Private equity returns are down 27.6% year-over-year for the 12-month period ending July 30, 2009, according to a Preqin report received by BloggingStocks. The London-based research house notes, however, that the global private equity industry's dry powder (i.e., uncommitted assets) continues to exceed $1 trillion, suggesting that there is still plenty of capital waiting for a rainy day.

Returns for the past 12 months reflect all the nastiness we've seen and lived -- bailouts, company collapses, equity and credit market mayhem and unemployment rates dangerously close to double-digits. But, the money is still coming in. Preqin puts the rate by which contributions outpaced distributions at 235% for buyout funds in 2008. This category raised $148 billion while distributing only $63 billion, making last year the most imbalanced for these two measures in history.

Private equity investors are using current financial market constraints on liquidity to negotiate favorable deals, as private equity general partners have watched the values of their portfolios fall profoundly. Efforts to attract additional investment haven't been easy, as potential limited partners are reluctant to make long commitments in an uncertain marketplace. This has given limited partners a stronger position from which to negotiate both fees and terms and conditions.

Limited partners are getting a leg up on the private equity funds in which they invest, signaling a change from the historical trend in which funds could push for aggressive compensation based on the returns they provide. In a poll conducted by Preqin, 43% of investors noted a power shift from fund to limited partner, with only 2% seeing a shift toward the general partner.

This morning, General Motors (GMGMQ) -- or is it Government Motors? -- announced that it will sell its Saab unit to a consortium led by Koenigsegg Automotive AB. The purchaser is a luxury carmaker, which produces roughly 12 custom-made models each year.

In a memo of understanding, GM stated that the sale will include a $600 million funding commitment from the European Investment Bank -- which is guaranteed by the Swedish government. The sale is believed to be completed by the end of the third quarter.

The operator of the Tropicana Casino and Resort, which was featured in the films Viva Las Vegas and Diamonds Are Forever, filed for bankruptcy protection in May 2008. Canadian private equity firm Onex Corp. (TSX: OCX) has succeeded in taking over the Las Vegas icon.

Onex's main buyout fund has cobbled together a stake in the casino's senior debt that will make it the largest shareholder when a restructured Tropicana emerges from bankruptcy protection.

Though Onex will gain control of a prime location in one of the hottest spots in the city and one of the busiest pedestrian intersections in the world, it comes at a time when the fortunes of sin city are suffering due to economic conditions.

Room rates have plunged and passenger traffic into the city's airport is down 14% in the first three months of the year. But Onex founder and CEO Gerry Schwartz believes that gambling is a growth industry, and that investing in Las Vegas is a long-term value because the city has historically weathered downturns better than expected.

General Motors (NYSE: GM) has convinced 6,000 of its UAW employees to take buyouts of their contracts, more than doubling Barclays Capital's estimates.

The buyouts affect 10% of GM's UAW-represented workers and come at a steep cost: a $25,000 voucher to buy a new car and $20,000 in cash. Now it's not that I begrudge GM's hardworking employees who individually had nothing to do with the company's collapse, but I have to ask: Is it really fair to write them checks for $45,000, with payments made by the United States taxpayers who had nothing to do with GM's collapse.

Aluminum giant Alcoa (NYSE:AA) announced on Feb. 12 that it was selling its holdings of iron ore company Rio Tinto (NYSE:RTP)to Chinalco for about $1 billion, nearly $700 million more than the current value of the holdings. And speculation has begun to surface that Chinalco will make a play for Alcoa, one of the world's largest producers of aluminum.

Not much more than a year ago, private equity firms were the masters of the universe. Graduates of the top business schools who once wouldn't have dreamed of anything other than investments banking were beating down their doors for a chance at seven-figure bonuses.

Now the private equity bubble -- along with the housing and credit ones -- is deflating. A new report from Heinrich Liechtenstein, a professor at Spain's IESE Business School, and Heino Meerkatt, a Munich-based senior partner and private-equity expert at Boston Consulting Group predicts that a astonishing 20-40% of private equity firms will go under. Thirty percent will survive and have a shot at prospering over the long-term. The remaining 30-50% will "hang in the balance" -- not shuttering just yet but not exactly the influence-peddlers they once were.

