Bloomberg reports that Gome Electrical Appliances Holdings Ltd. may sell up to 20% of the company to Bain Capital LLC. The asking price is said to be approximately $500 million. The other companies competing for the piece of Gome are KKR & Co. (NYSE: KFN) and Warburg Pincus.

Gome is the second-largest electronics retailer in China, with more than 800 stores in over 160 cities. So it makes a nice target for investors looking for alternatives to recession-constrained businesses in the United States, Europe and developed markets in Asia.

Were you wondering which sector of the U.S. economy would be next to take a dive from the year-old credit crunch? Well look no further, because Barron's [subscription required] reports that private equity firms like Apollo Global Management, Kohlberg Kravis Roberts, and Blackstone Group (NYSE: BX) are hurting gators thanks to too much borrowed money and the weak financial performance of the companies they bought. And business is way down, Barron's reports that through mid-August, the 2008 total deal volume "stood at $67 billion, versus more than $400 billion in the corresponding 2007 period."

This does not come as a surprise to me. In February 2007, I appeared on CNBC arguing that private equity had peaked. And I began to question its long-term viability back in August 2006 when Barron's Alan Abelson quoted my thoughts on the matter. The basic problem is that when debt is cheap, private equity booms and when it starts selling itself to the public, investors should hold onto their wallets for dear life. People who own private equity firms tap their superior knowledge of the coming downturn to convince the public to bail them out by buying their stock.

Barron's cites -- as evidence of trouble in private equity land -- examples of the declining value of the publicly traded debt in companies that private equity took private at too-high prices with too much borrowed money. It writes that bonds of "many companies taken private in the past two years have plunged to 50 cents on the dollar or less, signaling that investors fear they won't be fully repaid. Many companies that were the subjects of buyouts a year or two ago are so grossly over-leveraged that they're struggling simply to pay interest. If they were to default, debt investors would be stung, but equity investors would be even worse off; the value of their holdings would be deeply impaired or wiped out."

TheStreet.com's Jim Cramer says KKR will join the list of buyout firms that fleece the small investor by going public.

Just what we need, a private-equity firm to go public. That worked just great with Fortress Investment (NYSE: FIG) (Cramer's Take), and it was terrific with Blackstone (NYSE: BX) (Cramer's Take). At least this one is some sort of reverse merger that might not inflict too much pain on the public.

Of course, folks in this business are displaying their usual lack of shame. It would be an excellent time for them to have a good reason beyond employee retention; I mean if you are making all of that money, what's the issue with retention? It would also be terrific if they were doing well, but there hasn't been a deal in so long that it would be a bit of an oddity if they were doing anything other than making a lot of fees.

But Kohlberg Kravis Roberts is a storied lot, so I figure the public will lap it up and all will be well until the losses start.

Or maybe this will be the one that's in the blue moon and the public will not be pants'd by the really smart bankers.

The New York Times reports that Kohlberg Kravis and Roberts (KKR), the most famous of the private equity firms, is now ready to part with its private status -- a year after it watched Blackstone Group (NYSE: BX) go public and promptly lose half its value.

The Times reports that KKR already has a public affiliate, KKR Private Equity Investors, which is listed on the Euronext in Amsterdam. KKR will buy that for $3.9 billion. This complex deal will value KKR at between $12 billion and $15 billion. The deal will put 21% of the firm's shares in public hands while KKR executives will own the other 79%.

How do we know that KKR's IPO won't lose half its value as Blackstone's did? We don't. But KKR executives won't be able to sell their shares at the offering -- according to the Times, KKR executives will have a "six- to eight-year vesting period compared with Blackstone's three- to four-year period." And once KKR is public, independent directors will control it; whereas inside directors run Blackstone.

KKR Financial Holdings LLC (NYSE: KFN) is a pioneer of the private equity world. However, over the past few years, things have changed significantly. Besides the credit crunch, dealmakers must also deal with the complexities of politics. After all, a buyout can have a major impact on a community -- in terms of jobs and the ecosystem.

