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Almost everyone thought of the Penn National Gaming Inc. (NASDAQ: PENN) private equity LBO merger as dead money for quite some time. It only officially became a dead merger this morning. This was the last of the big multi-billion deals still officially on the books that was put together back before we had a full blown credit crunch.
PNG Acquisition Company Inc. was the buyout entity, which was indirectly owned by certain funds managed by affiliates of Fortress Investment Group LLC (NYSE: FIG) and Centerbridge Partners, L.P.
The buyout price of $67.00 per share was older than Methusela. Since January, this stock slid steadily from over $60.00 down to under $30.00. The deal was a known to be dead by everyone. But there is actually a silver lining here for the company. Penn National will get $1.475 Billion in cash out of this.
Affiliates of Fortress, affiliates of Centerbridge, affiliates of Wachovia, and affiliates of Deutsche Bank will all be holders of those notes. To top it off, Fortress Investment Group's Chairman & CEO, Wesley Edens, will join the Penn National Gaming Board of Directors.
Keep reading for on the fly analysis, guidance, and ramifications at 247wallst.com.
Microsoft Corp. (NASDAQ: MSFT) may try to buy Yahoo! Inc. (NASDAQ: YHOO) again, but it does not want the whole company. It finds the search business useful as part of its battle with Google (NASDAQ: GOOG). The content portal business does not have much attraction, and Redmond wants a company like Time Warner (NYSE: TWX) to pick up that piece. According toThe Wall Street Journal, Microsoft "approached other media companies in recent days about joining it in a deal that would effectively lead to Yahoo's breakup."
The new deal just might work. Yahoo! dropped below $20 yesterday, putting its stock back where it traded before the first buy-out offer. The No. 2 search company's shares reached as high as $33. Investors, especially Carl Icahn, are steamed that Yahoo! did not grab all of that extra money.
Even if Microsoft cannot find a partner to take the Yahoo! content business, it may move ahead. It only has 10% of the US search business. Yahoo! has about 20% and Google around 60%.
Microsoft still needs Yahoo!, and with its stock down by a third, Yahoo! needs a buyer.
Douglas A. McIntyre is an editor at 247wallst.com.
We already know the IPO market is nonexistent, but what about M&A? A report put out Tuesday by media-related investment banking firm the Jordan, Edmiston Group Inc. indicates that things aren't so bad in the online media and technology sector and the marketing and interactive services sector, though deal sizes have declined significantly.
According to the report, the total number of transactions for media, information, marketing services and related technologies increased to 404 in the first half of 2008 versus 397 in 2007. Deal value, however, was down dramatically to $23.2 billion from $65.8 billion in 2007.
The decline was most noticeable in $1 billion-plus transactions. There were four in the first half of 2008, accounting for $9.6 billion in value, versus 11 deals worth $46.3 billion in the same period last year, though a sizable amount of that came from Thomson Corp.'s $18 billion acquisition of Reuters.
Ever since Circuit City Stores (NYSE: CC) CEO Philip J. Schoonover sliced 3,400 sales people in March 2007 to save money, I have questioned the savvy of its management. That's because many of those fired sales people took their customers over to Best Buy (NYSE: BBY). As its stock lost 86% of its value, I was surprised that anyone would make a bid for it.
Yet Blockbuster (NYSE: BBI), the struggling video store chain, decided to buy. I don't know what got into Blockbuster's head to make it think that combining two struggling companies would make an agile competitor. The Richmond Times reports that it wanted to create a one-stop shop for movies, games, and electronic equipment. But that dream died when Blockbuster pulled its $1.3 billion offer after reviewing Circuit City's books.
Carl Icahn has said he would buy Circuit City. But it's losing money -- $164.8 million, or $1 a share, in its fiscal first quarter. This was $100 million more than its Q1 2007 loss. And Blockbuster's conclusion after a closer look at its financial statements does not bode well for Circuit City's future. Circuit City stock is down 7.8% in pre-market. Let's see whether any new bidders emerge.
In the rarefied world of private equity, there is a well-known PR operator: Kekst & Co Inc. Founded in 1970, the firm has a sterling client list, which includes biggies like KKR. No doubt, it's a complex specialty, which requires a strong understanding of securities regulation and shareholder relations.
Well, Kekst is selling out to Publicis Group, which is a global advertising and marketing firm. The price tag was not disclosed.
Kekst has a storied past. For example, the firm was involved in the leveraged buyout of RJR (back in the late 1980s). Kekst is also advising Anheuser-Busch Companies Inc. (NYSE: BUD) on its fight against InBev.
There is a rather interesting deal out there that can be viewed as a glass half-full or glass half-empty depending on whether or not you are from the private equity side or from a public company.