The role that private equity firms have played in the stock market over the past few years has been hugely important. By making bids for undervalued companies, buyout shops provided activist investors with an outlet for activating value at companies that had underperformed. Without the benefit of private equity firms, activist hedge funds will have a new challenge: Can they create alpha through more long-term oriented approaches like management changes, seats on the board of directors, and operational insight? It will be interesting to watch.

The potential collapse of the $10.6 billion buyout of Huntsman Corp. (NYSE: HUN) is hardly a shock.

For one thing, rising oil prices are crushing specialty chemical makers. Another thing is that the deal was announced almost a year ago, an eternity for the closing of a merger and acquisition. The Wall Street Journal argues that private equity shop Apollo Management and its Hexcion Specialty Chemicals Inc. are making a "novel" argument to get out of the deal.

"In a complaint filed in the Delaware Court of Chancery, Hexion said Huntsman's poor financial results -- increased net debt and lower-than-expected earnings -- would render the combined company insolvent," the paper said, adding that legal experts expect Huntsman to file a countersuit. Of course, shares of Salt Lake City-based Huntsman were plunging in premarket action and will likely open much, much lower. CNBC's David Faber points out that the Huntsman deal was "held out" to be the strongest of the LBO deals. That's scary.

In a press release, Huntsman CEO Peter Huntsman said, "These actions appear to be a blatant attempt to deprive our shareholders of the benefits of the Merger Agreement that was agreed to nearly a year ago." The company added that it intends to "vigorously enforce" its rights under the merger agreement and seek to consummate the merger under the agreed upon terms.

Even though Microsoft (NASDAQ: MSFT) revoked its buyout offer, Yahoo!'s (NASDAQ: YHOO) shares have been resilient. Actually, they are up 5% today.

Then again, the Yahoo! shareholder base is full of arbs, hedge funds and activists who want to force the company to get some type of transaction done.

Funny enough, the CEO of Yahoo!, Jerry Yang, is indicating that he's still interested in a hookup. But, of course, Microsoft seems to be pretty cool on things. After all, the firm was bidding against itself.

However, the fact remains that Yahoo!'s shareholders are perturbed. Take Gordon Crawford, who manages Capital Research Global Investors and controls roughly 16% of Yahoo!'s shares. He said he's "extremely angry at Jerry Yang" and wonders what the board was thinking. Basically, Crawford would have been happy with $34 per share.

MAJOR PAPERS:

• Following the collapse of The Bear Stearns Companies Inc (NYSE: BSC), the industry is rampant with rumors wondering about the financial well being of scores of other institutions, according to a Wall Street Journal report called "The Credit Crisis Hits Wall Street". True or not, its giving fits to the companies, regulators, and investors.
• Skyrocketing fuel prices and a weakened economy are taking their toll on the airline industry, reported the Wall Street Journal. Additionally, the proposed Delta Air Lines Inc (NYSE: DAL) merger with Northwest Airlines Corporation (NYSE: NWA) has lost its momentum as airline pilots cannot agree on a structured seniority system.

OTHER PAPERS:

• According to people close to the situation, the New York Times reported that before the end of the month, Citigroup Incorporated (NYSE: C) is planning to lay off another 2,000 investment bankers and traders.
• The Detroit News reported that Ford Motor Company (NYSE: F) appears to have fallen short of its goals in the latest, and possibly last, round of company-wide buyouts for hourly workers.

Ford Motor (NYSE: F) is pulling out all the stops to entice more of its workers to leave the company. According to a piece in The New York Times, the automaker is using DVDs and glossy brochures to pitch its buyout packages, which range from free college tuition for entire families to cash payments of $140,000.

