Back in late September, KKR closed one of the largest buyouts in history - the $29 billion transaction for First Data, which is a leading payments processing operator.

Even though the company is private, it is still publishing its financials and is having quarterly conference calls. So how are things going?

For the first nine months of 2007, revenues increased 15% to $5.9 billion and adjusted EBITDA was $1.8 billion (up 7%).

In fact, First Data's new CEO, Michael Capellas, also provided his go-to-market strategy - shedding some light on what happens in post-buyout environments.

First of all, he wants to find ways to increase organic growth. To this end, there will be more emphasis on bolstering the sales force - as well as finding ways to cross-sell offerings.

Next, the company wants to bring new product innovations to market (hey, it means more cross-selling, right?) Some of the areas include mobile ecommerce, analytics, and fraud detection.

Another big opportunity is the growth in emerging markets. Interestingly enough, Capellas is not looking for acquisitions to bulk things up on this front.

Finally, Capellas will try to cut lots of costs. Going into 2008, he thinks he can slash $200 million in annual costs.

And, this means layoffs - about 6% of the workforce. Yes, some things never change.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

First Data: the anatomy of a buyout deal originally appeared on BloggingStocks on Mon, 19 Nov 2007 16:35:00 EST. Please see our terms for use of feeds.

You may think the subprime mortgage mess is huge. Well just around the corner a larger elephant is looming and its impact may be even more devastating than the current credit crisis.

While it sounded like good news when banks sold $30 billion of loans for leveraged buyouts last week -- $26.4 billion of that was for the First Data buyout. That sale came with a big price tag -- banks agreed to sell the debt at 96 cents on the dollar, which means they locked in losses after their fees.

And then there was the problem of what to do with the other 90% of LBO loans in the pipeline.

The Wall Street Journal (subscription required) reported today that Citigroup Inc. (NYSE: C), Credit Suisse Group and J.P. Morgan Chase & Co. (NYSE: JPM) hold $400 billion in debt they promised for financing purchases private equity firms have in the works globally. If they can't sell the debt, they're left holding the bag, which means a lot less money for other loans. If the economy slows as expected and corporate profits weaken, the only way the banks will be able to unload the debt they're holding will be a fire sale on that debt at even deeper discounts then the First Data deal.

Continue reading Next debt collapse: LBO loans?

Next debt collapse: LBO loans? originally appeared on BloggingStocks on Wed, 10 Oct 2007 16:15:00 EST. Please see our terms for use of feeds.

Bond market mending its wounded ways originally appeared on BloggingStocks on Fri, 28 Sep 2007 10:15:00 EST. Please see our terms for use of feeds.

KKR is known as a tough negotiator. After all, the firm walked from its $8 billion deal for Harman International (NYSE: HAR), which crushed the stock by 24% on Friday.

But, as for the First Data Corp. (NYSE: FDC) transaction, KKR is certainly jazzed. Despite talk that financing had dried up, it now looks like the debt offering is oversubscribed -- at least for a $5 billion tranche (this is according to a story in Bloomberg.com). Although, to generate more demand, there was a 4% discount on the notes.

But for the most part, it looks like things should pan out and based on the stock price of First Data, Wall Street also agrees.

Does this mean things will get easier for other deals? To some degree, I think the answer is yes. Liquidity is coming back into the system and fear is dissipating.

However, I think there will still be some carnage, especially for those deals that may not have the strong fundamentals of First Data or that were aggressively priced and structured.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

First Data (FDC) deal lookin' good originally appeared on BloggingStocks on Sun, 23 Sep 2007 11:40:00 EST. Please see our terms for use of feeds.

At mid-summer, it would have been hard to imagine any of the large private equity deals like First Data Corp. (NYSE: FDC) and Harman International (NYSE: HAR). Harman is hardly an unknown entity. It was started more than 50 years ago. It built the first car radio in 1948. The company has a large customer base that includes most of the major car companies.

In the fiscal year ending June 30, Harman's revenue rose 9% to $3.55 billion. Net income was up 23% to $314 million. Not bad. But, in the fourth quarter of the fiscal, operating income was down, as cost of sales and expenses both rose.

