miller is involved with, Silver Bay Realty Trust of Minnetonka, Minn. Silver Bay is the brainchild of Two Harbors Investment, a publicly traded mortgage real estate investment trust that invests in securities backed by home mortgages.

In January, Two Harbors branched out into buying actual homes and placed them in a unit called Silver Bay. It offered few details at the time, leaving analysts guessing about where it was headed.

“They were not very forthcoming,” says Merrill Ross, an analyst at Wunderlich Securities. As of Dec. 4, Two Harbors had acquired 2,200 houses. Ms. Ross says she couldn’t find out how much Two Harbors paid or the rents it was charging. Two Harbors shares, which recently traded at $11.66, are up about 25 percent in 2012.

Two Harbors now plans to spin off Silver Bay into a separately traded public REIT. The new company will combine Silver Bay’s portfolio with Provident Real Estate Advisors’ 880-property portfolio. Silver Bay will focus on homes in Arizona, California, Florida, Georgia, North Carolina and Nevada, states where prices fell hard when the bottom dropped out.

In a filing with the Securities and Exchange Commission last week, Silver Bay said it planned to offer 13.25 million shares at an initial price of $18 to $20 a share. But it’s no slam dunk. While home prices nationwide have begun to recover — they were up 6.3 percent in October, according to a report last week from CoreLogic, a data analysis firm — prices could fall again if the economy falters anew. Millions of Americans are still struggling to hold onto their homes and avoid foreclosure.

“Recent turbulence in U.S. housing and mortgage markets has created a unique opportunity,” Silver Bay said in an S.E.C. filing. The company, which will be the first publicly traded REIT to invest solely in single-family rental homes, says its investment plan will help clear foreclosed homes from the market, spruce up neighborhoods and renovate vacant homes, presumably while enriching its new shareholders. Its portfolio will be managed by Pine River Capital Management, a hedge fund in Minnetonka that has reportedly been buying bonds backed by risky subprime mortgages. Mr. Miller is a managing director at Pine River and chief executive of Silver Bay.

Mr. Miller, through a spokesman, declined to comment for this article, citing the pending stock offering.

Article source: http://www.nytimes.com/2012/12/09/business/financiers-bet-on-rental-housing.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: hedge funds, housing market, private equity

DealBook: European Central Bank to Recover Most of Its Lehman Loans

January 19, 2012 by NewsMaker Leave a Comment

FRANKFURT — Some investors and creditors may have lost billions when Lehman Brothers went bankrupt in 2008, but it looks as if the European Central Bank will get almost all of its money back.

An effort of more than three years to unwind Lehman assets will recover almost all the 8.5 billion euros, or $11 billion, that the central bank stood to lose, Joachim Nagel, a member of the executive board of the German central bank, the Bundesbank, said Thursday.

The Bundesbank has managed the disposal of assets that the failed investment bank used as collateral for European Central Bank loans. The Bundesbank said Thursday that it was close to selling one of the last remaining assets, a complex package of real estate loans known as Excalibur.

‘‘When we’re all done, we will come close,’’ Mr. Nagel told reporters at a briefing.

Lehman’s German unit had used 33 securities as collateral to borrow 8.5 billion euros from the European Central Bank before its collapse in September 2008. Afterward, the European Central Bank — or strictly speaking, the so-called Eurosystem network of euro-zone central banks — was stuck with the assets.

Initially, the Bundesbank estimated the probable losses at 5.7 billion euros, but continuously reduced that figure as markets for the assets recovered and they could be sold for more than expected. In addition, some of the holdings continued to pay interest or dividends.

Of the 33 Lehman securities, 28 have been sold. The largest remaining asset is Excalibur, a package of loans and derivatives based on European commercial real estate mortgages. Lehman constructed Excalibur in 2008 and used it to borrow 2.16 billion euros from the European Central Bank, the Bundesbank said.

The Financial Times reported on Thursday that Lone Star Funds, an American private equity company that specializes in distressed debt, would buy Excalibur for 1.8 billion euros.

The Bundesbank did not confirm the report, saying that talks to sell Excalibur are not yet concluded. But the bank noted that only a few large investors would be able to handle an asset of that size and complexity.

Lone Star did not immediately respond to a request for comment.

The remaining four Lehman assets are relatively small, Mr. Nagel said.

While the European Central Bank will get back almost all the money that it lent to Lehman, it may still suffer an unspecified loss, plus the considerable cost of administering and winding down the assets.

