KKR

Blackstone vs. KKR: Primedia Bid

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KKR vs Blackstone Colorized.JPG Is personal animosity standing in the way of Blackstone’s bid for the enthusiast magazine titles Primedia has put on the auction block? That’s what the New York Post’s Keith Kelly claimed in his column yesterday.
Although Blackstone is said to have put in a bid for some or all of the titles—which include Surfing, Motor Trend and similar niche magazines—in the first round of the auction, it may have backed out of bidding in the second round, Kelly reports.

One reason is that Schwarzman and Primedia’s chief shareholder, Henry Kravis are bitter rivals on many high-stakes deals.
The deal for the Primedia Magazine Group is expected to fetch over $1 billion.
One source close to the situation said there is “no way” Schwarzman would want to fork over that kind of money to Kravis.

Is it plausible that Steve Schwarzman has personally quashed the Primedia bidding just to avoid giving money to Henry Kravis. We’re rating this story a “sell” because it doesn’t quite make sense. Why would personal rivalry stand in the way of a second round bid but not the initial bid?

Fat chance [New York Post, second item]

    • 05 Apr 2007 at 9:29 AM
    • Apollo

    The Rumored KKR IPO Is Rumored To Be Kaput

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    kravisandrobertsipono.jpgAn initial public offering has been ruled out by Kohlbeg Kravis & Roberts, sources tell DealBreaker. “KKR is next” was one of the most persistent rumors that arose in the wake of news that Blackstone would offer $4 billion of limited partnership equity to the public was. There were published reports claiming that bankers at Goldman Sachs were already at work on putting together an IPO for KKR—and those might have been correct. Perhaps there were bankers pitching an IPO to KKR. Perhaps the venerable private equity titan had even encouraged the bankers. But now we’re told that the IPO is off. Indefinitely. Permanently. For now.
    Word from CNBC’s Charlie Gasparino that Goldman and JP Morgan were working on an IPO for Apollo Management, and subsequent stories in the Wall Street Journal and New York Post, quickly helped Apollo replace KKR in Wall Street afterhours chatter and on the pages of the newspapers. Part of what had been feeding the KKR rumors was the feeling that Goldman—which was notably absent from the list of advisers to Blackstone for its IPO—must be working on something for a Blackstone competitors. How else had one of the premier banks been shut out of one of the most talked about deals? It seemed the door was held open for nearly everyone else on Wall Street.
    Apollo fit just as well as KKR for this theory, and reports and rumors of its impending IPO private placement have quickly replaced those pointing to KKR. Even denials by people “close to Apollo”—as DealBook reported—and by people who maybe know some other people who are familiar with things that sometimes happen at Apollo—as the Wall Street Journal reported—haven’t quenched the thirst for this story. This morning’s WSJ report only served to confirm that it was Apollo and not KKR whose deal was keeping Goldman occupied during the rush of other banks into the arms of Blackstone’s IPO.
    But we came not to discuss the history and origins of the KKR rumor but to lay it to rest. Our sources—lets call them, “people familiar with KKR’s plans”—tell us the KKR has decided to stay out of the IPO game for the time being. The reasons we’ve heard are purely speculative: it didn’t like the comparatives with Blackstone, it didn’t like the attention Blackstone and its tax treatment were getting, it didn’t think the timing was right, it didn’t think the price would be good enough to justify the headaches of added public scrutiny, the KKR-ers aren’t pushing for freely transferable equity stakes like the ‘Stoners are. Take your pick or invent your own.

      • 04 Apr 2007 at 11:25 AM
      • Apollo

      Is the Apollo IPO A Consolation Prize or A Conflict Story?

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      One storyline that is clearly emerging from the various private equity and hedge fund IPO rumors and reports is that the investment banks are gunning hard for this business. And they’re not waiting around for hedge funds to decide to go public—they’re pitching, even pushing, the idea of launching a public offering on the firms.
      “All over Wall Street, bankers are pushing private-equity shops to move quickly, reminding them that market conditions could deteriorate and diminish investor appetite for any offering,” Wall Street Journal reporters Katie Kelly and Robin Sidel write in today’s paper. “In this case, however, it isn’t clear whether bankers are more concerned about a capital-markets slowdown or getting a high-profile deal to the finish line before rival firms attempt to do the same.”
      A sign of how ultra-competitive the investment banks have become for this business is the public attention paid to the fact that Goldman Sachs was not included as an underwriter for the public offering of Blackstone partnership equity. There was a lot of speculation about why one of the premier banks on Wall Street (yes, yes, Broad Street, we know, “Wall Street” is a metaphor or a synecdoche here) was left out of a deal that seemed to include every other bank on the Street. Was it because Goldman “called bullshit” on the Blackstone IPO, as some said? Or was it personal animosity between the higher-ups at Blackstone and some prominent Goldman personages? Or—and we’re sorry there are so many “ors” here but that’s just the way the world is—was it that Blackstone was hesitant to let Goldman—which competes with Blackstone in many of its businesses—do much digging into its books in preparation for the offering.
      If the reports of an Apollo IPO—a story broken by CNBC’s Charlie Gasparino yesterday and carried several millimeters forward in today’s Wall Street Journal and New York Post—are correct, then it seems we have the answer: Goldman couldn’t take the Blackstone business because it was already working on the offering of its competitor. Now Goldman is famous for finding creative ways to cleverly untie seemingly Gordian knots of conflicts—but underwriting two competing private equity IPOs might have been too going too far.
      That’s the story as we’ve heard it. But the boys at Deal Journal have an alternate reading of the Apollo story. They write that the Apollo IPO isn’t so much of what kept Goldman out of the Blackstone underwriting syndicate—it’s a consolation prize for the banks, a bit of business they apparently pushed to get after being shut out by Blackstone. Of course, Deal Journal has been a big proponent of the Blackstone In Competition With Goldman theory, and this take would allow them to leave that notion in place. The Apollo Conflict theory, in fact, undermines the whole idea that Goldman was shut-out.
      Of course, we’re probably just counting our eggs while they are still in the bush. Or however the saying goes.

