April 25, 2024

You are here: Home / Archives for private equity firm

DealBook: Bi-Lo to Pay $9.50 a Share for Winn-Dixie

December 19, 2011 by Leave a Comment

A Winn-Dixie store in Miami, Fla., in 2004.Joe Raedle/Getty ImagesA Winn-Dixie store in Miami in 2004.

Bi-Lo agreed on Monday to buy Winn-Dixie Stores for about $560 million, uniting two of the South’s better-known regional supermarket operators.

Under the terms of the deal, the privately held Bi-Lo will pay $9.50 a share in cash, 75 percent more than Winn-Dixie’s closing price on Friday.

The two companies said in a statement that the merger was driven by a desire for greater scale. Bi-Lo’s and Winn-Dixie’s geographic areas have no overlap. Bi-Lo operates 207 stores in South Carolina, North Carolina, Tennessee and Georgia, while Winn-Dixie runs 480 locations in Florida, southern Georgia, Alabama, Mississippi and Louisiana.

“The combined company will have a perfect geographic fit that will create a stronger platform from which to provide our customers great products at a great value, while continuing to offer exceptional service,” R. Randall Onstead Jr., Bi-Lo’s chairman, said in the statement.

Both companies had suffered over the last decade and subsequently filed for bankruptcy protection. Winn-Dixie filed in February 2005 and emerged a year later, having closed down hundreds of locations.

Bi-Lo filed for Chapter 11 protection in 2009 to help address coming debt maturities, and exited a year later. It is still owned by the private equity firm Lone Star Funds.

Both the Bi-Lo and Winn-Dixie brands are expected to live on after the merger, and neither company expects to close any stores. The location of the combined company’s headquarters has not been decided, though it is expected to maintain corporate presences in both Greenville, S.C., Bi-Lo’s home, and Jacksonville, Fla., Winn-Dixie’s base.

The deal is expected to close in the next two or three months, pending approval by Winn-Dixie shareholders.

Bi-Lo was advised by a raft of counselors: William Blair; Citigroup; the Food Partners; Alvarez Marsal’s transaction advisory group; Gibson, Dunn Crutcher; and Hunton Williams.

Winn-Dixie was advised by Goldman Sachs and the law firms King Spalding and Greenberg Traurig, while its special board committee was advised by Paul, Weiss, Rifkind, Wharton Garrison.

Article source: http://feeds.nytimes.com/click.phdo?i=e2d90c95b3d485e122ff37cc5e84e5fa

Filed Under: Business News Tagged With: , ,

DealBook: Wall Street’s Odd Couple of Pension Funds and Private Equity Firms

December 14, 2011 by Leave a Comment

Harry Campbell

Private equity and public pensions are one of Wall Street’s most peculiar love affairs. Recently, the two have tried to become even closer. But don’t get mushy — this relationship is about money, not romance.

Public pensions pay billions in fees to private equity. The question is whether it is worth it.

Private equity’s first date with public pensions was in 1981, when the Oregon Investment Council, the manager of Oregon’s pension fund, invested along with Kohlberg Kravis Roberts Company to buy the retailer Fred Meyer.

Since then, the two have been inseparable, and pension funds have at times made up more than 50 percent of private equity’s financing. It’s an odd pairing: the millions of working-class Americans who rely on public pensions have invested billions with the private equity industry, which in exchange has made billions for these pension funds.

Deal Professor
View all posts


The titans of private equity, meanwhile, have become rich off public pensions. A New York Times study last year found that the 10 largest public pension funds had paid private equity $17 billion in fees from 2000 to 2010. Last year, the Washington State Investment Board, the manager of the state’s pension funds, paid $144.8 million in fees to private equity firms to manage $13.5 billion.

The private equity firms know they have a good thing going. A few years ago, a senior adviser to the Blackstone Group called state pension benefits “too generous.” At least one pension fund subsequently refused to deal with Blackstone, most likely pushing the private equity firm to issue a remarkable statement that the firm opposed “scapegoating” of public employees and that it believed “a pension is a promise” that should be honored.

Some pension funds are looking to get even tighter with private equity.

