As we noted in Opening Bell this morning, another big buyout has gone the way of all mortal things. Today’s entry into the deal graveyard is the $8 billion Kohlberg Kravis Roberts and Goldman Sachs buyout of Harman International. According to most news stories on the deal, Goldman and KKR are forking over $400 million in exchange for convertible notes, Harman’s using the money for a stock buy-back, and everyone’s amicable, honky-dory, smiles and handshakes about the new deal.

But when we squint at the fine text, we’re not sure that Harman should be smiling so widely. According to the acquisition agreement, the company was due to collect a $225 million break-up fee if KKR and Goldman walked. So what’s seems to be happening is that they are selling $400 million of notes to the balking buyers for $175 million. Let’s call that a 57% discount. So Harman will now owe $400 million of principal to KKR and Goldman in exchange for just $175 million beyond what they were arguably already due according to the agreement.

But Goldman and KKR are getting more than just the notes. They are getting an option to buy the stock. Typically, a convertible note is linked to a share price that places the option currently out of the money. But if we follow through on the idea that Goldman and KKR are buying the notes at a discount, we can see that these are actually currently in the money. The $104 a share translates into 3.8 million shares for $400 million of notes. Those shares are now trading at $85, which means that the buyers have entitled themselves to $326 million of shares for just $175 million dollars.

To put it even differently, after the discount, the deal prices the shares at $59. We’re not sure that’s exactly the “vote of confidence” in Harmon that its executives are touting. Harman may now have an additional $175 million for a buyback but this seems a steep price to pay for that money.

Of course, if you figure that break-up fees are not sunk costs for dead deals because the buyers aren’t ever going to pay them anyway—a growing trend from private equity buyers, to be sure—then we guess it does sound like great deal for Harman. It’s probably just our short-sighted stinginess that makes us think in terms of additional, incremental dollars in the deal rather than the complete $400 million package.

KKR and GS Capital Partners to Invest in Harman International [Press release via Market Watch]

The market for LBO loans has opened up since the catastrophe of August. By offering the loans to investors at a discount, and eating the loss, the banks that committed to make them have begun to clear them off their books But, as the Wall Street Journal's Henny Sender reports today, the amount of loans that have been sold—about $30 billion—are “a drop in the bucket” compared to the total of $310 billion of LBO loans still waiting to be placed. And that’s just from North American deals. Nearly a third of that is set to come into the market in the next thirty days, according to the Journal.

This data may shed new light on the reported plan of KKR to buy LBO loans from Citi, including LBO loans that went to finance KKR deals, and Citi’s reported plan to lend money to KKR to buy those loans. After speaking to several loan syndication professionals, we have come up with what looks like the logic of this deal.

The banks are worried that while there has been some investor appetite for LBO loans, there may not be enough to absorb the total amount they plan to bring to market. A flood of new loans selling into lowered demand could put pressure on the banks to make even steeper discounts, creating even larger losses at a time when the banks are attempting to put the legacy of credit market losses behind them. The alternative—keeping the loans on the books and hoping for better days ahead—is no better for banks trying to show shareholders that they cleaned the debt mess off their books.

Enter KKR. Without public shareholders and armed with lock-up agreements from investors, it can take a longer view of the debt market. Although a lot of debt is currently scheduled to come to market in the coming weeks and months, there may be a drought of those loans just over the horizon. The slowdown of leveraged-buyout deals this summer means that there will, eventually, be fewer loans coming to market. And this drought could hit just when investor appetite for debt is recovering. At that point, KKR would be in a great position to sell the loans at prices above the discounted price at which they bought them from Citi.

At the same time, Citi might be comfortable sitting on newer loans which it can claim it is syndicating on schedule rather than older loans. This is a sleight of hand but one that shows at least a certain kind of agility that Citi may hope will please investors. Citi too could hope to take advantage of a renewed appetite for debt and the coming LBO loan drought, and sell those loans at par, reducing losses that it might have incurred selling into a flooded market now.

We’ve said it before, but we’ll say it again: different time horizons create different profit opportunities. The logic of “if they’re buying, why are you selling” assumes a homogenous market of buyers and sellers, when in fact the market is characterized by heterogeneity. And private equity firms—at least those that don’t feel answerable for stock prices to public shareholders—are often in a position to take advantage of opportunities only available to those with longer time horizons.

Damn it must feel good to be a Kravister.