Fiserv Inc. (NASDAQ: FISV) has announced a rather interesting move this morning. It is selling a majority interest in its insurance business operations for some $510 million in equity and debt to Trident IV, a private equity fund managed by Stone Point Capital LLC.
The company has announced that it will turn around and repurchase up to 10 million shares of common stock in a repurchase program.
Yahoo! Inc. (NASDAQ: YHOO) shares fell below the $20 mark in early trading on Tuesday and are approaching the stock's closing price of $19.18 reached on Jan. 31. That's the session before Microsoft Corp. (NASDAQ: MSFT) publicly came out with its $31 a share, $44.6 billion offer to acquire Yahoo! in a saga that is now in its sixth month.
The $20 threshold is significant, if mostly psychologically. Many analysts expected Yahoo! shares to find support ahead of that level on speculation that such a price makes the company vulnerable to another acquisition offer from a strategic or financial buyer. Yahoo! was in an "anyone-but-Microsoft" mode after the original offer and reportedly had talks with the likes of News Corp. (NYSE: NWS) and Time-Warner Inc. (NYSE: TWX), whcih could be interested in some kind of deal now that Yahoo! is cheaper. Indeed, there's talk Yahoo! may already be looking to revive talks with Time Warner-owned AOL L about combining the operations.
It didn't have to be this way. Had Yahoo! negotiated with Microsoft rather than fighting a deal at all costs, shareholders wouldn't be looking at a stock that is now 40% below Microsoft's reported last offer of $33 a share.
Like many other financial institutions, investors are worried about the viability of CIT Group Inc. (NYSE: CIT), which is a major business lender. Of course, the stock price has plunged – and there are many rumors swirling.
But today there was some good news. That is, CIT has struck $1.8 billion in deals to unload its manufactured housing and home loan units. The stock is up 16% to $7.93.
There were actually two buyers. Private equity firm Lone Star Funds agreed to a $1.5 billion transaction for the home lending division. And Vanderbilt Mortgage and Finance will spend $300 million for the manufactured home segment.
These deals are certainly a big relief. Basically, CIT can now focus on its core business – and not deal with the headaches of the consumer area.
Actually, CIT has some big-time backing. For example, Goldman Sachs (NYSE: GS) recently made a $3 billion infusion.
Yet there are still many challenges. After all, CIT has had difficulties generating profits and the credit crunch isn't going away.
Krispy Kreme Doughnuts, Inc. (NYSE: KKD) gave some very unusual volume trading alerts this morning, and the culprit here is nothing less than buyout offer chatter. Yep, it seems that the rumor mill has the fried dough maker as one of the next buyout candidates.
It took only about 35 minutes for us to see double the normal average daily trading volume. The culprit is a private equity buyout of $7.25 per share, yet no one understands if the "offer" is real. MGL Asset Management Group LLC out of Charlotte has been named as the suitor. Whether or not that is the case is something different entirely.
If you know the history of this company you probably understand that it is synonymous with "disappointment." The buyout chatter price is $7.25, yet the 52-week trading range is $2.23 to $9.48. You can determine on your own whether or not an offer is a good as a take. Chatter on top of that is yet another issue.
Despite this having been covered on CNBC and despite the written reports above, it would take a lot more faith than sense to believe this until actual facts are released from either the private equity firm or Krispy Kreme itself.
So you think there's a credit crunch and a glut of property on the market? Tell it to Manhattanites. Global private equity giant The Carlyle Group has announced along with Extell Development Company and RREEF that they have secured a $613 million construction loan for the development of two luxury residential buildings at Riverside South on Manhattan's Upper West Side.
Deutsche Bank led the large lending consortium of nine banks that provided the financing. The release calls this the largest construction loan secured in the U.S. in 2008.
This property group is located on the upper West Side located at West 62nd and West 63rd Streets between Riverside Boulevard and Freedom Place South. The two buildings also total some 880,000 gross square feet and the buildings are under construction. For now, the completion dates are slated for the first half of 2010.
Riverside South is a 13-acre tract of land purchased by Carlyle and Extell for $1.8 billion in 2005. One building will be rental properties and one will have dual rental and ownership units.
"The rest of us" have a hard time understanding where the endless money comes from to keep buying up these micro-spaces for more than many will ever amass in an entire lifetime. When you see people still willing to pay $1 million for under 1,000 square feet, it's no wonder at all how or why these projects get financed.
If you have been following the alternative energy saga alongside ridiculous oil prices going from rising to high to astronomical, you've run across the name Tesla Motors. Tesla is a venture capital and privately funded auto maker that produces a high performance electric powered sports car.
The Tesla Roadster and soon to be sedan are now both now going to be manufactured in California, or so a report in the San Francisco Chronicle and elsewhere are noting. Governor Schwarzenegger included some incentives that have kept the electric auto maker from moving manufacturing to New Mexico (besides the Governator ordering one unit for himself). But it appears that the State of California is giving it more than mere tax incentives.