The Teacher Retirement System of Texas, which manages about $107 billion on behalf of Texas teachers, announced in November that K.K.R. and Apollo Global Management would manage $6 billion of its money. It will be invested not only in private equity but also in other asset classes managed by the two firms, including debt.

Just last week, the New Jersey Division of Investment, the manager of New Jersey’s $66 billion public pension fund, agreed to provide Blackstone with $1.8 billion to manage. Blackstone will also invest the money in private equity as well as other investments.

These big commitments come as big private equity firms are busily converting themselves into full-service asset managers.

At the same time, pension plans everywhere are also desperate for yield. Pension plans are reportedly underfinanced by anywhere from $700 billion to as much as $4 trillion, depending on the calculations. Poor returns over the last few years have not helped. Over the last five years, the average state and local pension fund has returned 4.7 percent, according to Callan Associates.

Pension plans hope to make up these lost years and reach performance targets that in some cases are still set at a hopeful 7 to 8 percent a year. Private equity has traditionally been a high-performing asset class, and shifting more assets into this and other alternative investments like hedge funds is seen as a possible solution. Wilshire Associates recently found that the average pension fund had increased its allocation to private equity to 8.8 percent in 2010 from 3 percent in 2000.

Even with new money coming in, private equity firms have been so eager to raise money in the last few years that at times they have resorted to the equivalent of retailers’ half-off sales. Typically, investors pay private equity firms a yearly administrative fee that is 2 percent of total investments. The private equity firm also gets 20 percent of any profits earned. Some firms like K.K.R. received the 20 percent of profits from the first dollar in returns, but most private equity firms typically must first reach a hurdle of 8 percent returns.

Some private equity firms have been lowering the 2 percent fee, and even K.K.R. has reportedly agreed to a threshold before it takes 20 percent of the profit.

Both the New Jersey and Texas retirement plans were said to have been offered these better terms before investing their money.

The question is whether even this is too much for public pension plans.

An alternative to private equity comes from the Ontario Teachers Pension Plan. This Toronto-based pension fund, which has more than $100 billion in assets, has adopted a do-it-yourself approach with the $12 billion it has invested in private equity.

The Canadian fund has hired its own team that arranges private equity transactions (though they also at times invest directly in a private equity firm’s funds). The pension plan has bought the Toronto Maple Leafs and Raptors sports teams, and just last week was part of a group paying $1.3 billion to buy Blue Coat Systems, an enterprise software company. The pension fund has outearned many of the private equity firms, earning 18.5 percent on its private equity investments through the end of last year from its beginning in 1990.

In comparison, the California Public Employees’ Retirement System, known as Calpers, says that it has earned a return of 11.1 percent on its alternative investment program since its inception, also in 1990. The Texas Retirement Fund, meanwhile, has had an annualized return of 13.1 percent in the last 10 years, while Preqin reports that the average pension plan earned just 7.2 percent on its private equity investments in the last 10 years.

The Ontario teachers’ fund strategy of direct investing eliminates the fees paid to private equity. The fund also doesn’t have to deal with placement agents who get a commission from private equity firms for selling pension fund investments to them.

The direct investment approach, however, is not for every fund. It requires that the fund build its own team and take the risk of failure. Managers may prefer to blame the private equity firm for poor results rather than themselves.

Setting up an independent investing team is only for the largest pension funds. For many smaller pension plans that can’t afford the losses or their own investing operation, private equity is a boon.

The answer is likely to be a combination of the Ontario model and the Texas/New Jersey route. The largest funds may want to explore setting out on their own. Smaller funds may wish to bargain hard with private equity to obtain lower fees.

In the mix, pension funds need to be aware that while private equity firms can provide valuable services, that comes at a cost to the funds’ beneficiaries.

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

Article source: http://dealbook.nytimes.com/2011/12/13/wall-st-s-odd-couple-and-their-quest-to-unlock-riches/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Bits Blog: Hard-Core Gamers Try Building Social Games

December 2, 2011 by Leave a Comment

A scene from a Rumble game.RumbleA scene from a Rumble game.

Social game makers like Zynga have gotten hundreds of millions of people to play their games, but one of the big raps on FarmVille, CityVille and other Facebook time-wasters is that they’re too shallow to appeal to hard-core players.