Debt on Sale: Banks Grease The Leveraged-Loan Machine [Wall Street Journal]

Blood from the burgeoning buyout bust continues to flow. This morning Axciom Corp announced that the private-equity buyers who had agreed to a $2.25 billion purchase of the company had called off the deal.

Apparently, the buyers, the banks financing the deal and the company have reached an agreement to pay a portion of the original breakup fee. According to Acxiom they will pay just $65 million, down from the original $110 million.

Perhaps most surprising, two of the banks that were financing the buyout are paying a portion of the breakup fee. This suggests that the banks had put pressure on the buyers to scuttle the deal. This is the first time we've ever heard of banks paying part of a buyers breakup fee. If it sets a precedent for more deals, it could make the unwinding of some of the troubled LBO deals easier than many feared.

Acxiom Buyout Plan Is Canceled [Wall Street Journal]

More news from planet LBO. Despite the rocky news on Archstone this morning, things are looking up this afternoon. The banks financing Kohlberg Kravis Roberts & Co. buyout of First Data Corp began selling around $10 billion of the deal’s bank loans.

As predicted, the loans sold at a discount. But at 96 cents on the dollar, the banks seemed to have little trouble placing the loans. Most have now been purchased by investors, DealBreaker can report.

The success of the First Data loan sell-off is being greeted as a welcome sign that there’s still life in leveraged loan land. “It's a significant event on the road back to normality,” a London based hedge fund bond manager tells Bloomberg. “It shows that investors at least will accept a market clearing price and that wasn't the case a month ago.”

KKR Banks Selling $10 Billion of First Data Loans [Bloomberg]

There’s no doubt that Planet LBO is a calmer place now than it was through much of the summer. But it’s not exactly terra firma yet. One of the shakiest deals in the pipeline is the buyout of real estate investment trust Archstone-Smith Trust. Lehman Brothers and Tishman Speyer are putting just $500 million of their own money into the $21 billion deal, with the rest coming in the form of bridge equity and debt.

Yesterday Lehman Brothers and Bank of America began their attempt to sell $3.15 billion of the $4.96 billion bank loans financing the debt. The loans consist of a $750 million revolver and a $2.4 billion term loan, each priced at 300 basis points over LIBOR. But word is that they are running into resistance from investors who are surprised the debt is not discounted more heavily.

Reuter’s Jonathan Keehner reports that banks are offering the term loan at 99 cents on the dollar, and this has some would be investors balking. As Keehner gently puts it, the one cent hair cut prices the loans substantially “above where other recent buyout financings have closed or been discussed.”
Not everyone is being so delicate.

"Archstone is a good company, it's got great assets, and bankers probably thought they could sell at this price," said a buyside analyst tells Keehner. "But my initial view is that a lot of deals are coming in at the mid-90s, and this is coming in at 99 cents on the dollar. It looks rich to me.”

We’re told the situation is beginning to look hopeless. And part of the problem may be Lehman’s conflicting interests. As both the buyer and one of the lead lenders—a dual role that many banks considered a win-win situation in happier times—Lehman may have put itself between a rock and a hard place.

Let’s go to the Keehner tape again, this time from Reuter’s Dealzone blog. “Either way Lehman takes a hit: as a principal, renegotiating on any terms could hurt potential profits. But by also banking the deal, Lehman otherwise risks having the debt clog its balance sheet or sold at a loss,” Keehner writes.

Archstone loans appear priced at pre-crunch level [Reuters]
Lehman’s double trouble in Archstone [DealZone]

First Data was supposed to be one of the big leveraged buyout deals teetering on the edge of extinction thanks to the credit crunch this summer. The debt load of the company was said to be at the outer limits, leaving it with razor thin margins for slip-ups. But last week investors snapped up its $5 billion buyout loan. In fact, the loan was over-subscribed by about $2 billion.

Last night First Data said the deal had closed. First Data has gone private, and its stock has been removed from the New York Stock Exchange.

Earlier this month, the buyout firm behind the deal, Kohlberg Kravis Roberts & Co, was said to be in a nasty negotiation with the seven banks involved in arranging the First Data transaction. The banks had become nervous about massive loans on their books, and were pressing KKR to renegotiate its deal. KKR eventually did offer one concession—a leverage ratio financial test in its bank loans that has been described as “toothless” and “mere optics.”

While there are still questions about the financing—banks continue to look for ways to syndicate the nearly $24 billion in debt financing they committed to the deal—but fears that the credit crunch might derail the biggest deals, or leave a the financing banks with large losses, seem to be abating.