It appears that this is going to get equipment leases from the state, as well as additional grants. What is interesting here is that this gets the company even further on the map. There have been recent reports that Tesla was in the market for another huge financing. Whether or not that comes about now is not certain. Other reports show that the company may even supply battery units to Daimler or other car manufacturers.
What is becoming fairly certain is that Wall Street expects to see Tesla file for an initial public offering. As capital intensive as these businesses are, the company needs to have a steady vehicle (no pun intended) to be able to raise the capital it needs.
Think of the good news.... At least one US auto manufacturer will be considered cool.
I've seen it many times: a cool product that finds few customers. That seems to be the case with Helio's mobile phones. Basically, customers didn't want to pay premium prices for such things as access to MySpace and other new-fangled features.
It's a tough lesson, and expensive. SK Telecom and EarthLink (NASDAQ: ELNK) formed Helio as a joint venture in 2005 with start-up capital of $440 million. SK Telecom invested an additional $270 million in the venture last year.
Yet, in the end, Helio turned out to be a big dud. That is, the company sold out for a measly $39 million to Virgin Mobile USA (NYSE: VM). In fact, the space is full of dead companies, such as Disney Mobile and Amp'd Mobile.
I had a chance to interview Frank Dickson, the co-founder and chief research officer of MultiMedia Intelligence. According to him:
Honestly, the merger is a desperate move. Overall, the MVNO (Mobile Virtual Network Operator) model makes sense in a limited number of situations. For example, if a cable MSO wants to leverage its customer base and offer triple or quadruple play offering, there is a clear distinctive competency and the MVNO route makes sense.
TPG is causing some consternation in the UK. You see, the private equity firm has agreed to invest £179 million in Bradford & Bingley (B&B), a beleaguered financial institution.
Essentially, B&B investors are worried that TPG has structured an airtight deal to prevent other bidders from coming to the table. Another concern is an anti-dilution clause which protects TPG if B&B's stock price falls.
Shareholders will vote on the deal on July 7th. So yes, there should be some drama.
And TPG isn't taking any risks. Actually, the firm plans to go on a major roadshow with investors. I'm sure it will be intense – but also helpful.
However, it looks like B&B is in a tough spot. In light of the deterioration of its business, the firm needs to work fast. And if the TPG deal falls through, it's a good bet that B&B's stock price will go into a tailspin.
It has been a while since we have seen a lot of news on the front of Special Purpose Acquisition Companies, or SPACs. Apparently they aren't dead. In fact, a huge deal just came in for a SPAC to become operational.
Hicks Acquisition Company I, Inc. (AMEX: TOH) has reached an agreement in principle to go from SPAC to operational in a tentative deal that is expected to be finalized in the next few days. Hicks Acquisition will merge with Graham Packaging Holdings Co. through a transaction with Hicks Acquisition.
Interestingly enough, this will be in partnership with The Blackstone Group L.P. (NYSE: BX) and the Graham Group. Blackstone has also agreed that it will maintain the largest ownership stake for at least two years as it continues to play an important role in guiding the company strategically and operationally.
After the transaction, the combined enterprise will be renamed Graham Packaging Company and will list on the New York Stock Exchange.
Continue reading core background data as to what the company will look like at 247WallSt.com.
When the Carlyle Group got its start in the late 1980s, the founders leveraged their extensive political backgrounds. It was certainly smart as the private equity firm struck some key deals (especially in the defense area).
Well, Carlyle is using its political savvy once again. This time, the firm wants to take advantage of the distressed valuations in the banking sector.
Basically, there is a complex set of regulations that make it extremely difficult for private equity firms to invest in banks. For example, there is an equity cap of 25% (which is often lower if the private equity firm wants more control).
So, in the Wall Street Journal, the Carlyle Managing Directors, Olivier Sarkozy and Randal Quarles, weighed in with an opinion piece.
The essential argument: the regulations are outmoded.
In fact, the rules may make our financial system weaker since there is tougher access to much-needed capital. After all, it seems that every day there is another bank that needs huge amounts of capital.
No doubt, Carlyle is being self-serving, and it will probably make a fortune from the regulatory changes.
At the same time, capitalism can be a powerful tool, and as a result, move things in the right direction. With $400 billion available in the coffers of private equity funds, this could be a big help to repair the big problems in the banking sector.
Interestingly enough, the issue appears to have some traction. According to a recent Wall Street Journal story, it looks like the Federal Reserve is thinking about relaxing some of the rules.
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BloggingBuyouts is the best resource for news, opinion, and research on the least understood, most powerful force driving financial markets today -- private equity investing. Michael Rainey, editor.
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