A company called Rumble is part of a new wave of hard-core social games startups that are trying to change that. Founded by a group of executives from Electronic Arts, Activision and other traditional game companies, Rumble, based in Redwood Shores, Calif., says it has raised $15 million from Google’s venture capital arm and Khosla Ventures.

Greg Richardson, Rumble’s chief executive, is a former Electronic Arts executive who ran the game developer BioWare/Pandemic while at the private equity firm Elevation Partners. He said Rumble was aiming to make games for mobile devices like the iPad, for Facebook and for the Web that rival the depth and quality of console games. Mr. Richardson echoed a common criticism of Zynga games, which are viewed by critics as finely calibrated exercises in frustrating players so they spend money to speed their progress.

“At their worst, they’re monetization moments masquerading as games, as opposed to something people fall in love with,” Mr. Richardson said in an interview.

Rumble is developing two games. One of them is a medieval action role-playing game that he declined to say much about. A video of that game shows a knight slashing away at opponents as he makes his way into a castle.

Epic Games, an established developer of hard-core games,  has created a mobile sword-fighting game with high-quality graphics for iPhones and iPads called Infinity Blade.

While the yet-unnamed Rumble game doesn’t appear to be as graphically rich as the latest titles for an Xbox 360 or PlayStation 3, its fidelity is very high compared to the cartoony graphics that are common in most Facebook games.

The Rumble game is scheduled to be released during the first half of 2012, while the second game from the company is expected to be released by the end of summer 2012. A number of other companies are also beginning to cater to hard-core gamers through Facebook, among them Kixeye and Kabam.

Rumble’s games, like Zynga’s, will be free and supported by the sale of virtual goods. It remains to be seen how different Rumble’s games will be from Zynga’s in their attempts to tease open players’ pocketbooks. Mr. Richardson said Rumble wants players to pay for items only when they see value, not when they are “artificially manipulated” into making purchases.

Article source: http://feeds.nytimes.com/click.phdo?i=eacbc55cf4037cb9c33f2d4e5d3ab643

Filed Under: Business News Tagged With: , ,

DealBook: Microsoft and Google Consider Bid for Yahoo

October 24, 2011 by Leave a Comment

As a host of potential bidders circle Yahoo, several of Silicon Valley’s biggest companies are considering whether to jump into the fray themselves.

Microsoft and Google are both weighing whether to participate in the bidding. Each has its own business reasons for wanting to see the continued existence of Yahoo, which despite its financial struggles still has a monthly audience of almost 700 million unique visitors.

David Paul Morris/Bloomberg News

But there’s one thing the technology giants have in common: Not one of them wants to actually buy or run Yahoo.

Instead, Microsoft and Google are considering lending financial support to private equity firms or others weighing a bid, according to people briefed on the matter.

Microsoft is the furthest along, having held discussions with a number of leveraged buyout firms, these people said. Under one possible combination, Microsoft would chip in billions of dollars in financing as part of a consortium led by the private equity firm Silver Lake and the Canadian Pension Plan Investment Board, three of these people said. That group would be backstopped by billions of dollars in bank financing as well.

Google, for its part, has had conversations with two private equity firms about backing a takeover, according to another person briefed on the matter. Such discussions are in the early stages and may not lead to a bid, this person said.

Representatives for Microsoft, Google, Silver Lake and Yahoo declined to comment on any potential bidding.

While nearly every major private equity firm has been conducting some preliminary due diligence on Yahoo, potential suitors have been trying to sort out what bids would look like before they sign nondisclosure agreements with Yahoo to officially pore over its books, according to people briefed on the matter. These people spoke on the condition of anonymity because they were not authorized to speak publicly about confidential deal negotiations.

But what has become apparent is that the private equity firms would be focused on turning around the company, while a deep-pocketed backer like Microsoft or Google would supply capital. A crucial Yahoo adviser, Allen Company, has told potential bidders that they should focus on how to improve the company’s core North American operations and not worry about the divestiture of the company’s huge holdings in the Alibaba Group of China and Yahoo Japan.