Mr. Nagel conceded that central bankers might not have scrutinized the assets closely enough when accepting them as collateral. Standards have since been tightened, he said.

‘‘It went well,’’ Mr. Nagel said of the asset sales, ‘‘but should remain the exception.’’

Mark Scott contributed reporting from London.

Article source: http://feeds.nytimes.com/click.phdo?i=12eddd66afd89be6407dd094dc771fe4

Filed Under: Business News Tagged With: commercial real estate, estate mortgages, private equity

DealBook: The Top of the Class in Deal-Making

December 29, 2011 by NewsMaker Leave a Comment

It is that time of the year again, when we award the Deal Professor A’s, the grade for the best deals and deal makers of 2011. Here are the highlights (with a few grades of F as well), in alphabetical order:

Attachmate Group/Novell. The $2.2 billion deal involved the innovative sale of certain Novell’s intellectual property assets to CPTN Holdings, a company organized by Microsoft and a number of other technology companies. The deal, along with Google’s $12.5 billion acquisition of Motorola Mobility, showed that technology companies were willing to pay dearly to acquire intellectual property assets. Deal makers were more than willing to leverage this desire.

Shuji Kajiyama/Associated PressWarren Buffett, chief of Berkshire Hathaway.

Berkshire Hathaway/Lubrizol. Warren E. Buffett yet again shows that not only does he do deals fast, but that they usually fall into his lap like manna from heaven. Like Buffett targets of years past, Lubrizol seemed to be quite captivated by Mr. Buffett and willing to sell quickly. Mr. Buffett receives an A for showing not only his skill at capturing bargains, but navigating this deal through a scandal involving a former Berkshire executive, David Sokol.

Joshua Roberts/Bloomberg NewsDavid Rubenstein, co-founder of the Carlyle Group.

Carlyle/Diversified Machine/Platinum Equity. The Carlyle Group bought this automotive supply manufacturer out of bankruptcy in 2005. During a six-year period, Carlyle increased the company’s revenue 4.5 times, and the company’s employee headcount went to more than 2,200 employees from about 525. Carlyle sold Diversified to Platinum for an undisclosed purchase price but was reportedly seeking about $400 million for the asset. Carlyle wins the inaugural Teddy Forstmann memorial private equity value creation award.

Caterpillar/Bucyrus International. Caterpillar wins a significant asset and just as important wins Chinese antitrust approval — after 143 days, almost two months after obtaining clearances from European Union and United States regulators. The deal underscores the increasing importance of Chinese antitrust clearance in global mergers and acquisitions.

Eric Piermont/Agence France-Presse — Getty ImagesRen Jianxin, chairman of China National Chemical Corporation.

ChemChina/Koors/Makhteshim. China National Chemical, or ChemChina, in partnership with Koor Industries of Israel buys 60 percent of an Israeli agricultural chemical company, Makhteshim. The deal valued at $2.4 billion was one of the largest outbound investments by China ever, and showed that the country was on the prowl internationally for crucial suppliers. In light of American efforts to block many Chinese deals on national security grounds, Chinese money is being directed elsewhere.

China Fire and Security/Bain; China Security and Surveillance/GuoshenTu; Funtalk China Holdings/Insider-Led Consortium; Harbin Electric/Tianfu Yang and Abax Global.
Many a Chinese deal was hit by short-sellers who sought to bet on uncertainty over China and the accounting of its companies. None of these deals were pretty, but they all managed to get completed despite this turbulence, beginning a mini-wave of Chinese companies reversing United States market listings to go private.

Exco/Management Buyout. The independent directors of Exco Resources get an A for standing up to the chief executive, Doug Miller, who proposed a management buyout at $20.50 a share, later lowering it to an $18.50 offer consisting of $13.50 in cash and $5 in “minority interests” equity. Mr. Miller had previously taken the company private once before, and the board decided in July to reject his second effort. The Exco independent directors stand in marked contrast to boards like J.Crew’s, which failed to stand up to a chief executive’s effort to buy the company. Mr. Miller gets an F for trying the same old trick twice.

Frontier Oil/Holly. If you terminate your deal in 2003 and each side ends up suing each other, try again in 2011, this time reversing buyer and seller. This one gets the Elizabeth Taylor/Richard Burton optimism award.