Ford has eliminated 32,000 jobs in the last two years, and plans to cut more. But it's not just jobs that it's getting rid of. The real target is more troubling: middle-class wages. As the Times puts it, Ford is a company "that long offered middle-class wages for blue-collar jobs." That deal is now coming to an end. Many of the workers who leave will be replaced by new workers making much lower wages, roughly $14 an hour. And $14 an hour is not a middle-class wage.

Ford played a central role in creating an American working class that could afford to participate in the economic life of the country. Ford's famous $5 a day for his factory workers was not altruistic. It was intended to create a much broader range of consumers who could afford to buy Ford cars and trucks. Henry Ford understood that the expansion of his company and the industry required relatively high-earning workers.

After reaching an all-time low of $15.25 recently, shares of Blackstone (NYSE: BX) have staged a nice comeback. In today's trading, the stock price is up 6.71% to $17.0.2

So, are we seeing a turnaround in the buyout market? Not necessarily.

This week, there is a "Super Return" conference in Munich. Basically, it's a get-together for the big-wigs of private equity. And yes, Blackstone's chief operating officer, Hamilton James, is one of the attendees. Unfortunately, he has more bad news, according to a piece in Reuters.

That is, the debt markets have continued to deteriorate over the past month -- which will make it even more difficult to get deals done as well as work off the huge buyout debt backlog. His message is that the tough times will last at least until 2009.

Even so, James thinks there is still opportunity. Basically, with low prices on buyout debt, Blackstone can pick up some bargains. More importantly, the firm has billions in fresh capital to be opportunistic.

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.

I often visualize big business by utilizing my own metaphor of naval warfare. I may be the only guy on the planet to do this, but I don't think so. The exercise helps me in assessing the strengths and weaknesses of the companies I'm considering. It also helps me in putting intra-corporate affairs into perspective.

In my view, Microsoft Corp. (NASDAQ: MSFT) has been like a swift and smooth-running state-of-the-art aircraft carrier. It's well outfitted for its task, able to strike at a moment's notice. It has a well-seasoned and knowledgeable crew. Yahoo! Inc. (NASDAQ: YHOO) has been similar to an aging destroyer group that has been at a loss for an effective admiral. Would you care to guess what I call Google in this scenario? Most of you probably already know. Google Inc. (NASDAQ: GOOG) is like a battle ready nuclear submarine, running deep, cold, and nearly silent, with the ability to effectively engage in battle from a very long distance away.

With Microsoft Corporation (NASDAQ: MSFT) bidding $44.5 billion for Yahoo, Inc. (NASDAQ: YHOO) one would instantly think that Microsoft is the winner -- and they could be -- in about a year or so... maybe. In the meantime, Google Inc. (NASDAQ: GOOG) will benefit immediately. The deck chairs are being re-arranged and there will be one less player. But before everyone thinks Microsoft is going to walk away the big winner, think again.

The game changer right now is Google. With 76% search engine market share, it will still be 4X the size of Microsoft after the Yahoo transaction is closed. Google has been successfully expanding its presence globally, and not in just the usual countries, but in the Brazils, the Portugals, the Argentina's, the Australias, etc. Seeding these remote, but lucrative locations is done and Google is now reaping the rewards.

Google can now capitalize domestically with its customers and Yahoo's/ Microsoft's customers as well by playing the disruption card. Basically, when a technology company is about to be acquired a lot of potentially negative things can and do happen: employees and customer relationships are disrupted. Google can unequivocally claim to customers that they are indeed "the" priority right now and that smooth media/advertising projects are awaiting their approval. Yahoo/Microsoft aren't sure which players are staying or leaving yet. Customers don't like that!!

For the private equity space, it's been a mixed bag this week. The good news is that the $17.1 billion acquisition of Harrah's Entertainment got done (the largest casino deal in history). The buyers included TPG and Apollo Global Management LP.

But there was some bad news too -- it looks like Blackstone (NYSE: BX)'s proposed buyout of Alliance Data Systems (NYSE: ADS) is on the rocks.

So, in this environment, it's understandable that Wall Street is jittery with buyout deals. Just look at the pending buyout of Clear Channel Communications (NYSE: CCU).