Players like Microsoft and Google are primarily interested in what they could reap from teaming up with Yahoo. Yahoo’s news arm reported 81.2 million unique visitors in August, making it the biggest online news site.

Microsoft already has in place a wide-ranging agreement with Yahoo: Its Bing search engine fetches answers to user queries, while Yahoo’s sales force sells ads against those results.

Microsoft may also push to integrate its newest acquisition, the Internet communications company Skype, into Yahoo.

With a deal, Google could eventually wrest Yahoo away from Microsoft when their partnership expires. By doing so, the company could provide its own search technology and use its DoubleClick display advertising subsidiary to service Yahoo’s advertising inventory, this person said.

Google could also use Yahoo to promote its other offerings, like the Google Plus social network.

However, it is unclear whether a Google-Yahoo partnership would pass antitrust scrutiny. The two companies previously discussed forming an advertising alliance in 2008, only to see the talks founder amid likely opposition by the Justice Department. Still, even if Google considered the regulatory challenges insurmountable, it could participate in the bidding process to help drive up the price, to frustrate its rival. News of Google’s discussions was reported earlier by The Wall Street Journal online.

Such discussions are expected to play out over a matter of weeks or even months. Yahoo’s board is still weighing whether to sell the company outright, accept a minority investment, or do nothing.

Yahoo’s board has named the chief financial officer, Timothy Morse, as interim chief executive while it searches for a permanent leader after having ousted Carol A. Bartz last month. Meanwhile, potential buyers are speaking to former Yahoo executives about taking an operational role should they succeed in taking over the company.

One possible point of contention is price. Private equity firms have indicated they are unwilling to pay much more than Yahoo’s current market value of $20 billion, arguing that the stock price already includes the expectation of a sale, according to people briefed on the matter.

Many of the potential suitors for Yahoo have contacted Alibaba’s chairman and chief executive, Jack Ma, looking to gauge his interest in working with them, these people said. The agreement that governs Yahoo’s 40 percent stake in his company gives Mr. Ma what some analysts have said is a kingmaker role.

Alibaba is also in discussions with Yahoo about buying back its stake on its own, separately from any takeover of Yahoo as a whole.

Article source: http://feeds.nytimes.com/click.phdo?i=9b7727f9320aae39e388e466258fd9b3

Filed Under: Business News Tagged With: , ,

After a Lift From Corporate Deals, Stocks Sag

June 13, 2011 by Leave a Comment

Stocks rose at the start of trading after Wendy’s/Arby’s Group said it would sell control of its Arby’s business to a private equity firm. VF Corporation, whose brands include Wrangler and The North Face, also said it would buy boot maker Timberland for more than $2.2 billion.

The deals gave investors some much-needed confidence, and the Dow Jones industrial average quickly rose as much as 65 points. By midday, the enthusiasm had sagged, and the Dow closed up 1.06 points to 11,952.97. The Standard Poor’s 500-stock index rose 0.85 points at 1,271.83, and the Nasdaq lost 4.04 points at 2,639.69.

The deal-making on Wall Street came after weak economic news has sent stocks lower for six straight weeks. On Friday, the Dow fell below 12,000 for the first time since March.

Over the past month, the economic news, particularly out of the United States, has turned distinctly negative. Investors are now worried that the rise in share prices in the early part of the year may have been overdone.

Nouriel Roubini, the New York University economics professor known for predicting the 2008 financial crisis, cautioned against risky investments.

“In the last month, things have changed, the evidence is that maybe this is not just a soft patch but something worse,” he said in a speech in Singapore. “If your horizon is the next two or three months, I would be a bit defensive on equities. …This is time to be cautious, and safe rather than sorry.”

Tuesday may have more to offer, with the release of Chinese inflation data that is expected to stoke concerns that the central bank there will tighten monetary policy again soon. Retail sales figures in the United States for May will also provide an insight into the state of the economic recovery; consumer spending accounts for around 70 percent of the American economy.

In the oil markets, crude continued to fall on concerns over the global economic recovery and speculation that Saudi Arabia would decide to raise production levels despite last week’s surprise decision by the OPEC oil cartel to maintain current levels.