Fundtech/S-1/GTCR/ACI. S1 and Fundtech had agreed to combine in a stock-for-stock merger valued at about $318 million. Each soon received its own unsolicited offer to be acquired. S1 and Fundtech terminated their deal, with S1 being acquired by ACI and Fundtech going to GTCR. The deals showed the rare ability of a bidder to top a stock-for-stock deal and not only disrupt it but end up on the winning end.

Scott Eells/Bloomberg NewsJames Gorman, chief of Morgan Stanley.

Groupon I.P.O. It is all about perspective. The investment bankers, led by Morgan Stanley, get an A for pushing through an initial public offering at a high price despite all the turbulence. But F’s abound here also, including to Groupon itself for its iffy accounting and to its chief executive, Andrew Mason, for nearly torpedoing the I.P.O. by appearing to violate Securities and Exchange Commission rules requiring a company to be quiet just before its initial public offering.

Tim Boyle/Bloomberg NewsScott L. Thompson, chief of Dollar Thrifty.

Hertz/Avis/Dollar Thrifty. In a deal hung over from 2010, Dollar Thrifty shareholders reaped the benefit of saying no to Hertz even after a second broken auction. Dollar Thrifty shares are now trading at about $69.86 after Hertz’s offer in the low $50s was voted down. Along with Airgas, whose shares are $79.65, well above the $70 a share offered by Air Products, these companies made the right decision compared with, say, Yahoo which spurned Microsoft’s advances in 2008. Avis, meanwhile, was able to scoop up Avis Europe at an attractive price by leveraging Avis Europe’s fears that if Avis completed a Dollar Thrifty deal, it would not have capacity or desire to do Avis Europe deal for a long time.

Lucas Jackson/ReutersJohn V. Faraci, chief of International Paper.

International Paper/Temple-Inland. International Paper shows that after Airgas, a hostile bid against a company with a staggered board and poison pill can succeed. You just need to act fast and pay a high price. It is just that easy.

iGate/Patni Computer Systems. iGate, an Indian-based outsourcing company, partnered with Apax Partners to acquire another Indian company, Patni, in a $1.2 billion deal. The acquisition was one of the largest leveraged buyouts in India ever, and one of the first to tap the high yield debt market in the United States.

Andrew Harrer/Bloomberg NewsJim Davidson, co-chief of Silver Lake Partners.

Microsoft/Silver Lake Partners/Skype. Silver Lake Partners turned an amazing profit by buying a 70 percent interest in Skype for $1.9 billion from eBay. Silver Lake flipped eBay’s orphan 18 months later to Microsoft for $8.5 billion. It remains to be seen if Microsoft will similarly profit, but the deal also allowed Microsoft to put its $42 billion foreign cash pile to work buying Skype, which is based in Luxembourg.

Jeff Chiu/Associated PressLarry Ellison, chief of Oracle.

Oracle/Art Technology Group. Oracle wins the speed award for finishing this cash merger deal announced in 2010 in 63 days, a month earlier than usual. The deal would have closed even earlier but the Delaware Chancery Court enjoined the ART Technology special meeting for 14 days in order for ART Technologies to make additional disclosures. The deal shows that in some cases a merger can almost be as quick as a tender offer structure.

Ramius/Royalty Pharma/Cypress Bioscience. An activist hedge fund puts its money where its mouth is. Ramius Value Opportunity Advisors ends up teaming with Royal Pharma to buy Cypress for $255 million. The acquisition came after almost six months of back and forth started by Ramius making an offer to buy the entire company. The buyout group paid a 160 percent premium to Cyprus’s share price the day before Ramius first announced its offer.

Renaissance Learning/Permira. A private equity bidding war broke out between Permira and Plato Learning, a portfolio company of Thoma Bravo and HarbourVest, over Renaissance. But Renaissance’s co-founders, Terrance and Judith Paul, who owned 69 percent of Renaissance, refused to countenance a Plato bid. The result: Renaissance public shareholders lost out when Plato offered $18 a share to the public holders against a bid of $16.60 a share from Permira. The Pauls, in a rare case of charity by a controlling shareholders, took only $15 a share. The Pauls receive an A for their generosity in wanting to preserve Renaissance’s headquarters in Wisconsin. The lawyers on the deal (Godfrey Kahn and Sidley Austin for Renaissance and Skadden, Arps, Slate, Meagher Flom for Permira) also deserve an A for forcing through a clever structure intended to take advantage of Renaissance’s incorporation in Wisconsin and the unique laws there. For public shareholders however, this deal is an F.

