When UK mortgage lender HBOS Plc went to market to raise capital, the outcome was a bust. The company sold only about 8% of the securities. In the end, HBOS's underwriters -- Morgan Stanley (NYSE: MS) and Dresdner Kleinwort Ltd. -- were stuck with $7.6 billion in unwanted paper.
In light of this, it's going to be tough for UK financial institutions to bolster their balance sheets. But there is an alternative: private equity.
In fact, it looks like The Blackstone Group LP (NYSE: BX) is taking a look at Paragon, a UK mortgage lender. It appears that Paragon is opening up its books to engage in some initial due diligence.
Of course, this is still nascent, and deals can easily fall apart, especially in tough markets. However, investors are certainly excited. In London trading, Paragon's shares spiked 23%.
Even so, the value of Paragon is still down 87% over the past year, so it should be no surprise that the private equity folks sense opportunity.
Struggling mortgage lender Paragon is reportedly in talks with The Blackstone Group LP (NYSE: BX) about a potential takeover by Blackstone, the Financial Times reported.
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The New York Times reported that TiVo Inc (NASDAQ: TIVO) will today introduce a "product purchase" feature in partnership with Amazon.com Inc (NASDAQ: AMZN). Under TiVo's plan, the television remote control will be turned into a tool for buying products that are advertised and promoted on talk shows and commercials.
Simply put, GSO is a hedge fund that's focused on distressed debt. Of course, with the slowing economy, GSO is in a prime spot to capitalize on some nice opportunities.
For example, when the Weather Channel was up for sale, it was tough to get financing for the deal. So why not GSO?
It worked. In the end, Blackstone and Bain Capital teamed up with General Electric (NYSE: GE) to pull off the acquisition. As for GSO, it provided higher-risk mezzanine debt financing.
Of course there are issues. After all, Blackstone has a conflict. But at the same time, the financial markets are mired in a credit crunch. So, if there are essentially no alternatives, GSO is probably going to provide the best offer.
More importantly, Blackstone realizes that there are some juicy opportunities right now. Thus, by having the GSO advantage, Blackstone certainly is positioned nicely.
On Tuesday, the Securities and Exchange Commission threw a brushback pitch at those who are betting on the further collapse of our big financial institutions. Instead of suggesting better oversight of the companies, the SEC is going after short sellers.
For 30 days starting Monday, short-selling will be restricted on 19 financial companies. Financial regulators are also cracking down on "sensational rumors." To put the short-selling rule in perspective, consider that even when the market re-opened after the September 11th attacks, the SEC considered, but didn't implement, short sale restrictions.
Since Bear Steans collapsed and Vanity Fair bought the company's story that short-sellers did them in, everyone is worried that short sellers are bringing the market down. And I'm sure they are, but short-selling, after all, is legal. The SEC just loosened rules on it last year.
Yesterday, SEC chair Steven Cox testified that he's worried about short-selling in connection with spreading false rumors to manipulate the market. OK, that's not legal, but as Cox pointed out, the SEC brought its first case -- EVER -- for this sort of deception this year. And it still hasn't gone after anyone for spreading false positive rumors about a company.
Cleveland-Cliffs Inc (NYSE: CLF), founded 160 years ago, is a global mining operator. It's the biggest producer of iron ore pellets in North America and is a major supplier of metallurgical coal. Over the past year, Cleveland's stock price has gone from $28.20 to a high of $121.95. No doubt, the company has benefited handsomely from the surge in the steel market.
Today, Cleveland has offered to pay $128 per share – a cool $10 billion – for Alpha Natural Resources, Inc. (NYSE: ANR), a high-quality Appalachian coal supplier. The expected pro forma enterprise value of the merged companies, which will be called Cliffs Natural Resources, is expected to be about $22 billion.
The metrics on the deal look enticing. By 2009, Cliffs should have revenues of $10 billion and EBITDA of $4.7 billion. Moreover, by 2010, there are expected to be at least $200 million in annual synergies.
