Next big thing for private equity? Board assignments


This post is by Tom Taulli from BloggingStocks


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Private equity is about continuous dealmaking. But, with the wrenching credit crunch, activity has been horrible.

So, what to do? Interestingly enough, it looks like some of the top private equity operators are signing up for board duties.

Look at GM, which this week Continue reading Next big thing for private equity? Board assignments

Next big thing for private equity? Board assignments originally appeared on BloggingStocks on Fri, 24 Jul 2009 15:00:00 EST. Please see our terms for use of feeds.

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Pimco Q2 Doesn’t Disappoint, As Much…


This post is by Erin Griffith from Pe Hub Blog: Firms & Funds


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We’d hate to let down followers of the Pimco mortgage fund story, so as per usual for the past several quarters, here are the performance numbers on PIMCO Distressed Mortgage Fund I, L.P., a $2.8 billion pool designated to invest in secondary distressed mortgage securities.

I’d like to point out first that since our last update of this fund’s negative performance, we’ve learned that Pimco is earning $3 million per quarter to manage the government’s commercial paper funding facility (CPFF) program. We’ve also seen Bill Gross, Pimco’s head, come under more criticism for his influence over government policy. On Pimco’s mortgage trading activities, he said he “assumes that Pimco traders working on behalf of the government don’t talk to their peers trading for Pimco’s own accounts, The New York Times reported, adding, “Then again, he said he doesn’t know for sure what happens after hours.” From the NY Times:

“I don’t drink beer with these guys; I have no idea what happens in the privacy of their own homes,” he says. He says that when he encounters traders working for the Fed outside the office, he doesn’t talk to them.

All that said, the second quarter brought (slightly) better news for investors in Pimco’s first distressed mortgage fund, relatively speaking. Since it’s inception on Oct. 31, 2007, the fund has earned a return of -25.5% before fees. That’s better than its year-end-mark of -33.03% and its Q1 mark of -34.2%. The second quarter saw gains of 14.2% before fees.

The firm attributed the gain to improvement in systemic liquidity, and TALF, as well as slowed RMBS downgrades from the ratings agencies.

No word on the progress of the firm’s second distressed mortgage fund, which is in the market with a $3 billion target.

See images of some key data below.

Previously:
Pimco Mortgage Fund: No Wonder It’s Slow Going
Fundraising Updates: Pimco, Chart Capital, American PE Partners

Pimco Mortgage Fund Down Again in Q2

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Bain Seen Most Likely for Eyewear Maker Safilo


This post is by editor from PE Hub News: All News


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MILAN (Reuters) – A private equity deal is looking the most likely solution in Safilo’s (SFLG.MI) quest to strengthen its balance sheet, as Bain Capital remains the last contender in a race for a stake in the debt-laden eyewear maker.

The Dior and Gucci eyewear maker has net debt of around 600 million euros ($852 million) and has just delayed a debt repayment. It has been seeking potential investors for new funds and is under time pressure for a deal, analysts say.

Sources close to the matter have said Chairman Vittorio Tabacchi’s family prefers a private equity option, while creditor banks push for an industrial partner. The Tabacchi family has a nearly 40 percent stake which it has said it could dilute.

“Bain is at the forefront. Now there need to be negotiations between Bain, Safilo and the banks and if they agree it will surely go to Bain,” one analyst who declined to be named, said.

Safilo, which has a market value of 129 million euros, has declined to comment on the process. Bain also declined comment.

Offers were presented in June, but nearly two months later after Pai Partners pulled out, Bain has yet to start exclusive talks.

“For now, there are no exclusive talks between Safilo and Bain. Safilo even invited Berggruen to make an offer,” a source close to the matter said, referring to the investment company, which says it has not received a warm response.

Banks remain keen on an industrial partner for Safilo, which could avoid them being asked for extra funds in a capital increase, the analyst said.

RIVALS MENTIONED

Rival eyewear maker Marcolin (MCL.MI) was proposed as a partner, one of the sources close to the matter said.

But a source close to Marcolin said Safilo was not discussed at its June board meeting. Analysts deem a deal unlikely and prefer bigger competitor Luxottica (LUX.MI).