Teva Pharmaceutical Industries/Cephalon. Teva made a quick strike to buy Cephalon for $6.8 billion after a hostile bidder, Valeant Pharmaceuticals, opened up the opportunity. Teva showed the value of opportunistic and quick action in deal-making, winning the Bruce Wasserstein “Dare to Be Great” award.

I wish you all the best in the new year. May it be a happy and healthy one.

Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

Article source: http://feeds.nytimes.com/click.phdo?i=d53aef55f1e764ebf999c6e485e75e6b

Filed Under: Business News Tagged With: private equity, undisclosed purchase price, value creation

EMI Is Sold for $4.1 Billion, Consolidating the Music Industry

November 12, 2011 by NewsMaker Leave a Comment

In a complex sale brokered by Citigroup, the Universal Music Group, a division of the French conglomerate Vivendi, will absorb EMI’s recorded music operations for $1.9 billion, while EMI’s music publishing division will be sold for $2.2 billion to a consortium of investors led by Sony, the companies announced on Friday.

Besides the Beatles, music’s biggest trophy, EMI’s recorded music assets include Pink Floyd, Nat King Cole, Frank Sinatra’s middle period and current stars like Katy Perry and Coldplay. Its labels include Capitol, Virgin and Blue Note.

The sales ended a four-month auction that was slowed by the instability of the international credit markets. Yet prices were higher than many in the music industry and on Wall Street had expected, helping Citi to recoup some of the $5.5 billion it had lent four years ago as part of a disastrous private equity takeover of the label.

The split of EMI completes the biggest shift in music’s corporate structure in almost a decade, reducing the number of major record companies from four to three and allowing Sony and Universal, already the biggest forces in music, to become even bigger.

With Universal and Sony now far outweighing the third major, the Warner Music Group, the competitive landscape of the industry is expected to shift. Warner, which was sold for $3.3 billion in May to the Russian-born investor Len Blavatnik, had offered about $1.5 billion for EMI but dropped out of the bidding two weeks ago over a disagreement about the price.

“From a competitive standpoint it would have been better for the industry if Warner and EMI had merged,” said Jeffrey Rabhan, the chairman of the Clive Davis Institute of Recorded Music at New York University and an artist manager. “You want to have three strong players, not two and a half.”

Universal and Sony’s deals for EMI will be subject to regulatory approvals, and Universal — which already controls about 30 percent of the music sold around the world — may face close scrutiny in Europe. EMI’s market share for recorded music is about 9 percent.

EMI, a British company with roots dating to 1887, has been in financial turmoil since 2007 when Terra Firma, a private equity firm, bought it for $8.4 billion using the $5.5 billion loan from Citi. The bank seized EMI in February after the label defaulted on the loan.

Lucian Grainge, the chairman of Universal, pledged to preserve the British identity of EMI.

“For me, as an Englishman, EMI was the preeminent music company that I grew up with,” Mr. Grainge said in a statement. “Its artists and their music provided the soundtrack to my teenage years. Therefore, U.M.G. is committed to both preserving EMI’s cultural heritage and artistic diversity and also investing in its artists and people to grow the company’s assets for the future.”

In their most recent annual reports, Universal had just under $6 billion in revenue last year, Sony’s music operations $5.7 billion and Warner $3 billion. EMI’s recorded operations had $1.8 billion in revenue and its publishing side $749 million for the year ended March 2010, the last period for which it reported accounts.

Universal said it would finance the deal with its existing credit lines. In apparent anticipation of antitrust challenges, the company said it would sell $680 million in “non-core assets.” When it bought the BMG publishing catalog in 2007, Universal had to sell more than $100 million in assets to secure the approval of the European Commission.

Sony’s bid was financed by a hodgepodge of investors including Blackstone’s GSO Capital Partners unit; Mubadala, the investment arm of Abu Dhabi; Jynwel Capital, from Malaysia; and the media mogul David Geffen. The group was corralled by Robert Wiesenthal, chief financial officer of the Sony Corporation of America. (Music publishing, separate from recorded music, concerns the copyrights for the music and lyrics that underlie every recording.)