Benchmark oil for July delivery was down 79 cents at $98.50 a barrel at the New York Mercantile Exchange.

Article source: http://feeds.nytimes.com/click.phdo?i=963fe598d63a447f8e9d9bd3f025b1dc

Filed Under: Business News Tagged With: , ,

DealBook: Wendy’s Sells Arby’s to Private Equity Group

June 13, 2011 by Leave a Comment

Wendy’s/Arby’s Group announced Monday that it had found a buyer, Roark Capital Group, for its Arby’s chain.

Arby’s, known for its roast beef sandwiches, had been on the block since January. Under the terms of the deal, Wendy’s will receive $130 million in cash at the closing and keep an 18.5 percent stake in the Arby’s business, an interest valued at $30 million. Roark, a private equity firm based in Atlanta, will assume $190 million worth of Arby’s debt. The deal, the companies said, is expected to generate a tax benefit of $80 million for Wendy’s. As a result, the total value of the deal was estimated to be $430 million.

Wendy’s and Arby’s had merged in 2008 in a $2.3 billion deal orchestrated by investor Nelson Peltz in 2008 after he had pushed for changes at Wendy’s International for several years.

Mr. Peltz, the biggest investors in Wendy’s/Arby’s, said as recently as February that the company had been approached by possible suitors who were not identified. But he said at the time that the company would focus on its strategy to sell the Arby’s chain, which has nearly 3,700 restaurants in the United States. Arby’s has been a weaker performer than Wendy’s in recent years.

Shares of Wendy’s were up sharply in pre-market trading on Monday.

“This transaction provides substantial value to our stockholders, as it is expected to be accretive to earnings, deleverage the balance sheet and allow us to devote our full attention and resources on the exciting growth opportunities we have at Wendy’s,” Roland Smith, Wendy’s/Arby’s chief executive, said in a statement.

Roark has 20 franchises in its portfolio that operate in 50 states and 43 countries, including Cinnabon, Auntie Ann’s and Carvel Ice Cream franchises. The firm has also agreed to invest an additional $50 million in Arby’s through 2013.

Arby’s was one of several fast-food chains on the block. Yum Brands is selling Long John’s Silver and AW All-American Food.

UBS and the law firm of Paul, Weiss, Rifkind, Wharton Garrison advised Wendy’s. King Spalding and DLA Piper are serving as legal advisers to Roark Capital Group.

Article source: http://feeds.nytimes.com/click.phdo?i=f81362ad79f08fdd8ddfd211c0994908

Filed Under: Business News Tagged With: , ,

DealBook: A FrontPoint Founder Tries Again With a New Firm

May 31, 2011 by Leave a Comment

When FrontPoint Partners began in 2000, its founders envisioned the firm as a one-stop shop for multiple hedge funds, a distinctive strategy in an industry dominated at the time by single star managers.

As FrontPoint fights to stay alive after an insider trading scandal, one of its co-founders, Philip Duff, who left in 2006, sits in a nondescript office less than a mile away from his former firm rethinking the pension business with his latest venture, Massif Partners.

It is his second attempt.

After Mr. Duff helped to orchestrate the sale of FrontPoint to Morgan Stanley in 2006, he struck out on his own, starting Duff Capital Advisors. As with FrontPoint, he tried to identify an untapped market, in this case state and local pension funds struggling to meet their obligations.

He had grand ambitions. Seeded with $500 million to build the business from the private equity firm Lindsay Goldberg, Mr. Duff leased offices in a high-end building in Greenwich, Conn. He loaded the offices with bells and whistles, including a new skylight with automatic tinting to reduce heat and glare.

Duff Capital offered pension and endowment funds a comprehensive group of services, including advice, risk management and a variety of investment options like hedge funds and private equity portfolios. At the time, Mr. Duff boasted that the firm had the potential to be larger than many of the world’s top hedge funds, saying it was in talks to receive as much as $1.5 billion in seed capital to invest.

“Next-generation solutions are needed, and we believe a new approach is required to meet those needs,” Mr. Duff said, in an announcement heralding the new venture.

But the timing was bad.