But its CEO has said before it was not interested in Safilo.

“(Luxottica buying Safilo) would allow for the survival of Safilo … with huge synergies,” a second analyst said.

“At some point the banks might impose on the Tabacchi family to sell even to Luxottica if they find no alternative but clearly that would be the very last solution,” he added.

The first analyst gave a Bain deal a 60 percent probability, a 30 percent chance to Luxottica and the rest to an outsider.

Safilo, which has also seen the crisis hit demand, got a breather when banks agreed to delay to Dec. 31 payment of a finance instalment due June. It also won a waiver on financial covenants linked to the financing arrangement.

It has a 195 million euro 2013 bond with a payout due in November. Analysts have said it needs a 250 million euro capital increase to rebalance its financial structure.

The company has announced plans to shut a plant and job cuts of more than 1,000. For its first-half figures, Deutsche Bank analyst Francesca Di Pasquantonio sees “concerning” results.

“Financially speaking, they have six months of autonomy before the situation gets really bad,” one of the analysts said.

“Business wise, clearly the longer the wait the worse things get because if the company has … to pay back the debt, you can imagine that financial working capital and payment of salaries will become an issue. I think time is crucial.”

Berggruen, behind eyewear group FGX International (FGXI.O), has said it could not carry out due diligence.

“My guess is that they are probably too late in the process and (Safilo) have got Bain very much committed to the deal” said Filippo Lardera, of Compass, Rondelli Advisers.

“They don’t want to reopen the process with the banks breathing down their necks.”

By Marie-Louise Gumuchian and Cristina Carlevaro
(Editing by Rupert Winchester)

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Friday Afternoon Readings


This post is by Barry Ritholtz from The Big Picture


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Friday linkage — something for everyone:

The Charade Of Quarterly “Earnings Surprises” (Business Insider)

What Can China Get For Its $2 Trillion? (Real Time Economics)

• Simon Johnson says “Fix the economy? Curb corporate America (Slate)

Dropping the shopping (The Economist)

Have to Admit It’s Getting Better: As the Beatles sang back in the Psychedelic ‘Sixties, “Can’t get no worse.” (Barron’s)

Stars align for easing of U.S. credit crunch (Reuters)

Geithner Calls for Finanical Rules Revamp to Be Passed This Year (WSJ)

• Nice while it lasted: Sentiment has now risen back to dangerous levels (MarketWatch)

Rating Agencies Downgraded (The Economist)

Berkshire Hathaway reduces stake in Moody’s (Reuters)

Executives Receive One-Third of All Pay in the U.S. (Alternet)

“Does Securitization Affect Loan Modifications?” (Naked Capitalism)

Gasparino Responds to Crossing Wall Street (Crossing Wall Street)

Anything else clickworthy?


Broadcom: JMP Cuts on Pricing Worries, Sluggish Margins


This post is by Tiernan Ray from BARRONS.com: Tech Trader Daily - Barron's Online


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Shares of chip maker Broadcom (BRCM) fell in after-hours trading last night and are down again today despite the fact that the company yesterday exceeded Street expectations for its Q2 and forecast above estimates for the current quarter.

A note from JMP Research’s Alax Gauna sums up the bear case for the stock. Gauna writes today that Broadcom’s beat was aided by a $65.3 million payment from Qualcomm (QCOM) as a result of a settlement reached between the two back in April. Excluding that payment, Broadcom’s gross profit and its EPS missed Gauna’s estimate. What’s more, gross profit of 46.3% fell short of management’s forecast for a 25 to 50 percentage point increase in gross profit, writes Gauana. Longer term, Gauna is concerned that the product categories where Broadcom sees the most strength — chips for Bluetooth, broadband access, and enterprise computer networking — are highly subject to price competition. He notes, too, that cuts to options grants in the R&D line item are being netted out by increases in options expense in the SG&A line item, which hinders operating profit margings. Hence, his estimate for next year goes from $4.17 billion in sales to $4.5 billion, but his EPS estimate goes from $1.25 to $1.15. He cut the stock from “Market Perform” to “Market Underperform” and writes that the stock is worth $25.