Realizing this, KKR is bulking up its political heft. This week, the firm announced that it has hired Kenneth Mehlman as a managing director and head of public affairs.

Mehlman has a strong resume, having served as the chairman of the Republican National Committee. He was also the campaign manager for President George Bush in the 2004 election. The latest gig for him was as a partner at Akin Gump. Interestingly, one of his top clients was KKR.

MAJOR PAPERS:

• Bank of America Corporation (NYSE: BAC) is making a $2 billion equity investment in Countrywide Financial Corporation (NYSE: CFC), people familiar with the situation told the Wall Street Journal (subscription required).
• Ticket seller Ticketmaster, which is owned by IAC/InterActiveCorp (NASDAQ: IACI), has halted talks with concert promoter Live Nation Inc (NYSE: LYV), failing to reach a new, long-term agreement. The talks have "grown acrimonious" over the last year and a half, say people close to the situation, with Live Nation CEO Michael Rapino threatening to start his own ticketing company rather than renewing with Ticketmaster, according to the Wall Street Journal.
• Home Depot Inc's (NYSE: HD) sale of its wholesale supply division to a group of private equity firms is in doubt, due to uncertainty about the willingness of three investment banks to fund the deal, reported the Financial Times (subscription required).
  
• The Financial Times reported that Motorola Inc (NYSE: MOT) lost more than 7% of market share in the handset market in Q2, according to new figures.

OTHER PAPERS:

• Private equity firm Kohlberg Kravis Roberts has reportedly postponed its $1.25B initial public offering, after investors showed little interest in the IPO, reported the U.K. Times.

The New York Times [registration required] reports that KKR partner, Henry Kravis, is belatedly and ineffectively entering the battle to keep Congress from raising his taxes. At issue is the 15% capital gains rate which private equity firms pay on the 20% of the profits their funds generate, known as carried interest. Congress wants to tax this 20% as ordinary income -- meaning Kravis and his pals would pay a 35% tax.

Despite his arguments about the jobs KKR created in Rep. Sander Levin's home state of Michigan and his claim that a tax increase could hurt the investment returns of the pension funds which invest in KKR, Kravis appeared not to have dissuaded Levin in his drive to raise the tax rate from 15% to 35%.

I wrote an e-mail to Rep. Barney Frank (D-MA) who chairs the House Financial Services Committee. My suggestion, on which I posted earlier, is that the real problem is that private equity firms and their bankers get rich by taking risks -- such as borrowing too much money -- and they often leave society to pay the costs of failed deals -- as they did with the $150 billion bailout of the junk-bond fueled collapse of the Savings & Loan (S&L) industry.

Today's New York Times [registration required] discusses the pending initial public offering (IPO) of Kohlberg Kravis Roberts & Co. (KKR). In so doing, it glosses over the role of its founding partner, Jerome Kohlberg. But just because The Times ignores him, that's no reason for you to.

That's because I interviewed him three years ago for the Swarthmore College Bulletin. So without further ado, here's my interview with him:

"Kohlberg was co-founder of the leveraged buyout specialist KKR and is now special limited principal of Kohlberg & Co. His business success began with the simple yet powerful notion that it was better to risk one's own capital than to be an intermediary. "One of my friend's fathers was a merchant banker,' he recalls. "He didn't act for commissions. He stood and fell on his own investments, which he put beside those of other clients. I realized that being a principal was what I wanted.""

Is private equity really dead?

Well, it looks like the death has been widely exaggerated. Not only has KKR filed to go public, but the newly public Blackstone Group LP (NYSE: BX) has agreed to buy Hilton Hotels Corp. (NYSE: HLT) for a cool $26 billion.

It was back in 1919 that Conrad Hilton purchased his first hotel in Cisco, Texas. He certainly had lots of drive and ambition.

Now, the company has 2,800 hotels and 480,000 rooms across 76 countries.

But, the company thinks it's better keeping things private (at least for now). And, hey, why not take billions from the hungry Blackstone?