The firm started in March 2008, just months before the collapse of Lehman Brothers and the onset of the financial crisis. With the markets in disarray, clients never materialized and Duff Capital shut down in May 2009. The firm never moved into its plush offices.

Now, Mr. Duff, a former top executive at Morgan Stanley, is trying again. His new firm, Massif Partners — which like FrontPoint has a name that refers to his passion for mountain climbing — is building off the blueprint of Duff Capital and focusing on pensions. A spokesman for Mr. Duff declined to comment.

If anything, the institutional investors are in worse shape. A recent study of 126 state and local pensions funds found that they had just 77 cents for every $1 of obligations. That is down 2 percent from 2009 and the lowest level since the mid-90s, according to the report by the Boston College Center for Retirement Research.

Typically, the institutional investors take an à la carte approach to building a comprehensive portfolio, getting risk analytics, investment advice and fund options from a variety of providers. Massif is trying to streamline the investment process for pensions, giving them access to several services through one firm, according to a person with knowledge of the situation who declined to speak publicly.

While it is a growing industry, the field is competitive, said Stewart Massey, co-founder of Massey Quick, a consulting and wealth management firm. Mr. Duff has raised just $4.5 million from 10 investors, according to a regulatory filing in January.

“Unless you have that cornerstone investor, it’s a very tough business to build,” Mr. Massey said.

Mr. Duff began his career as a grain trader at Louis Dreyfus in the late 1970s, leaving in 1982 to attend business school at the Massachusetts Institute of Technology. During the summer, he worked as an associate at Morgan Stanley in the mergers and acquisitions group.

After graduation, he joined the financial institutions group at Morgan Stanley during a period of rapid consolidation in the banking industry. He quickly rose through the ranks, becoming the chief financial officer under John J. Mack in 1994. Mr. Duff was 34.

A few years later, he jumped from investment banking to asset management, becoming chief operating officer at Tiger Management, the hedge fund founded by the legendary investor Julian Robertson. When Mr. Robertson closed his fund to outside investors in 2000, Mr. Duff left.

Late that year, Mr. Duff, Gil Caffray, the former head trader at Tiger, and Paul Ghaffari, a manager for George Soros, decided to start FrontPoint. Mr. Duff named the firm after a technique used to climb ice.

After five years, the team was managing more than $5 billion, thanks in part to its diversified model. FrontPoint brought several independent managers in house, providing back-office support and risk controls for the group. As assets swelled, the firm caught the eye of Mr. Duff’s former employer, Morgan Stanley, which took an ownership stake for $400 million in late 2006. Shortly thereafter, Mr. Duff left FrontPoint.

Last year, the multimanager model that had served the firm so well suddenly became a liability. In early November, the government arrested a French doctor on suspicion of leaking insider tips about a drug trial to a hedge fund portfolio manager, later revealed to be an employee of FrontPoint. Joseph F. Skowron, the employee, was charged with insider trading last month while the doctor, Yves Benhamou, pleaded guilty in the case.

While neither FrontPoint nor any other managers were accused of wrongdoing, the entire firm suffered. Investors pulled more than $3 billion from the main fund, and earlier this month FrontPoint announced that it was shutting down most of its funds.

Some say that the problems at FrontPoint and Duff Capital could make it difficult for Massif to attract clients.

“In any situation, your most important asset is your judgment, and that’s especially true on Wall Street,” said Steven Seiden, a founder of Seiden Krieger Associates, an executive search firm.

“If it’s a blatant lapse of judgment that caused this, then it could be very difficult,” he said of the collapse of Duff Capital. “If it’s part of everyone who got swept up in the financial maelstrom, then that’s a different story.”

Mr. Duff has not begun marketing in earnest and does not expect to start investing until early 2012, according to people who have been briefed on his plans. For now, he is focused on developing Massif, which in climbing parlance refers to a cluster of mountain peaks. Along with veterans from FrontPoint and Duff Capital, he is in talks to hire FrontPoint staff, as that business winds down its main fund.

He has also traded the grandeur of Duff Capital for the more modest Massif. He’s downsized from the more than 40,000-square-foot offices for Duff Capital to a featureless space with warm, blond wood accents. The Massif office, in the retail corridor of Greenwich, is one floor up from Giggle, a store that sells clothing, furniture, books, toys and other items for babies.