Broadcom shares today are down $2.19, or 7.5%, at $26.99.

Under the radar: German business confidence continues to rise


This post is by Joseph Lazzaro from BloggingStocks


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Under the radar: Some trends are obvious enough and visible to all investors. Others are more-subtle, but are just as potent, and these often slip ‘under the radar.’

Case in point: German business confidence, which climbed to a nine-month high —- suggesting Germany’s economy is poised to rebound.

According to the Ifo Institute index of business sentiment, sentiment in Germany increased to 87.3 in July from 85.9 in June. It was the index’s highest reading since October 2008, or when the acute phase of the global financial crisis started.

Continue reading Under the radar: German business confidence continues to rise

Under the radar: German business confidence continues to rise originally appeared on BloggingStocks on Fri, 24 Jul 2009 14:30:00 EST. Please see our terms for use of feeds.

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“Who Is Killing America’s Millionaires?”


This post is by Mark Thoma from Economist's View


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Sneaking in a quick post between new student advising appointments, does recent evidence support that claim that wealthy individuals have been
fleeing high tax jurisdictions?:

Who Is
Killing America's Millionaires?, by Daniel Gross, Slate
: It hasn't been a
good recession for the rich. The … boom was extraordinarily top-heavy…,
these are tough times for the wealthy.

As if market forces and malevolent actors weren't enough, the rich are now
finding themselves targeted by politicians. Strapped for cash, states, cities,
and the federal government are seeking to soak the rich—or at least to make them
pay taxes at the same marginal rates as they did in the Reagan years, which many
on the right regard as an act equivalent to executing landed gentry. Some
politicians have even suggested that we fund health care by slapping a surtax on
people with annual incomes of more than $1 million.

This tactic isn't likely to work, in large part because people who make a lot
of money are quite effective at swaying public policy. What's more, the wealthy
have many defenders who argue that taxing the golden geese will cause them to
fly away. In May, the Wall Street Journal op-ed page argued that millionaires
fled Maryland after the state legislature boosted the top marginal state income
tax rate to 6.25 percent on the top 0.3 percent of filers. … The Journal uses
this … to warn the federal government and states with progressive tax
structures and lots of rich people—New York, New Jersey, California—to heed the
lesson. Tax the wealthy too much, and they'll leave.

Such logic makes sense to the Journal's op-ed page staffers, who inhabit an
alternative universe in which people wake up in the morning and decide whether
to go to work, innovate, or buy a bagel based on marginal tax rates. But if
people were motivated to choose residences based solely on high state income
taxes, then California and New York wouldn't have any wealthy entrepreneurs,
venture capitalists, or investment bankers—and the several states that have no
state income tax, which include South Dakota, Alaska, and Wyoming, would be
really crowded with rich people. Maybe Maryland's rich folks just had a crappy
year in 2008. Robert Frank…, citing data from the Institute on Taxation and
Economic Policy, that there's "evidence that [the state's] millionaires didn't
disappear because they moved, they disappeared because they are no longer
millionaires." …

Consulting firm CapGemini conducts an annual census of high-net-worth
individuals, defined as people with at least $1 million in investable assets,
excluding primary residences. "We've been doing this report for 13 years and
haven't seen this kind of loss of wealth since we started," said Ileana van der
Linde … at CapGemini… North America saw an 18.5 percent decline in its
high-net-worth population, from 3.02 million in 2007 to 2.46 million in 2008.

CapGemini's survey contains some interesting geographic wrinkles. High-tax
areas like New York and California—places where politicians have been talking
about potentially raising taxes on the rich to deal with budget crises—held up
better than the national average. …

Comparative tax havens like Florida, Nevada, and Arizona didn't see an influx
of millionaires in 2008. Far from it. In 2008, Las Vegas lost 38 percent of its
HNWIs, and Phoenix lost 34 percent. Florida, which has no state income tax and
hasn't been talking about one, was a killing field for the rich. The three major
metro areas that lost more than 40 percent of millionaires in 2008 were all in
no-income-tax Florida—Orlando (42 percent), Miami (42 percent), and Tampa (51
percent). The decline has nothing to do with taxes and everything to do with
bursting asset bubbles. …

Of course, there's evidence that some millionaires have moved out of high-tax
states. Bernie Madoff, for example, recently left New York to take up residence
in North Carolina.