KKR completes $26 billion First Data takeover [Reuters]

Not so long ago, banks wouldn’t have imagined giving investors a five cent discount on debt they had bought at sticker price. But that was then, and this is now. These days the banks who agreed to finance KKR’s buyout of the Alliance Boots drug store chain are relieved to be getting ninety-five cents on the dollar.

The syndicate of underwriters has been offering the discounted debt to investors for two months with little success. But now it seems they have succeeded in placing the debt with investors. Bloomberg has reported that J.P. Morgan Chase, Deutsche Bank and UniCredit have placed $1.5 billion of mezzanine.

The debt placement is being taken as another sign that the moribund credit markets are not dead yet. The five-cent discount hurts the banks but is “but a flesh wound” compared to the deeper discounts some feared might be necessary to place the debt.

Deutsche Bank, JPMorgan Find Lenders for KKR Boots [Bloomberg]

Another private equity deal that has a lot of people paying attention is moving ahead. Blackstone’s $26 billion takeover of Hilton Hotels has been closely watched as another indicator of the strength of the buyout market and the willingness of banks and investors to finance the deals. Yesterday Hilton announced that it was kicking off a $1.8 billion tender offer for its existing notes, which will be paid off with new debt financing the acquisition.

The Hilton deal was the last major buyout announced before the private equity LBO market went into its currently catatonic state. Blackstone agreed to a hefty premium for Hilton—the price tag was a 40% mark-up from where the stock was trading before the deal was announced. The total price tag was around $26 billion—$20 billion cash and $6 billion of assumed debt.

In the current market, the deal is considered far riskier than at the time it was signed-up. The risk of a recession poses a real threat to hotel chains, and investors have been balking at the high levels of leverage involved in many of the largest takeovers. Blackstone plans to raise as much as $21 billion to finance the deal. Bear Stearns, Bank of America, Deutsche Bank, Morgan Stanley and Goldman Sachs all committed to finance the deal when it was closed.

The tender offer is just a first step—a small one—but it will likely be welcomed by thsoe who are concerned that all or part of the nearly $400 billion of buyouts waiting to close later this year might be held up by conditions in the credit market.

Press Release [BusinessWire.com]

The showdown continues between Kohlberg Kravis Roberts & Co. and the banks that have committed to finance it's $26 billion takeover of First Data Corp. After having failed to reach a deal with the banks, KKR is now delaying the sale of the loans until next week, Bloomberg reported.

The First Data deal is widely seen as a test of investor appetite for buyout debt. The banks committed to the financing before rising subprime mortgage defaults led to a credit contraction that has resulted in dramatically higher borrowing costs. At the time, selling buyout loans to hedge funds and other investors was a relatively simple matter. These days investors are demanding larger yields, which means they will only agree to buy the loans at a discount. This would create large losses for the banks or force them to keep the loans on their books until the credit market improves.

The exact terms of the loans are not widely known. KKR plans to finance the takeover with something like $14 billion of bank loans, which one veteran credit banker estimated to be priced at 250 basis points over LIBOR. KDP Investment Advisors, an adviser to credit investors, is telling clients to pay no more than 94 cents on the dollar. "That would produce a floating interest rate of 10.75% on the loans, or roughly 500 basis points over Libor," KDP tells Market Watch.

Earlier reports indicated that KKR had agreed to abandon the nearly pure Cov-Lite structure of the deal by including a leverage ratio covenant in the loan documentation. But that covenant—which DealBook has described as "toothless"—may not satisfy many investors who still might still view the terms as too loose for the perceived risk involved. Part of the ongoing dispute between KKR and its banks may be how tight those covenants should be.

On Tuesday, the Federal Reserve's Open Market Committee is widely expected to announce guts it its interest rate targets. It could be that the KKR and its banks hope the cuts will revive investor interest in First Data loans, making the loans easier to sell at some level closer to par.

KKR May Delay First Data Loan Sale on Terms Dispute [Bloomberg]
First Data LBO may be costly for banks involved [Market Watch]
K.K.R. and Banks Said to Dispute First Data Terms [DealBook]

Goldman Sachs and other underwriters are attempting to syndicate $775 million of covenant-lite term loans, Reuter’s Mike Flaherty reported last night. The loans were made to fund the buyout of Laureate Education at a spread of 325 basis points over Libor, and were fully funded by the underwriters at the close of the deal. Now they are testing the strength of the secondary market for the so-called Cov-Lite loans, which have gone out of favor with many investors.