All in all, the deal will increase scale, which is becoming essential as the steel industry consolidates. For example, Cliffs will have reserves of about one billion tons of iron ore and one billion tons of metallurgical and thermal coal.
The Financial Times reported that Bain Capital, The Blackstone Group LP (NYSE: BX) and General Electric Company's (NYSE: GE) NBC universal will acquire The Weather Channel properties from Landmark Communications for approximately $3.2B in a leveraged buy-out. The Weather Channel will be run separately.
A top Goldman Sachs Group Inc (NYSE: GS) trader is defecting to GLG Partners Inc (NYSE: GLG), the UK's second-largest hedge fund. Goldman's Driss Ben-Brahim, a partner in the firm and the head of its emerging market trading business, will take over GLG's $1.2B emerging markets special situations fund, the Financial Times reported.
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Take-Two Interactive Software Inc (NASDAQ: TTWO), which makes video games, will probably sign video game creator Ken Levine to a new contract. The deal would bolster Take Two's argument that its value exceeds the $25.74 per share that Electronic Arts Inc (NASDAQ: ERTS) has offered as a takeover price for the company, The New York Post believes.
NBC Universal, which is a part of GE (NYSE: GE), has apparently agreed to shell out $3.5 billion for the Weather Channel. The deal involves a partnership with two marquee private equity firms: Bain Capital LLC and Blackstone Group LP (NYSE: BX).
The transaction has weathered the credit crunch -- as well as survived a gestation period that has gone on for most of 2008. But, in the end, it looks like NBC got a nice deal (keep in mind that it looked like the Weather Channel tried to snag $5 billion or so).
The Weather Channel has extensive distribution (#3 in the US). What's more, there will be synergy with NBC's digital weather property, Weather Plus. Oh, and NBC has lots of experience integrating cable companies, such as Bravo and Sci Fi.
Although, perhaps the most important part of the deal is weather.com, which gets 36+ million unique visitors per month. This ranks it as the #15 site on the web. No doubt, NBC can leverage its advertising -- as well as other websites -- across this virtual real estate.
Finally, the Weather Channel transaction points to a possible new model for private equity; that is, partnering with strategic buyers. It's a good way to deploy capital but also get cost/revenue synergies.
I'm sure KKR is irked that the Blackstone Group LP (NYSE: BX) is public. In fact, the company had its IPO at the peak in the market, picking up billions from investors. And, since the transaction, Blackstone has used its stock to pull off deals, such as the purchase of GSO Capital.
But, according to a piece in the Wall Street Journal (subscription required) it seems that KKR is still gunning for a public offering. True, KKR did file an S-1 about a year ago. But, the last amended filing was in November.
Then again, KKR has been on a hiring spree – bulking up its executive suite. Some of the positions include: general counsel, chief compliance offer, CTO, chief human-resources officer and so on.
In other words, why have such people unless a company wants to be public?
If anything, the lull in the private equity market may be a blessing. Keep in mind that KKR hasn't struck a buyout deal this year. So, what better time than now to build up the infrastructure?
For deals of $2 billion or less, private equity firms are showing interest. However, the problem is: cheap valuations.
This is what the board at Chemtura (NYSE: CEM) found out the hard way. Late last year, the company retained Merrill Lynch (NYSE: MER) to explore "strategic alternatives." While some private equity firms showed interest – like Blackstone Group LP (NYSE: BX) and Apollo Management LP -- there wasn't much appetite to pay a premium. So, Chemtura has ended the process. Instead, the company will focus on restructuring (such as divestitures).
Chemtura has an interesting mix of businesses, such as plastic additives, pool and spa products and the lubricant components. For 2007, the company generated $3.7 billion in revenues.
However, with the energy crisis, the environment has been particularly tough for Chemtura. Just look at rival Dow Chemical (NYSE: DOW), which has increased prices two times during the past month.
It's been tough for private equity firms to exit investments. Basically, the valuations are much lower – and the IPO market is particularly weak. And, with the credit crunch, it's really impossible to recap portfolio companies (such as with dividend payouts).