Sprint Squandering Palm Pre Opportunity, Says Pali


This post is by Tiernan Ray from BARRONS.com: Tech Trader Daily - Barron's Online


Click here to view on the original site: Original Post




Palm’s (PALM) Pre smartphone isn’t getting the promotion it deserves from Sprint (S), asserts Pali Capital analysts Walter Piecyk in a note on the firm’s blog today. Piecyk says he believes Sprint is selling 25,000 of the Pre per week currently, down from 50,000 in late june, shortly after the release of the device. He believes the problems is lack of advertising for the Pre on Sprint’s part, and says this is a concern given that August will bring a new model of Research in Motion’s (RIMM) BlackBerry device. Piecyk argues the Pre could be a great way to highlight the Sprint network’s data capabilities, and that Sprint is squandering the opportunity. With Verizon Communications (VZ) interested in carrying Palm’s WebOS-based devices in future, Piecyk says sluggishness on Sprint’s part is not going to help the company to hold onto its current exclusive for the Pre.

Palm shares today are up 15 cents, or 1%, at $14.31. Sprint stock is down 11 cents, or 2.4%, at $4.55.

Information Overload: Summer Survey Time


This post is by Erin Griffith from PE Hub Blog: Buyout Deals


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This week three private-equity-related surveys / studies / white papers / whathaveyous were released and we’ve got the highlights of each.

1. Navigating Your Portfolio Through Turbulent Waters
From Grant Thornton, ACG, and our parent company, Thomson Reuters
The study looks at the state of portfolio companies, probably because there aren’t any deals to examine. Interesting findings include stats on markdowns, time spent on portfolio companies, and favored strategies for success in the downturn. The white paper also takes a close look at pooled purchasing for health insurance for portfolio companies.
-Almost half of all survey respondants said their 1% to 25% of their portfolio companies are in covenant default. The survey concludes with a taste of the obvious: “Now more than ever, most private equity firms have both the knowledge and the time to create real value at the portfolio level.
-Tied at 42%, GPs said the best strategies for success in this environment are focusing on portfolio companies and platform acquisitions. Almost 70% of those surveyed said they are spending more time on portfolio companies than they did last year. (Sidenote: I would certainly hope so, what else would they be doing? Certainly not deals or fundraising…)
-On the upcoming wave of potentially painful debt maturities, the study quotes W.Y. Campbell Managing Director Cliff Roesler saying: “Initially, we believe most lenders will seek unachievable equity contributions and then opt for the safety of taking control. But we are hopeful consensual agreements will increase in frequency.”
Download: Navigating Your Portfolio Through Turbulent Waters

2. Ernst & Young LLP’s 2009 US PE report
From Ernst & Young
This survey looked at every aspect of PE under the sun and also asks what’s next for private equity. It concludes that buyout firms will need to learn to live with more scrutiny and regulation, replace many of their portfolio companies’ capital structures, focus on top and bottom lines, and address a broad spectrum of risk. The report states that private equity has the temperament and appetite to be an early mover and how it deploys capital will affect the industry’s impact on the US economy.
-Minority deals, which rose from 212 transactions in 2007 to 273 in 2008
-PIPEs, which increased more than fivefold in 2008, from $3.4 billion in 2007 to $19.1 billion, even though LPs have said overwhelmingly that they’re not happy with GPs doing PIPEs.
– In 2008, average equity contribution rose to nearly 43% – the highest level this decade
– 14 acquisitions announced in 2008 topped the $1 billion mark
-Most alarming are the IPO stats: 2008 was the worst year for new issues since 1978, and PE-backed IPOs fell from 47 in 2007 to just 5 in 2008.
Download: You can download the full report here.