Cov-Lite loans were a product of the recently deceased extravagant credit market. Unlike traditional bank loans, they are stripped of nearly all of the covenant restrictions that lenders typically rely upon to keep track of the financial condition of borrowers.

“Restriction-free loans used to be the rage, and debt investors couldn’t get enough of them during the LBO frenzy. But debt investors got spooked by the subprime mortgage mess, and Cov-lite, as it became known, went the way of the dinosaur (at least for now), right there with its pal Pik-Toggle,” Flaherty writes.

Unlike the financing for the big buyout deals that are still waiting to close, such as KKR’s acquisition of First Data, the Laureate deal has already been funded, leaving the lenders with no way of pressuring the borrowers into accepting more stringent terms. The loans will likely be sold below par, leaving the original lending syndicate with losses. The depth of the discount, however, may be a sign of the market’s appetite—or lack of appetite—for the loans in the pipeline deals that lenders have committed to make but have not yet funded.

In short, many are looking at the Laureate syndication to demonstrate just how screwed the banks may be on the buyouts scheduled to close later this year.

Goldman to be educated on Cov-Lite appetite [Reuters]

Alltel. Clear Channel. First Data. Harrah's. Hilton Hotels. Sallie Mae. TXU.

Those are the names of some of the biggest buyout deals that may face big financing challenges if they are to close on schedule. With investors for highly leveraged deal debt getting scarce, there has been a lot of speculation whether one or more of these deals might fall apart. But renewed concerns about a possible recession pose a new danger to the deals—the private equity buyers may decide that the prospects of the companies not be as bright and shiny as they seemed during the boom times of just a few months ago.

[More after the jump]

The banks have won the first big show down with private equity.

Last night several news outlets, including the Wall Street Journal, reported that private equity giant Kohlberg Kravis Roberts has signaled a willingness to include a financial covenant for the bank loan portion of the $24 billion of debt needed to finance its purchase of First Data.

First Data was largely viewed as a test case for some of the biggest, and riskiest, of the highly leveraged buyout deals that are scheduled to close in the next few weeks and months. The banks had been asking the private equity sponsors of the deals for concessions on the terms of the financing, saying it was having trouble syndicating the debt due to recent concerns about debt levels by many investors.

While some people are reminiscing about financial panics of the past, or even grokking the Great Depression, it’s not all despair, poverty and austerity yet for the kings of finance.

As Dennis Berman’s The Game column points out in today’s Wall Street Journal, the gilded age and its attendants—extravagance and excess—continues to roar on in some on the more fashionable precincts.

“Just last week, Apollo Management LP chief Leon Black threw a beach bash for about 200 family friends out in the Hamptons,” Berman writes. “The group enjoyed catering from Nobu and Daniel, two of Manhattan's priciest eateries, while taking in a private concert by Tom Petty & the Heartbreakers.”

It’s hard not to wonder if something might have seemed a bit off to the partiers when the Heartbreakers launched into 2002’s “When Money Wasn’t King.”

If you reach back in your memory
A little bell might ring
About a time that once existed
When money wasn't king
If you stretch your imagination
I'll tell you all a tale
About a time when everything
Wasn't up for sale

Credit Crunch Lowers Boom On Deal Excess [Wall Street Journal

Everyone in town is scrambling to find out the latest news on the sale of Home Depot's wholesale supply unit. As first reported by Dennis Berman on the Wall Street Journal's Deal Journal, the banks providing financing for the deal have balked at the terms. (Earlier versions hinting that this was on the way came from the New York Times and the Financial Times.)

The situation has been described as "ugly" and "hostile." The private equity firms involved — Bain Capital, Carlyle Group, and Clayton, Dubilier & Rice — have been trying to cut the purchase price. Home Depot was reportedly ready to accept a $1.2 billion haircut on the $10.3 billion deal. But the banks — J.P. Morgan Chase & Co., Lehman Brothers Holdings Inc. and Merrill Lynch & Co — are still resisting providing funding, and are said to be preparing for a possible lawsuit from their private equity clients.

According to Berman, there is a possibility that "the deal could fall apart entirely, which would be a massive blow to Home Depot and a threat to the LBO pipeline that remains — roughly $225 billion of financing for deals, in fact."