The deal comes at $47.50 or a 40% premium from yesterday's closing stock price.

When the markets open on Thursday, it will be interesting to see how Blackstone's stock reacts to the news.

Actually, the deal is a good fit for Blackstone. After all, the firm has been ravenous for hotel/resort properties. In fact, it owns more than 100,000 hotel rooms and has brands like La Quinta and LXR Luxury Resorts and Hotels.

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

Major Papers:

• The Wall Street Journal reported that Ford Motor Company (NYSE: F) is looking for buyers for its Jaguar and Land Rover brands, which are valued at a combined $1.3B to $1.5B, but any sale is expected to take a month or longer.
• Airbus is in the final stages of a deal with U.S. Airways Group Inc (NYSE: LCC), which is expected to purchase about 30 A350 jetliners worth about $7B at list price, according to the Wall Street Journal.

Other Papers:

• According to the U.K. Times, Imperial Chemical Industries plc (NYSE: ICI) rejected an all-cash offer of GBP$7.2B from Dutch chemicals giant Akzo Nobel NV (NASDAQ: AKZOY), saying the proposal "significantly undervalues" the company; sources believe The Dow Chemical Company (NYSE: DOW) and Germany's BASF AG (NYSE: BF) could launch competing bids.
• BHP Billiton Limited (NYSE: BHP) is again interested in a $40B acquisition of Alcoa Inc (NYSE: AA), an aluminum producer, reported the U.K. Times.
• The New York Times reported that negotiations on a buyout of Cadence Design System Inc (NASDAQ: CDNS) by private equity firms Blackstone Group and Kohlberg Kravis Roberts appear to have stalled over price.

YRC Worldwide (NASDAQ: YRCW) -- implied volatility and call spike on LBO speculation.
YRCW, a transportation holding company with brands including Yellow Transportation, Roadway, Reimer Express, Meridian IQ, New Penn, USF Holland and USF Reddaway, is recently up $0.49 to $40.03 on LBO speculation. YRCW will be speaking at Merrill Lynch's Transportation Conference next week. YRCW has a market cap of $2.2 billion with $1 billion in debt. YRCW reported quarterly March 2007 revenue of $2.3 billion. YRCW call option volume of 6,382 contracts compares to put volume of 207 contracts. YRCW June option implied volatility is at 44, July is at 36 above its 26-week average of 32 according to Track Data, suggesting larger price risks.

Biomet (NASDAQ: BMET) -- implied volatility-risk increases into June 8th shareholder vote.
BMET a designer, manufacturer and marketer of joint replacement products announced on 12/18/06 a consortium including the Blackstone Group, Goldman Sachs and Kohlberg Kravis Roberts will purchase BMET for $44 a share in cash. Institutional Shareholder Services recommended BMET holders vote down the $10.9 billion private equity deal. BMET shareholders are to vote on 6/8/07. Indiana state law requires a 75% vote for the acquisition to be approved. BMET over all option implied volatility of 17 is above its 5-month average of 12 according to Track Data, suggesting larger risk.

Option volume leaders today are: Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG) and Wal-Mart (NYSE: WMT).

Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.

Private equity and investors in general are beginning to open up their pocketbooks for technology. Palm Inc (NASDAQ: PALM) announced a deal with Elevation Partners which agreed to invest $325 million for a 25 percent stake in Palm.

Also, Avaya Inc (NYSE: AV) is being picked up for a nice premium, $17.50 per share or $8.2 billion by Silver Lake Partners and TPG Capital.

Ciena Corporation (NASDAQ: CIEN) went to market and issued $450 million in convertible debt. And earlier this year, Sun Microsystems Inc (NASDAQ: SUNW) picked up cash from Kohlberg Kravis Roberts in the form of a convertible stock.

Slowly but surely, private equity and investor interest in technology is picking up. This could be the very early stages of a big bull market run for tech stocks.