3. 2009 PE Market Outlook
From Russell Reynolds Associates
The survey takes a human resources angle to the PE market, looking at details the ways private equity firms are recruiting new talent in places like distressed debt, secondaries, and sector-specific activity.
-Through the lens of the myriad of factors, mostly negative, affecting buyout firms these days (from the dry powder conundrum to the lack of debt and portfolio company value deterioration), the report outlines how they’ve affected executive talent. The study finds: -The trend that started about five years ago to bring operating talent to PE funds continues, and PE funds will likely place an even higher value on these resources as they develop models to deploy these skills to help existing portfolio companies.”
-In other HR findings, the study reports that firms with fundraising on the horizon are looking to bolster their LP marketing and relations capabilities.
-Regarding portfolio companies, the study reports a significant increase in activity surrounding changing or adding to leadership teams, often at the highest levels. “Boards and PE investors are concluding that the strategies and competencies needed to run their businesses in this economy are different from what was needed in the past.”
Download: 2009 Leadership Outlook Global Perspective for the Private Equity Market

So if I’m to take all three of these surveys together, I can conclude that private equity firms, while positioned to lead us out of the economy, should be freaking out over their portfolio companies, and if they don’t know how, they better scramble to hire someone who can. Easy enough, right?

Previously:
CFOs: In Defense of Private Equity?
Survey Soup IV
Survey Soup Part III

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KKR’s Heavy Reading


This post is by Dan Primack from Pe Hub Blog: Firms & Funds


Click here to view on the original site: Original Post




KKR’s un-IPO took a procedural step forward this morning, when its Amsterdam-listed affiliate launched a consent solicitation for a planned combination with its parent company.

If successful, KKR would effectively trade on Amsterdam for several months, and then transfer its listing to New York. Worth noting, however, that the New York listing could theoretically be on the Nasdaq, although that’s probably just some posturing to get better terms out of NYSE.
Below we’ve posted the entire 400+ page soliciation statement. Here’s a quick excerpt on Q408/Q109 valuation changes on its largest PE portfolio holdings:

As of March 31, 2009, investments which represented greater than 5% of the net assets of consolidated private equity funds included: (i) Dollar General valued at $1,612,190; (ii) First Data valued at $1,476,141; (iii) Alliance Boots valued at $1,386,906; (iv) Legrand S.A valued at $1,368,324; (v) HCA Inc. valued at $1,117,194; (vi) Biomet valued at $1,015,303; (vii) Energy Future Holdings valued at $1,008,625; and (viii) Legg Mason valued at $988,502.

As of December 31, 2008, investments which represented greater than 5% of the net assets of consolidated private equity funds included: (i) First Data valued at $1,514,986; (ii) Legrand S.A. valued at $1,501,887; (iii) Energy Future Holdings valued at $1,412,075; (iv) Alliance Boots valued at $1,410,686; (v) Dollar General valued at $1,398,016; (vi) Biomet valued at $1,054,149; and (vii) Legg Mason valued at $1,053,059.

ConsentSolicitationStmt

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Donald Trump’s financial life gets a little worse


This post is by Zac Bissonnette from BloggingStocks


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It’s been a tough month for Donald Trump.

First his defamation suit against a New York Times reporter who authored a book casting doubt on Trump’s claims of a 10-digit net worth was tossed out by a superior court judge.

Last month Trump took his $51 million Trump Park Avenue apartment off the market last month. Now it’s back on the market but at a price of $31 million — a discount of nearly 38% off the previous listing price.

Continue reading Donald Trump’s financial life gets a little worse

Donald Trump’s financial life gets a little worse originally appeared on BloggingStocks on Fri, 24 Jul 2009 14:00:00 EST. Please see our terms for use of feeds.

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AMD’s Global Foundries Breaks Ground in New York


This post is by Tiernan Ray from BARRONS.com: Tech Trader Daily - Barron's Online


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Global Foundries, the privately held chip manufacturing company spun out this past Marchfrom Advanced Micro Devices (AMD), announced today it has broken ground on its plant in upstate New York, the Luther Forest Technology Campus in Malta, in New York’s Saratoga county. The plant, which cost $4.2 billion to build, will be one of the world’s most technologically advanced, the company claims, and will add 5,000 jobs to the region, including 1,600 construction jobs just to put it together. The company’s press release suggests this will add up to an annual payroll of $290 million. The factory is expected to be ready for chip production sometime in 2012.