In short, the deal is being looked at as a test case for how the various players in the leverage buyout business will deal with the credit crunch and housing market slowdown. And right now it looks like everyone is flunking, at least if the grades are based on "playing well with others."

We spoke with some people at Lehman this morning who were not working on the deal but are familiar with its progress. One described the situation as "radioactive." We're not even sure what that means but it sure doesn't sound healthy!

So far, it seems we haven't been able to crack the deal to get at real sources. We're not making any progress. What are you hearing? Leave a comment or send an email to tips@dealbreaker.com.

Home Depot: A 2X4 Upside the Head [Deal Journal]
Home Depot Talks On Unit Get Hostile [Wall Street Journal]

Private equity executives make no secret that relatively plentiful credit is the fuel power the surge in giant leveraged buyout deals, allowing the buyout shops to make acquisitions on companies which might have been untouchable in earlier eras. So it comes as a bit of a surprise to hear so many of them seem to be warning us about rising debt coupled with looser lending standards. Carlyle founder William Conway has rang the alarm bells with a memo of his that was “leaked” to the press everywhere. Remarks of Leon Black and Steve Schwarzman also have been read as warnings.

The latest entrant is the chief executive of BlackRock, Larry Fink. BlackRock is not a private equity shop—it’s an asset management firm that was spun-off of the Blackstone Group way back in 1992. But Fink’s background is in debt and private equity. He was a bond-trader at Credit Suisse and worked at Blackstone before the spin-off. And now he’s telling the Financial Times that the leveraged debt fueling the buyouts may be the next subprime mortgage crisis.

“If I was the chairman of the Federal Reserve, I’d be paying more attention to that because, to me, this is going to be tomorrow’s problem,” Mr Fink said in an interview with the Financial Times. “Standards have deteriorated to levels that we never even dreamed that we would see.”

So has Larry gone over to the other side? Perhaps. His business does compete for investment dollars with private equity firms and hedge funds, and so he may have a vested interest in seeing the current golden age of private equity come to an end.

But there’s a more paranoid theory that was suggested to us by a source (who requested that we keep him anonymous) who works at a smaller private equity shop. His theory was that the big shots in private equity were beginning to worry that the loose credit standards were allowing others in the buyout market to make bids that might once have been exclusively within the reach of the Blackstone’s, Apollo’s and KKR’s of the world. The relatively easy access to credit was fostering competition in the once cozy world of private equity, and driving-up the prices of the companies they want to take private. So they want to talk investors out of getting involved in lending into the buyout market in order to make it harder for competitors to raise funds.

Of course, as even our source admitted, this theory is more than a bit paranoid. But just because you are paranoid doesn’t mean Henry Kravis isn’t thinking about how to crush you.

BlackRock chief warns on leveraged loans [Financial Times]

Investment bankers preparing bank buyout pitches in the wake of the announcement that Sallie Mae will be taken private by a syndicate of private equity firms and banks, says Greg Zuckerman in this morning’s “Heard on the Street” column.

“Even as the coffers of private-equity firms have bulged in recent years, Wall Street has always assumed that buyout specialists would be wary of certain industries, such as financial services,” Zuckerman writes.

But the deal to take Sallie Mae private—and especially the fact that Blackstone also bid on Sallie Mae—seems to have revealed that private equity firms may have an appetite for financial-services companies and even banks. Possible targets include KeyCorp, Countrywide Financial Corp., CIT Group Inc. and iStar Financial Inc, according to Zuckerman.

One reason banks were long seen as “off limits” to private equity was the concern that regulators might not approve such deals. “Banks are heavily regulated deposit franchises that hold the savings of individuals, so regulators might be unwilling to allow a buyout firm to make a leveraged purchase,” Zuckerman writes.

But as private equity firms such as Blackstone have grown and become more diversified—some are starting to look more like full-fledged investment banks than pure buyout shops—bank regulators may be more tolerant of buyouts in this area. What’s more, private equity firms seem to have grown keenly interested in purchasing companies in heavily regulated sectors such as power utilities and highways.

Has Sallie Deal Put Banks In Play for Private Equity? [Wall Street Journal]

The deal announced this morning to take Sallie Mae private could point to a new era of leveraged buyouts in a segment of the market long-considered off-limits to the buyout rush—the financial services sector. One of the strongest objections to proposed private equity takeovers in the financial sector has been skepticism that it would be possible to borrow enough money to finance a takeout of an already highly-levered financial company. But student loan lender Sallie Mae supports a tremendous amount of debt, and yet the deal announced today includes a plan to layer on even more debt.