Yesterday. KKR and Goldman Sachs (NYSE: GS) said that they were pulling the plug on the $8 billion deal to take Harman private. The said that Harman had breached the "material adverse effect" clause of the buyout agreement. In other words, Harman's business had gotten much worse.

Maybe. What the court will ask, and this is almost certainly going to court, is whether Harman's financial situation took a significant turn for the worse. Or, did they buyers simply believe that the credit markets had turned against them by making capital unusually expensive. Better to face,and perhaps lose a lawsuit than to default on billions of dollars worth of bonds.

Continue reading As KKR and Goldman Sachs (GS) walk on Harman (HAR), other deals in trouble

As KKR and Goldman Sachs (GS) walk on Harman (HAR), other deals in trouble originally appeared on BloggingStocks on Sat, 22 Sep 2007 11:40:00 EST. Please see our terms for use of feeds.

MAJOR PAPERS:

• Barron's Online's (subscription required) "Weekday Trader Extra" reported that Wall Street is eyeing the negotiations of the First Data Corp (NYSE: FDC) buyout, as there has been talk that Kravis Roberts might be willing to make some concessions to a bank group arranging financing for the purchase.
• The Wall Street Journal (subscription required) reported that General Motors Corp (NYSE: GM) has sent the UAW two proposals as their negotiations are nearing the deadline.
• With near record high oil prices, there are signs that OPEC may increase crude output 2%, or 500,000 barrels a day, as a gesture to comfort oil markets, according to the Wall Street Journal.

• The Associated Press reported that EPR, a leftist guerrilla group, said they caused a number of explosions yesterday aimed at about six Mexican oil and gas pipelines, resulting in millions of dollars in lost production and unsettling financial markets.
• Countrywide Financial Corporation (NYSE: CFC) is reportedly working with Goldman Sachs Group (NYSE: GS) and a law firm to put together another multi-billion dollar bailout plan for Countrywide, the nation's largest home lender, reported the New York Post.
• Sir Martin Sorrell believes that WPP Group (NASDAQ: WPPGY), the company he has built and is currently the CEO of, is likely to appoint his successor from within the company, reported the Telegraph.

Newspaper wrap-up: OPEC may increase crude output originally appeared on BloggingStocks on Tue, 11 Sep 2007 09:15:00 EST. Please see our terms for use of feeds.

The Wall Street Journal [subscription required] reports that Kohlberg, Kravis and Roberts (KKR) is negotiating with banks to lend it $24 billion for its $26.4 billion deal to buy payment processor, First Data Corp. (NYSE: FDC). What's at stake here is whether last month's pause in the private equity fueled takeover market is temporarily on hold or dead for a decade.

There is a $400 billion backlog of such debt deals in the pipeline. Prior to the August pause, banks had no trouble selling the debt to hedge funds and others. But the terms -- or covenants -- of that debt were so loose that the banks were creating loans that demanded very little in the way of performance.

These so-called covenant-lite loans may soon become a thing of the past. If the Journal's reporting is correct, KKR may agree to a covenant requiring it to maintain a minimum level of earnings before interest taxes depreciation and amortization (EBITDA). Such terms used to be common in debt offerings, but the fact that there is even any debate about it, indicates how much covenant-lite debt risk is currently out in the market for which debt buyers have no protection at all.

Continue reading Collapse of KKR/First Data (FDC) debt deal could shatter fragile markets

Collapse of KKR/First Data (FDC) debt deal could shatter fragile markets originally appeared on BloggingStocks on Mon, 10 Sep 2007 10:10:00 EST. Please see our terms for use of feeds.

MAJOR PAPERS:

• In an effort to stem the flow of weaponry into Iraq, the Pentagon is planning to build its first base near the Iraq-Iran border, reported the Wall Street Journal (subscription required).
• Kohlberg Kravis Roberts & Co. is expected to make concessions with the investment banks putting together $24B in debt for its purchase of First Data Corporation (NYSE: FDC), something it had previously been unwilling to do, reported the Wall Street Journal.
• The Bush administration wants to limit the role of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) in the home mortgage crisis, but a number of Democrats, led by New York Senator Schumer, want to increase the authority of both firms by loosening growth constraints, and increase the size of mortgages they can buy in high cost areas, reported the Wall Street Journal.
• While the Nasdaq Stock Market Inc (NASDAQ: NDAQ) said it extended the deadline earlier this week, the "self-imposed deadline" for an LSE bid passed without a single firm bid, reported the Financial Times (subscription required).