Despite all this, the Blackstone Group LP (NYSE: BX) may buck the trend. According to a report in Bloomberg.com, it looks like the firm may be able to sell one of its portfolio holdings, Groupe Vitalia, a hospital operator based in France.
In fact, it appears that Groupe Vitalia has attracted four serious bidders – and that the deal may come to $2.2 billion. Some of the bidders include CVC Capital Partners, LBO France, Gruppo Ospedaliero San Donato and Batipart SA. In other words, it's a mix of private equity players and strategic buyers.
Interestingly, Blackstone has been able to bulk up Groupe Vitalia with a variety of bolt-on acquisitions. All in all, it 's a smart strategy that may see a rare pay off.
Robert Phillips is a veteran of the energy world. He was the CEO of Enterprise Products Partners L.P. (NYSE: EPD), a major natural gas player. Before this, he was a chairman of GulfTerra and the CEO of Eastex Energy, Inc.
Now, Phillips has a new venture: Crestwood Midstream Partners LLC. In fact, he arranged a cool $500 million investment from the Blackstone Group LP (NYSE: BX) and GSO Capital Partners, an affiliate of Blackstone.
Basically, Phillips will use his extensive background to build a pipeline operation through internal development and acquisitions (the entity got its start in November 2007, with the help of Kayne Anderson). And, of course, in light of the energy problems in the US, the timing looks spot-on.
With its strong backing, Phillips should have little trouble attracting top-notch talent. He has already hired Joel Moxley, who was senior vice president of gas processing at Crosstex Energy Services, L.P., and Brad Graves, who was the executive vice president of business development at Genesis Energy, L.P.
In theory, private equity is a simple business. Basically, it's about buying a company at a cheap price and then eventually selling it for a premium. Oh, and because of the large amount of debt, you can essentially leverage the returns.
Of course, the folks at the Blackstone Group LP (NYSE: BX) know this game very well. In fact, they have been doing it since the late 1980s.
However, this raises an interesting question: If Blackstone wants to buy from you or sell an asset to you, should you be concerned? Does the firm know something that you don't?
It's a good question to ask. After all, about a year ago, Blackstone went public with much fanfare. Interestingly enough, it marked the peak of the private equity market. Yet, Blackstone was able to snag a cool $4.1 in the offering. Even the Chinese government invested $3 billion in the firm.
Apria Healthcare Group Inc. (NYSE: AHG), a home healthcare services company, has seen its shares plunge from $31.57 to $15.31 over the past year. But as of today, things got much brighter, as the shares spiked 26% to $20.
Apria operates about 550 respiratory and infusion therapy facilities across the US and serves more than two million patients per year. For the latest quarter, Apria posted a 35.1% increase in revenues to $528 million (there was a nice boost from the Coram acquisition). Net income was $20.8 million.
Early this year, The Blackstone Group LP (NYSE: BX) agreed to purchase GSO Capital Partners, a hedge fund that focuses on leveraged finance, for a cool $930 million. Stephen A. Schwarzman, Blackstone's CEO, said that the deal would create "one of the largest credit platforms in the alternative asset management business." Yes, it's an attractive space, especially in light of the credit crunch.
Moreover, Blackstone isn't wasting time in leveraging the GSO platform. According to a report in Bloomberg, it looks like it is raising a new fund that is focused on distressed debt.
True, there hasn't been a surge in defaults and bankruptcies, but such things usually have lag times, and if the economy remains sluggish, there are likely to be many distressed opportunities.
Although, the distressed investment market is getting crowded. Some of the recent players include the Carlyle Group and Oaktree Capital Management. In fact, Monarch Alternative Capital and Cerberus Capital Management LP are in the market raising their own distressed funds.
When UK mortgage lender HBOS Plc went to market to raise capital, the outcome was a bust. The company sold only about 8% of the securities. In the end, HBOS's underwriters -- Morgan Stanley (NYSE: MS) and Dresdner Kleinwort Ltd. -- were stuck with $7.6 billion in unwanted paper.
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It's been tough for 
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