“The company has about $116.14 billion of total assets, supported by $4.4 billion of stockholders' equity, making it a highly leveraged entity already,” Reuters reporter Dan Wilchins noted on Friday. “Some corporate bond investors questioned how a leveraged buyout of Sallie Mae would work.”

The dealmakers who put together the Salle Mae buyout, however, have apparently found a way to work. In addition to two large private equity firms, JP Morgan Chase and Bank of America are taking large equity stakes in Sallie Mae. Both banks have apparently committed to providing financing for the transaction, as well as ongoing liquidity to finance the companies operations.

We may be looking a whole new era of private equity deals in the financial services sector. Last week we reported that financial writer Felix Salmon was proposing a private equity take-out of Goldman Sachs. Many readers objected that it would be impossible to finance a leveraged buyout of Goldman Sachs because the company is already so highly levered, an opinion that was widely shared on Wall Street. This morning’s Sallie Mae deal may mark a change in that thinking.

Negotiators Say Sallie Mae to Be Sold for $25 Billion [New York Times]
Investor group to buy Sallie Mae for $25 Billion [Press Release from Sallie Mae]

It’s been a while since we checked in on Pirate Capital. Several weeks ago, the troubled Norwalk, Connecticut hedge fund was all over this page with news of mass analyst defections, loss-making sales of its large stake in the parent company of Outback Steakhouses, an SEC probe and a letter from founder Tom Hudson to the fund’s investors seeking to reassure them that the fund was not melting down.

After that the notoriously noisy hedge fund went quiet. The people handling press calls seemed program not say “no comment” to all inquiries. New letters from Hudson—either to investors or to companies in which Pirate funds hold positions—were not forthcoming. It seemed clear that Hudson had decided to bunker down and regroup.

Today Pirate is back in the news and its not pretty. It appears that the soaking Pirate took on its Outback position—buying a 5.3 percent stake when shares were priced at $42 to $39 and selling at $27.59 to $29.37 a share—might have been unnecessary. Yesterday the parent company of Outback announced a Bain Capital led leveraged buyout, sending the stock up to $39.72 a share. Ouch.

Pirate Jumped 'Out' Too Early [New York Post]

Merrill Lynch and Bear Stearns have each committed to provide the family that controls Cablevision with one-half of the $12.4 billion of debt financing the acquisition of the cable company, according to a letter filed with the SEC yesterday.

Of course, it’s not quite accurate to say that the money is being provided to the Dolan family. The actual borrowers are Cablevision and a series of shell holding companies who secure the loans with Cablevision stock and assets. That’s leveraged buyout magic—buying a company with money you don’t have and collateralizing the loans with the company you don’t own.

The competition to be the lead lenders on the deal was most likely intense, with at least a handful of banks submitting letters to the Dolans. The Cablevision assets are very valuable as collateral and the fees attached to loans of this size most likely quite large. One surprising aspect of the winning Merrill-Bear Stearns letter, however, is that it retains a full-throated due diligence “out”—a provision allowing the banks to refuse to lend money if their due diligence investigation turns up serious problems with the company. In heavily sought after deals, this language is often watered down.

Unfortunately, the real red-meat of the deal is not disclosed. We’re talking, of course, about the bank fees and interest rates. These don’t get disclosed because they are not considered relevant to public investors in a going private transaction. Since the public shareholders are being bought out, they don’t have any economic interest in knowing what fees and interest rates the private company will be paying. So the fee letter gets kept under wraps.

Project Central Park Credit Facilities Commitment Letter [SEC]

Dolans Obtain $12.4 Billion for Cablevision Buyout [Bloomberg]

Last week Jeff Matthews speculated that 2007 would be “2007 The Year of the Private-Equity Crisis.” Good deals are getting rarer, and private equiy shops are stretching to find value in a market saturated with buy-out dollars, according to Matthews.

Today the anonymous bloggette who writes the charming “Going Private” blog calls bullshit on this analysis. Her point: incentives and regulations are still pushing competent management out of public companies, while ignorance and insufficient information render public markets inefficient, creating opportunities to create value by going private. Even if you aren't as confident as her in the near-term history of the LBO biz, it's worth reading for her analysis of the history of the leveraged buy-outs.

Jeff Matthews Is Driving Through Burger King [Going Private]