Sony’s $325 million investment gives it a minority stake in the venture, which will keep the EMI name. It will be run as an independent unit within Sony by Sony/ATV, the publishing company owned by Sony and the estate of Michael Jackson. “It has been a long process, but something that people have viewed as difficult — the problems in the financial markets — ended up accruing to our benefit,” Mr. Wiesenthal said. “We found long-term investors, who are not just looking at the short-term returns typical of private equity.”

The Sony deal also reunites Martin Bandier, Sony/ATV’s chief executive, with EMI’s publishing division, which he had built into the industry’s leader before he left in 2007. Among the 1.3 million songs controlled by EMI are a catalog of thousands of Motown songs, and it also has deals with many current R. B. and pop songwriters like Alicia Keys and Kanye West.

Some analysts said the disruptions in the music business over the last decade mean that the labels must now justify themselves to generations of artists who have learned to do without them.

“Even with the very large catalogs that these two labels will not have big chunks of, it’s still going to be an interesting challenge to see how they remake themselves in the 21st century,” said Mike McGuire, a media analyst at Gartner. “So many options are available to artists now that the labels are going to have to show, more than ever, their value as this gigantic entity.”

Eric Pfanner contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=398e0d3dc047d2b5a917c85dbbb96ddf

Filed Under: Business News Tagged With: artist manager, corporate structure, private equity

DealBook: JPMorgan Profit Falls 4%, to $4.26 Billion

October 13, 2011 by NewsMaker Leave a Comment

JPMorgan Chase kicked off the banking industry’s earnings season, reporting on Thursday that profit fell 4 percent in the third quarter as a result of lingering mortgage troubles and weak investment banking results.

Both its consumer and Wall Street businesses were hit hard by the fiscal troubles ravaging Europe and fear of a fresh recession in the United States.

The bank announced profit of $4.26 billion, or $1.02 a share, compared with $4.4 billion, or $1.01 a share, in the period a year earlier. The results edged out analysts’ consensus estimate of 96 cents a share.

“All things considered, we believe the firm’s returns were reasonable given the current environment,” Jamie Dimon, JPMorgan’s chairman and chief executive, said in a statement.

The bank benefited from a $1.9 billion accounting gain tied to the increase in the perceived riskiness of its debt. It also charged off fewer credit cards loans and set aside less money to cover future losses in that division. Those actions helped offset an additional $1 billion pretax increase, which the bank set aside to cover potential legal claims. It also took at $542 million pretax loss in its private equity unit, and its home lending division continued to lose money.

Revenue remained under pressure, falling to $24.4 billion, an 11 percent decline from the second quarter, amid a slowdown in stock and debt offerings that had propped up the bank’s results in previous quarters. Difficult trading conditions, slimmer profit margins on lending, and the elimination of overdraft and other penalty fees also weighed on top-line growth.

As a diversified bank, JPMorgan is seen as an indicator for the financial industry, and it was among the first banks to prompt analysts to start cutting earnings estimates when it warned of a sharp fall-off in its Wall Street businesses in early September.

The other big banks will report earnings next week; Citigroup and Wells Fargo are to release their results on Monday morning, and Bank of America, Morgan Stanley and Goldman Sachs are to follow later in the week. All are expected to report a similar slowdown in their investment banking businesses, with some analysts forecasting that Goldman Sachs will report its second quarterly loss as a public company.

JPMorgan’s shares, which are down 24 percent for the year, rose nearly 3 percent, to close at $33.20 on Wednesday.

Investors are so concerned about the prospects for growth at banks that they fled the sector during the quarter. Bank stocks are down more than 30 percent since January.

Stagnant loan growth, higher capital requirements and the reduction of once-lucrative debit card swipe fees are expected to take a big bite out of profits. What is more, investors are increasingly anxious over the exposure of American banks to their counterparts in Europe, which have vast holdings of bonds backed by Greece and other nations with weak economies.

The choppy markets weighed heavily on the results of JPMorgan’s investment banking unit. Profit fell to $1.6 billion, or 20 percent, from the second quarter. Over all, trading revenue was down sharply from the period a year earlier, when market conditions were much better.

The bank’s large fixed-income and commodities operations fell 14 percent from the second quarter, while equities fell 15 percent, excluding the accounting gains taken on its debt. Investment banking fees fell 31 percent, as corporations shelved plans for acquisitions as well as stock and bonds deals, given all the uncertainty in the markets.

The news was not entirely surprising, however. In early September, Jes Staley, the head of JPMorgan’s investment bank, warned that trading revenue was likely to fall about 8 percent from the period a year earlier and projected that investment banking fees would drop by about a third.