• The U.K. Times reported that Russian state-controlled energy company Gazprom (OTC: GZPFY) considered making a rival $5B offer for business news company Dow Jones and Company Inc (NYSE: DJ), according to a source.
• The New York Times reported that after three separate recalls of Mattel Inc (NYSE: MAT) toys, Disney (NYSE: DIS) said it would begin testing toys featuring Disney characters, including ones already on store shelves.

Newspaper wrap-up: KKR to make concessions for First Data purchase originally appeared on BloggingStocks on Mon, 10 Sep 2007 09:14:00 EST. Please see our terms for use of feeds.

The 18% haircut on Home Depot's (NYSE: HD) sale of its supply unit was not much of a surprise. Real estate continues to ail and the credit crunch added to the pressures. But the big test for private equity is the upcoming $29 billion buyout of First Data Corp (NYSE: FDC).

Well, Barron's [a paid publication] has an excellent analysis on the deal, which will require a whopping $24 billion in debt financing and is expected to close at the end of the month.

So, will there be pushback from the lenders -- which include Citigroup (NYSE: C), Credit Suisse (NYSE: CS), Lehman Brothers (NYSE: LEH) and Merrill Lynch (NYSE: MER)?

Keep in mind that First Data already has a sizable debt load. The pricing on the new debt could sustain a material discount. If so, the lenders may need to take a write off or sell loans at a loss.

For example, First Data's interest payments may eat up most of its free cash flows. And, if the growth slows down, there could be negative cash flows.

In a restrained credit environment, this is not what lenders want to hear. In other words, I think we could see some fighting from the lenders to try to get a lower price on this deal.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements.

Barron's: High noon for First Data originally appeared on BloggingStocks on Sat, 01 Sep 2007 15:40:00 EST. Please see our terms for use of feeds.

According to The Wall Street Journal, another battle is beginning between private equity and the banks that loan money for big buyouts. KKR and its lenders are heatedly debating the terms of the purchase of First Data (NYSE: FDC). As the paper writes (subscription required): "They (KKR) are standing by their commitment to a public company on a certain price, which was based on the commitments from Wall Street on financing terms."

The First Data deal is worth $24 billion. Banks do not want to take a bath if they have to hold some of the debt on their own balance sheets. A default would force them to write down the loans.

The press views that growing unpleasantness between private equity firms and their banks as a sign that greed pushed the parties to do deals that would not all work. The premiums paid for many public companies were simply too high.

But, the problem is a bit more complex than that. Why the banks let private equity put so little money into most deals will also be a source of wonder. While the banks did get fees for their work, the lion's share of the upside belongs to firms like KKR. And, the imbalance is beginning to show as credit markets for these transactions disappear.

Douglas A. McIntyre is a partner at 24/7 Wall St.

First Data (FDC): private equity's next battle originally appeared on BloggingStocks on Thu, 30 Aug 2007 07:00:00 EST. Please see our terms for use of feeds.

First Data's new first-class CEO originally appeared on BloggingStocks on Tue, 10 Jul 2007 16:44:00 EST. Please see our terms for use of feeds.

• Alltel Corporation (NYSE: AT) trading for $67.80 with take-out price of $71.50-12% annualized rate of return.
• Clear Channel Communications (NYSE: CCU) trading for $37.70 with take-out price of $39.20-10% annualized rate of return.
• First Data Corporation (NYSE: FDC) is selling for $32.65 and has a take-out price of $34-for an 18% annualized return.
• Harrah's Entertainment Inc (NYSE: HET) is selling for $85.25 and has a take offer of $90-14% annualized rate of return.
• Tribune Company (NYSE: TRB) is trading at $29.50 with a take-price at $34-30% annualized return.
  
• The most attractive arb play from a return perspective is Tribune but that deal also carries the most risk. Tribune already has a considerable amount of debt and is attempting to add more debt and use the company's ESOP plan to close the deal. In addition, the fundamentals of the newspaper industry continue to remain not very good.