        Who Wants To Be A Forty-Billionaire?

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        private-club.jpgBy now you’ve probably heard that Credit Suisse is reportedly offering to finance $40.2 billion to fund a competing offer for TXU, the Texas-based energy group which this week agreed to be bought by Kohlberg Kravis Roberts and Texas Pacific Group.
        The Financial Times broke the story, following it’s lead-off sentence announcing the offer with this little bit of understatement:

        The Swiss bank’s willingness to arrange the massive financing will eliminate a key financial obstacle to several private equity groups, including Blackstone and Carlyle, that are considering a rival offer.

        That key financial obstacle being, uhm, having $40 billion to throw around. Cause we were going to pick up TXU until we saw the price-tag. We’re pretty well set with money these days but $40 billion is a bit steep even after that generous bonus DealBreaker paid out to its editors. So we decided to pass. But now that we know you can put it on lay-away, well that changes things.
        So who wants to be a forty-billionaire? No-one, apparently.
        Reuters reports from that big private equity conference in Germany:

        The Blackstone Group has no interest in putting together a rival bid for TXU, but it would consider an equity investment in TXU if the current buyout team needed an extra equity partner before the deal closed, the source said.

        Isn’t it totally amazing that someone in the government’s antitrust department might think these guys are colluding together and not competing to outbid each other on big deals. Sure, they all hang out in Germany and trade plans for the future. And no-one seems willing to grab the $40 billion that Credit Suisse has just dumped out on the table. But “collusion?” That’s stretching things.
        And it’s not suspicious at all that Blackstone doesn’t want to put in a counter bid. It’s a lot of money, and Blackstone is noted for it’s conservative spending on acquisitions. Oh, wait…
        So maybe Blackstone just doesn’t want to get into the Texas energy business. That must be it, right?

        Asked earlier about the TXU deal, Chief Executive Stephen Schwarzman told Reuters “We’ll look at it if someone brings it to us,” speaking on the sidelines of the annual Super Return private equity conference, without clarifying further.
        The source explained that Blackstone would consider an equity stake, but not a counter-bid.

        So, you know, if Blackstone were invited into the club buying TXU they’d totally do it. But bidding against KKR and TPG? That would totally ruin the atmosphere of that big party they’re having in Germany.
        Credit Suisse offers to fund rival TXU bid [Financial Times via MSNBC]
        Blackstone unlikely to launch rival TXU bid-source

          • 27 Feb 2007 at 2:53 PM
          • KKR

          Was There Anyone In Texas Or The Environmental Movement Who Didn’t Know About TXU?

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          The pre-takeover announcement trading in TXU call options has lots of the usual suspects complaining that the other kind of usual suspects must have had inside information about the deal. “The only possible explanation is that there are leaks in these deal processes,” Whitney Tilson at T2 Partners and Tilson Mutual Funds in New York told Bloomberg.
          But this story from the Dallas-Fort Worth Star Telegram makes clear that big shots at the Texas Pacific Group were going around to Texas officials and the relevant environmental groups making sure they wouldn’t get in the way of the deal. Actually, the suggests TPG’s chief is actually a tree-hugger himself.

          When Texas Pacific Group chief David Bonderman sought help a couple months ago to get environmental groups behind Texas Pacific’s plan to buy TXU Corp., he called an old friend — former Environmental Protection Agency Administrator William Reilly.
          They met in 1980, when Reilly headed the Conservation Foundation, a land-use organization that later merged with the World Wildlife Fund. Reilly needed legal help, and Washington, D.C., powerhouse legal group Arnold & Porter lent him Bonderman, Reilly said Monday.
          Now Bonderman was asking Reilly to lead negotiations to win the support of two big environmental groups, Environmental Defense and the National Resources Defense Council, for the record $45 billion buyout of TXU by Texas Pacific and Kohlberg Kravis Roberts, another big private equity fund. Although the deal aims to make money, Reilly said Bonderman’s long-standing interest in the environment is also a driver.
          “He’s for real on this stuff,” Reilly said. “He was in the Amazon two weeks ago. He was in Mozambique last year for a new marine reserve. These are not places to go if he’s looking to line his pockets,” he said.