”I think you can safely expect a decline in our markets revenue,” he said in remarks at the Barclays financial services conference last month.

Chase Home Lending, the bank’s mortgage division, continues to bleed money. Losses have improved slightly, to around $900 million this quarter, but there are few signs of a turnaround anytime soon. “We expect mortgage credit losses to remain elevated,” Mr. Dimon said in the statement.

On top of that, Chase faces billions of dollars in potential legal claims brought by the federal government and private investors seeking to recover losses on mortgage bonds backed by loans that quickly went sour. It may also have come up with several billion dollars more as part of a settlement with federal and state regulators for its role in the mortgage servicing and foreclosure mess.

The $1 billion set aside to cover claims from investors adds to the billions the bank has put into its litigation reserves over the last five quarters. The bank also established a separate reserve of several billion dollars to cover losses stemming from the repurchase of faulty loans sold to Fannie Mae and Freddie Mac, the government-controlled mortgage finance companies. Banking analysts say the mortgage problems could cost the bank up to $9 billion.

The bank’s other major businesses fared a bit better, despite the looming concerns about the job and housing markets. Chase Card Services, its credit card lending arm, posted an $849 million profit, down 8 percent from last year. Chase’s large commercial banking unit booked a $571 million profit, the result of a slight uptick in corporate lending, while Chase Retail banking, which includes the troubled mortgage group, squeezed out a $1.2 billion profit.

JPMorgan’s asset management unit posted a $385 million profit despite facing the same drop in trading-related activity as the investment bank. The bank’s treasury services posted a $305 million profit as executives tried to turn around a business that has come under heavy pressure from the low-interest rate environment.

Article source: http://feeds.nytimes.com/click.phdo?i=89644981946031d85a1f2ad566dd6f2c

Filed Under: Business News Tagged With: earnings estimates, equity unit, private equity

DealBook Column: New Buffett Manager Gets Higher Taxes and Less Pay, by Choice

September 20, 2011 by NewsMaker Leave a Comment

Matt Eich/LUCEO, for The Wall Street JournalTed Weschler shows that the rich do not necessarily make all decisions based on the financial bottom line for themselves.

How would you feel about taking a pay cut and paying more in taxes?

Meet Ted Weschler. He just did both. And he’s happy about it.

You might have heard about Mr. Weschler. He was hired by Warren E. Buffett last week to help invest Berkshire Hathaway’s piles of cash.

Mr. Weschler, a successful but little-known 50-year-old hedge fund manager, plied his trade from a small office in Charlottesville, Va., above an independent bookstore, reaping huge returns for his investors, some 1,236 percent over a decade. In the process, his $2 billion fund put him comfortably in the millionaires’ club, and at the rate he was going, he was on his way to the more exclusive cadre of billionaires.

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Here is a quick measure of his wealth: he paid $2,626,311 in a charity auction to have lunch with Mr. Buffett in 2010. That’s how they met. A year later, Mr. Weschler paid $2,626,411 to dine with him again.

In his new job at Berkshire, he is expected to be paid significantly less than he was making. (We’ll get to the formula for his compensation in a moment.) And he is going to be giving up a huge tax break. Instead of paying the 15 percent capital gains rate on most of his income like most hedge fund managers and private equity executives, he is going to be taxed at the 35 percent ordinary income level as an employee.

His decision — and his compensation structure — are worth considering as the country weighs President Obama’s proposal to increase taxes for the ultra wealthy in what has been called the “Buffett Rule.”

The plan is aimed at ensuring that millionaires pay the same effective rate as middle-income families. In part, it takes aim at the controversial “carried interest” income, or the profits that hedge fund managers and other big investors take home as part of their pay. That compensation is now taxed at the capital gains rate of 15 percent, far below the 35 percent top rate on ordinary income. Mr. Obama hopes to close that loophole.

Many Republicans have derided the Buffett Rule, saying it would hurt the economy. “If you tax job creators more, you get less job creation,” Representative Paul D. Ryan, Republican of Wisconsin, argued on “Fox News Sunday. “If you tax investment more, you get less investment.”

Perhaps Mr. Ryan should dine with Mr. Weschler. The view that “millionaires and billionaires” will stop, or slow down, working or investing may be a myth.

“When you have enough money to live the lifestyle you want,” Mr. Weschler told me in a brief conversation, money and taxes are less of a consideration than “who you want to work with.”