Widening credit spreads means arb profits abound originally appeared on BloggingStocks on Mon, 02 Jul 2007 13:30:00 EST. Please see our terms for use of feeds.

The Washington Post thinks the recently announced deal by Silver Lake Partners and Texas Pacific Group to take telecommunications equipment maker, Avaya, Inc. (NYSE: AV), private indicates a perilous decline in credit standards. And the Post thinks this decline will contribute to the end of the takeover boom.

I always feel a bit skeptical when I read these kinds of articles. It's not so much that the logic is flawed, but the timing is often hard to pin down. I am guilty of doing the same thing myself since I wrote something similar last August. And yet the takeover boom refuses to bend to the will of the pundits.

The Post believes there are three reasons why the takeover boom has peaked:

Continue reading Has the takeover boom peaked?

Has the takeover boom peaked? originally appeared on BloggingStocks on Wed, 13 Jun 2007 18:30:00 EST. Please see our terms for use of feeds.

Cramer's two financial service buyout picks originally appeared on BloggingStocks on Mon, 21 May 2007 19:50:00 EST. Please see our terms for use of feeds.

MOST NOTEWORTHY:

• UBS downgraded First Data Corp (NYSE: FDC) to Neutral from Buy following the acquisition by KKR.

• Pinnacle Entertainment (NYSE: PNK) was cut to Hold from Buy at Matrix USA, as the firm believes post-hurricane reconstruction efforts are leading to significant capital expenditures, which limits upside.

• Cephalon Inc (NASDAQ: CEPH) was removed from American Technology's Focus List with shares up 15% in three weeks as the approval of Nuvigil without a Black Box warning has passed.

• JP Morgan cut shares of Verint Systems (NASDAQ: VRNT) to Underweight from Neutral, citing risks and costs associated from the Witness Systems' (WITS) acquisition.

• Labor Ready, Inc (NYSE: LRW) was downgraded to Sell from Neutral at Goldman based on the slowdown in U.S. residential construction activity.

• Citigroup downgraded International Paper Co (NYSE: IP) to Hold from Buy with a $39 target.

• Bernstein cut MedImmune, Inc (NASDAQ: MEDI) to Market Perform from Outperform.

• Sanders Morris downgraded Dreamworks Animation SKG, Inc (NYSE: DWA) to Neutral from Buy on valuation.

• JP Morgan downgraded Icagen, Inc (NASDAQ: ICGN) to Neutral from Overweight.

• Friedman Billings cut CompuDyne Corp (NASDAQ: CDCY) to Market Perform from Outperform following Q4 results.

• Roth Capital cut LivePerson, Inc (NASDAQ: LPSN) to Sell from Hold.

Analyst downgrades 4-04-07: Cephalon, First Data & Dreamworks Animation downgraded today originally appeared on BloggingStocks on Wed, 04 Apr 2007 10:58:00 EST. Please see our terms for use of feeds.

MOST NOTEWORTHY:

• Citigroup cut First Data Corp (NYSE: FDC) to Hold from Buy and AG Edwards cut the Colorado-based Computer Services company to Hold from Buy, following the acquisition by KKR; AG Edwards also removed First Data from its Focus Portfolio.

• Bernstein downgraded Molson Coors Brewing Co (NYSE: TAP) to Market Perform from Outperform based on valuation.

• Goldman Sachs removed MetLife Inc (NYSE: MET) from its Conviction Buy List.

• Bear Stearns cut GSI Commerce (NASDAQ: GSIC) to Underperform from Outperform based on valuation.

• Matrix USA downgraded Foundation Coal Holdings Inc (NYSE: FCL) to Sell from Buy.

• Jefferies downgraded Novell, Inc (NASDAQ: NOVL) to Hold from Buy on valuation after yesterday's "April Fool's-inspired" rally as the firm believes upside from the initial Microsoft-(MSFT) driven SLES deals and restructuring are priced in.

• Stifel downgraded Pearson PLC (NYSE: PSO) to Hold from Buy on valuation.

• Benchmark downgraded ConocoPhillips (NYSE: COP) to Sell from Hold on valuation.

• Buckingham downgraded Diebold Inc (NYSE: DBD) to Neutral from Accumulate on valuation.