Article source: http://feeds.nytimes.com/click.phdo?i=846e369d0ed7872672b4ad5558963b68

Filed Under: Business News Tagged With: , ,

DealBook: After 22 Years, K.K.R. Is Exiting Primedia

May 17, 2011 by Leave a Comment

Henry R. Kravis, co-chief executive of Kohlberg Kravis Roberts Company, which sold Primedia for $525 million.Peter Foley/Bloomberg NewsHenry R. Kravis, co-chief executive of Kohlberg Kravis Roberts Company, which sold Primedia for $525 million.

7:12 p.m. | Updated

If you happened to stroll by the offices of the private equity firm  Kohlberg Kravis Roberts Company on Monday, you might have seen Henry R. Kravis removing an albatross from around his neck.

The albatross was Primedia, the media business that K.K.R. has owned since the Bush administration — the first Bush administration.

Primedia, a publicly traded company majority owned by K.K.R., agreed to sell itself to the buyout firm TPG Capital in a deal valued at $525 million including debt. The sale, assuming it closes, will end K.K.R.’s 22-year stewardship of the company, making it the firm’s longest investment ever — and one of its least successful.

Private equity firms typically own a company for about five years before exiting their investment.

A spokeswoman for K.K.R. declined to comment.

In 1989, Mr. Kravis and his partners at K.K.R. formed K-III Holdings to acquire print media assets. Its first deal was the purchase of a book club division from Macmillan and other assets for $310 million. A couple of years later, it paid $600 million for nine magazine titles from the News Corporation, including New York and Seventeen.

The company went public in 1995, with K.K.R. retaining majority control. In 1997, K-III changed its name to the flashier Primedia. (“K-III’s a horrible name,” the late Bill Reilly, Primedia’s chief executive, said at the time.)

Then, just as the dot-com bubble was inflating, Primedia began an aggressive Web strategy. Under the direction of Thomas S. Rogers, a prominent media executive brought in by K.K.R., Primedia paid $690 million for About.com

in the fall of 2000. The next year, it spent $515 million on the American holdings of the magazine publisher Emap, whose titles included Motor Trend and Teen.

K.K.R. paid for all of these assets with nearly $1 billion of its own money. It borrowed the rest, racking up more than $2 billion in debt. The excessive leverage hobbled Primedia over the last decade as it wrestled with the inexorable decline of the print media business.

Facing the twin problems of a crushing debt load and an advertising downturn, K.K.R. was forced to disassemble Primedia. The buyout shop brought in its Capstone consulting group, which aggressively cut costs, shut magazine titles and sold the others, including the marquee properties New York and Seventeen. Indeed, Primedia has completely exited the magazine business.

Primedia announced in February 2005 that it had sold About.com to The New York Times Company for $410 million.

So what does TPG, which paid a 62 percent premium to Primedia’s closing stock price on Friday, see in Primedia? Today, the company’s main assets are real estate properties like ApartmentGuide.com and NewHomeGuide.com.

“Primedia is a leading resource for consumers in search of housing,” David Trujillo, a TPG executive, said in a statement. Mr. Trujillo also highlighted the continued shift away from print, adding: “We believe the company will continue to benefit from the continuing secular transition from print to digital media.”

As for Mr. Kravis, he and his investors lost money on Primedia, although a firm spokeswoman declined to specify how much. Using simple math, it would appear that K.K.R. funds lost several hundred million dollars on the deal. But private equity math is never simple. Over the last two decades, K.K.R. has earned back some of its investment by paying itself dividends and buying back debt.

K.K.R. also employed another private equity trick in selling Primedia. It offloaded the company to TPG, another buyout firm. These so-called secondary buyouts, in which a company is passed from one private equity shop to another, have a mixed reputation among investors.

At least no one can accuse K.K.R. of having a short-term focus.

Article source: http://feeds.nytimes.com/click.phdo?i=5e9f280b097f405b9597cab99a67217f

Filed Under: Business News Tagged With: , ,
« Previous Page