Mr. Weschler — and his colleague Todd Combs, another successful hedge fund manager who joined Mr. Buffett last year — demonstrate that people of great wealth don’t necessarily make all decisions based on their own financial bottom line.

“Neither would have voluntarily paid more than 15 percent when working at their hedge fund simply because of the feeling that they were a favored class,” Mr. Buffett said. “But neither will feel the least bit abused because the earnings from their daily labors will now be taxed at a higher rate.”

Like Mr. Buffett, Mr. Weschler says he doesn’t believe the tax loopholes for hedge fund managers make sense. “When my accountant first told me about it,” he said he responded “You can’t be serious.” But he added quickly, “I’m not complaining.”

That’s not to say he will be paid like a pauper at Berkshire. Mr. Weschler and Mr. Combs will earn seven figures, and potentially more. But they won’t make John Paulson money. He reportedly made $5 billion last year.

Unlike hedge fund managers, at Berkshire Mr. Weschler and Mr. Combs don’t take home the standard “2 and 20,” collecting a 2 percent management fee and 20 percent of all the profits. Instead, Mr. Buffett has tightly linked their pay to the performance of the Standard Poor’s 500-stock index, a system that some big institutional investors should be pressing hedge funds to adopt.

“Both Todd and Ted will have performance pay based on 10 percent of the excess return over the S.P., averaged over multiple years,” Mr. Buffett told me. “If the S.P. averages 5 percent annually in the future, this means that the average hedge fund manager has received a 1 percent performance fee — 20 percent of 5 percent — before Todd and Ted receive anything.”

“Nevertheless, I expect them to make a lot of money,” he added. “The difference is that they have to earn it by true investment performance.”

In addition, both men receive modest salaries that Mr. Buffett said “will work out to about a tenth of 1 percent” of the assets they manage. “This compares to the 2 percent nonperformance fee which most hedge fund managers charge, even if they are losing money.”

Mr. Buffett’s critics complain that while he supports higher taxes on the wealthy, Berkshire is structured to pay little in taxes and he has sidestepped Uncle Sam by giving away his wealth.

Some have even suggested that he mail the Treasury a check if he wants higher taxes. The Senate minority leader, Mitch McConnell, Republican of Kentucky half-jokingly said on NBC News program “Meet the Press,” “if Warren Buffett would like to give up some of his benefits, we’d be happy to talk about it.”

But Mr. Buffett shrugs off the naysayers. “When I ran my partnership in the 1950s-1960s, I was generally taxed at 25 percent, considerably below the rate on similar amounts of ordinary income,” he said. “I knew I was getting favored treatment compared to the local doctor, lawyer or C.E.O., but I made no voluntary payments to the Treasury, nor does any hedge fund manager of whom I’m aware.”

Article source: http://feeds.nytimes.com/click.phdo?i=988b3f126ae00a652a5abaf365eb3d10

Filed Under: Business News Tagged With: column 3a, private equity, warren e buffett

DealBook: New Buffett Manager Gets Higher Taxes and Less Pay, by Choice

September 20, 2011 by NewsMaker Leave a Comment

Matt Eich/LUCEO, for The Wall Street JournalTed Weschler shows that the rich do not necessarily make all decisions based on the financial bottom line for themselves.

How would you feel about taking a pay cut and paying more in taxes?

Meet Ted Weschler. He just did both. And he’s happy about it.

You might have heard about Mr. Weschler. He was hired by Warren E. Buffett last week to help invest Berkshire Hathaway’s piles of cash.

DealBook Column

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Perhaps Mr. Ryan should dine with Mr. Weschler. The view that “millionaires and billionaires” will stop, or slow down, working or investing may be a myth.

“When you have enough money to live the lifestyle you want,” Mr. Weschler told me in a brief conversation, money and taxes are less of a consideration than “who you want to work with.”

“Nevertheless, I expect them to make a lot of money,” he added. “The difference is that they have to earn it by true investment performance.”

Mr. Buffett’s critics complain that while he supports higher taxes on the wealthy, Berkshire is structured to pay little in taxes and he has sidestepped Uncle Sam by giving away his wealth.

Article source: http://feeds.nytimes.com/click.phdo?i=988b3f126ae00a652a5abaf365eb3d10

Filed Under: Business News Tagged With: hedge fund manager, middle income families, private equity

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