• CIBC downgraded Ipsco Inc (NYSE: IPS) to Sector Performer from Outperform based on valuation.

Analyst downgrades 4-03-07: First Data, Molson, Novell all downgraded today originally appeared on BloggingStocks on Tue, 03 Apr 2007 11:07:00 EST. Please see our terms for use of feeds.

Kohlberg Kravis Roberts & Co.'s $25.6 billion buyout of First Data Corp. (NYSE:FDC) won't hold the spot of the second-largest buyout for long.

Tthe top-ranked $45 billon TXU deal, which also includes KKR, will get eclipsed as well.

There's bound to be another mega LBO sooner rather than later. KKR, The Blackstone Group and Texas Pacific Group all have billions of dollars burning holes in their pockets.

What people seem to be forget is that these firms don't want their investments to remain private forever. Odds are good that investors will get another shot at buying shares of First Data in a few years. Maybe then being public will be back in style.

First Data should thank its lucky stars that it's being acquired by KKR.

Growth at the credit-card processing company has been slowing since it separate its Western Union payment processing business and has struggled to find a chief executive to succeed Henry C. "Ric" Duques, the Wall Street Journal said.

Duques who returned in November 2005 after his successor Charles Foote announced his retirement for "personal reasons." At the time, Duques agreed to stay for about two years to help the company find a new successor.

Investors have sat on the sidelines while First Data searched for new leadership. Its stock tanked more than 40 percent over the past year even though most Wall Street analysts rate it either a buy or a strong buy.

Analysts had said First Data would make an atractive buyout candidate for private equity. My colleague Georges Yared makes a persuasive case that the company's prospects are good.

In addition, First Data stands to profit handsomely from the private equity boon. All of those credit card purchases by investment bankers of first-class airplane tickets, suites at fancy hotels and expensive bottles of wine have to be processed somewhere, no?

First Data won't be the number two buyout for long originally appeared on BloggingStocks on Mon, 02 Apr 2007 07:30:00 EST. Please see our terms for use of feeds.

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Western Union (NYSE: WU) is the top conservative pick for 2007 from Cory Janssen. In the Investopedia Advisor, he explains, "Spun off from First Data Corp. in October, Western Union is an outstanding company to own as a long-term holding.

"Its powerful brand recognition gives it a critical advantage in an industry where customer trust is of such high importance. As well, the company's enviable distribution network leaves it very well-positioned to capitalize on the ongoing growth in international money transfers.

"The business does face some short-term risks. Recent political debate surrounding U.S. immigration policy has prompted a decline in the frequency of money transfers from the U.S. to Mexico, and this has weighed on the company's recent quarterly numbers. We feel that this is a temporary blip.

Continue reading Top Picks 2007: Janssen likes Western Union's wide moat

Top Picks 2007: Janssen likes Western Union's wide moat originally appeared on BloggingStocks on Tue, 26 Dec 2006 08:30:00 EST. Please see our terms for use of feeds.

• Apple was downgraded to Hold from Buy at Citigroup, citing valuation and the unlikely introduction of the new video iPod before the holiday season.
• First Data was downgraded to Neutral from Overweight at J.P. Morgan based on valuation and expectations of a Q3 miss.
• CIBC downgraded ASM International to Sector Performer from Sector Outperform based on checks that indicated Intel (INTC) is pushing out adoption of ASMI's atomic layer disposition tool for high-k at 45mn. They note a delay would be positive for Applied Materials (AMAT).

OTHER DOWNGRADES:

• Due to the change in management and lowered guidance, both Credit Suisse and KeyBanc/McDonald downgraded IT service provider Keane (KEA).
• ThinkEquity downgraded CryptoLogic (CRYP) to Source of Funds from Accumulate based on the ratification of the Internet gambling bill that will impact earnings.
• Boston Beer (SAM) was downgraded to Neutral from Overweight on valuation.
• USA Truck (USAK) was downgraded by Stephens to Underweight from Equal Weight, citing a less certain 2007 trucking environment and the recent stock offering.

Ratings summary provided courtesy of TheFlyOnTheWall.com.

Analyst downgrades 10/02/06: Apple gets sliced originally appeared on BloggingStocks on Mon, 02 Oct 2006 10:54:00 EST. Please see our terms for use of feeds.