          We have no idea whether this is just TPG spin. But whether or not TPG really is run by environmentalists or just finds it profitable to pretend it is, it certainly tells you something about which way the political winds are blowing.

          Two old friends, one goal: support of green groups
           [Star-Telegram]

            • 27 Feb 2007 at 1:51 PM
            • KKR

            Suspicous Volume On TXU Options Or, Guess What? David Faber Wasn’t The First Guy In The World To Hear About The Deal!

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            To the surprise of absolutely no-one, the trading volume on TXU call options was unusually high in the couple of days before the deal was first leaked to CNBC. We’re not saying it’s right that some folks who might have had inside knowledge about the deal might have traded on that knowledge while the rest of the market was in the dark. But we are saying that it strikes us as not exactly very likely that the very first person to know about a deal outside of TXU and its private equity acquirers, KKR and the Texas Pacific Group, would be CNBC reporter David Faber.
            From the Wall Street Journal:

            In what has become a familiar occurrence, some stock and option investors seem to have caught wind of TXU’s sale before news of it became public late Friday.
            Shares of the Texas utility rose 4.1% Friday, before the deal was reported by CNBC after the market close. Meanwhile, the volume of TXU call options, which give investors the right to buy the stock, surged to 18,000. That is compared with average daily volume this month of about 2,400 contracts. Yesterday — when the company officially confirmed reports of its planned sale to private-equity firms Texas Pacific Group and Kohlberg Kravis Roberts & Co. — the stock rose an additional $7.91 to $67.93.
            Some market watchers cried foul about the moves. Jon Najarian, a trader who tracks unusual activity for optionMonster.com, argued that volumes Friday were high enough that “certainly this information was widely distributed to get this many people reacting to it.” Though some traders may have been anticipating the company’s earnings release due tomorrow, Mr. Najarian argued that probably doesn’t account for all of Friday’s activity.


            Unusual Activity Precedes TXU Buyout             [$$} {Wall Street Journal]

              • 27 Feb 2007 at 12:05 PM
              • KKR

              TXU: Honest Graft, Private Equity Style

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              Politics creates opportunities for private profit. That’s not exactly news. We’ve known it at least since Senator Plunkitt of Tammany Hall explained the difference between honest graft and dishonest graft.
              More recently we’ve seen how the regulatory and legislative response to the corporate scandals of the turn of the century—in particular, Sarbanes-Oxley and its accompanying regulations—have contributed to buying opportunities for private equity. Firms and managers find the public capital markets unwelcoming and unrewarding), regulatory overhead and legal distractions push down company valuations, and the threat of gigantic civil fines and criminal penalties make increase the risks of operating a public company. Private equity offers an escape from this hazards with promises of greater riches. And if the laws and regulations get repealed or reformed someday, well that will just create new IPO and other exit opportunities for private equities. Call it timing the political market.
              This morning’s Wall Street Journal carries an editorial explaining how a different kind of politics—environmentalism—contributed to the fall of TXU’s share price and made it a more attractive takeover target for private equity.

              TXU had painted a green bull’s-eye on itself when it announced plans last year to build the 11 new plants. Never mind that the plants were to be built on the sites of existing plants, that a number of them would replace older, less-efficient plants, or that Texas is already bumping up against the limits of its ability to produce the electricity it needs for its growing population and economy. The announcement sent the environmental movement to the barricades against TXU, and may be one reason that the company’s stock, after going up regularly for several years, sputtered and stalled in 2006.
              That stock slide wasn’t all bad for Kohlberg, Kravis Roberts, which is leading the group buying TXU for not much more than its all-time stock-price high, which it hit in the middle of last year. But then again, giving in to the pressure not to build all 11 plants may not turn out to be all bad for KKR and TXU, either.
              Ercot, Texas’s independent electric-grid operator, figures that peak electricity demand in the state will catch up with available capacity by 2009, if not sooner. Tight demand means higher electricity prices, which is good for TXU’s profits. That squeeze will, in turn, rejuvenate calls for more capacity, which may allow TXU to dust off the plans for the new plants at a moment when the current environmental concerns weigh more lightly in the political scales than skyrocketing electricity bills. The private-equity crowd didn’t get to be billionaires for nothing.

              To sum up: Tree-huggers push down the price of TXU. KKR and TPG swoop in and pick up the pieces, making peace with the greens by agreeing to shut down the plans for the new plants. The resulting higher electricity prices enrich TXU and perhaps even creates a demand for those now-pariah plants in the future.
              Here’s how the WSJ concludes the editorial:

              As for TXU’s current shareholders, the agitation of the greens may have helped bring down TXU’s share price last year, so the environmentalists probably did KKR and partners a favor. There may even be a trend in the making here — environmental protesters bring down a stock, making a private-equity transaction look more attractive, and in return, the equity firm and its management partners buy off the greens with this or that environmental promise. We’re not suggesting any such quid pro quo here, but if we were TXU’s mom-and-pop investors or Texas energy consumers we’d certainly be asking some pointed questions.


              The New Greenmail               {$$} {Wall Street Journal]