MAJOR PAPERS:

• The Wall Street Journal reported that TPG Capital and Silver Lake are poised to buy telecommunications equipment company Avaya Inc (NYSE: AV) for about $17 a share; Nortel Networks Corporation (NYSE: NT) was also said to be interested.
• News Corporation's (NYSE: NWS) Rupert Murdoch said he is willing to go along with tighter editorial independence, but won't give in to a key demand from Dow Jones & Company Inc's (NYSE: DJ) controlling Bancroft family that they control an editorial oversight board that would protect this, the Wall Street Journal reported.
• Barron's Online's Trader section believes Service Corporation International's (NYSE: SCI) 90% surge since August is the result of funeral service companies' virtual immunity to a slowing economy or rising rates – the market's two biggest fears right now.

OTHER PAPERS:

• The New York Times reported that software maker Cadence Design Systems Inc (NASDAQ: CDNS) is in talks with private-equity players that include Kohlberg Kravis Roberts and the Blackstone Group about a possible sale of the company.
• Technology Web sites have discovered that Apple Inc (NASDAQ: AAPL) embeds customers' personal data into files the company uses to distribute music from its online iTunes music store, creating fears about privacy, the UK Times reported.
• The UK Times also reported that Royal Bank of Scotland Group (OTC: RBSPY) may be looking to sell Southern Water for GBP4B, a move that could lead to many more deals in Britain's privatized water industry.

Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.

Heinz-(NYSE: HNZ) out of the money May 50 calls active; HNZ trades to Record. HNZ is recently up $1.35 to $48.28. Nelson Peltz, an activist shareholder, has been a holder of HNZ shares over the last 20-months in an attempt for HNZ to lower annual costs, sell assets and return more to shareholders. HNZ May 50 calls have traded 254 times on transaction volume of 5,990 contracts above its open interest of 402 contracts. HNZ May 50 calls are bid .35 cents, near its theoretical value of .35 cents according to Track Data, suggesting non-directional price fluctuations.

Advanced Micro-(NYSE: AMD) calls active, May option implied volatility increases to 46. AMD, a global semiconductor company, is recently up .64 to $14.56. On 12/1/05 Silver Lake and Kohlberg Kravis Roberts formed Avago Technologies through the acquisition and carved out of the Semiconductor Products Group from Agilent Technologies, Inc. (NYSE: A) (formerly a division of HPQ) for $2.66 billion, one of the largest private equity buyouts of a semiconductor company. AMD call option volume of 52,272 contracts compares to put volume of 28,105 contracts. AMD May option implied volatility of 46 is above yesterday's level of 43 and its 26-week average of 43 according to Track Data, suggesting slightly larger price risks.

Option volume leaders today are: Yahoo (NASDAQ: YHOO), Motorola (NYSE: MOT), Amgen (NSDAQ: AMGN) and Intel (NASDAQ: INTC).

Discount general merchandise retailer Dollar General Corp. (NYSE: DG) had the kind of earnings in 4Q 2006 one would expect from a company closing over 400 underperforming stores and liquidating that inventory. Although the short term numbers are not good, they are more or less in line with what Dollar General forecast it would cost to shed that much baggage. Last week, Dollar General reported fourth-quarter net income of $50 million, or $0.16 per share. This compares with 4Q 2005 net income of $145.3 million, or $0.46 per share. For the full year 2006, Dollar General reported net income of almost $138 million, $0.44 per share, compared with full year 2005 net income of $350 million, $1.08 per share.

Dollar General marked down over $279 million worth of inventory, and had closing related costs of almost $33 million. It is not surprising its earnings were not favorable. Despite these factors, 4Q net sales were still $2.5 billion, up 3% from 4Q 2005. Net sales for 2006 were $9.17 billion, an increase of almost 7% over 2005. Dollar General also repurchased 4.5 million shares of its common stock for $80 million.

Dollar General still has very strong cash flow and continues to operate over 8,000 neighborhood stores. These factors convinced affiliates of Kohlberg Kravis Roberts & Co. (KKR) to purchase Dollar General for $22 per share, a slight premium over the closing price of $21.11 on 4 April 2007, but at a 31% premium at the time of the deal in March.