#1. The Public Invests in Blackstone Group
It was only a matter of time before the private equity firms let the public in on the game — for an inflated price. Blackstone boss Stephen Schwarzman pocketed half a billion dollars on the firm’s $4 billion IPO. Since the IPO debuted, the credit markets seized up and so has the deal flow. After closing at $35.06 on its first day of trading, the stock has slipped 38%. A classic case of selling at the top to the suckers, which would be us — oh, and China too, which invested $3 billion in Blackstone at the height of the leveraged-buyout frenzy. Other private equity IPOs, such as Fortress Investment Group and Och-Ziff Capital Management, took the same route.#2. Bear Stearns Cancels Everquest Financial IPO
Call it the IP-No. When the market for collateralized debt obligations (CDOs) began to melt down in the spring, Bear Stearns found itself sitting on billions of dollars of the stuff. What to do? How about this: Package the toxic, untradeable CDOs (securities backed by subprime mortgages) into a public company — Everquest Financial — and unload it on the usual chumps. That had been the plan all along, but by the time Bear tried to float this lead balloon in June you had to be living under a rock in Siberia not to know this junk wasn’t sellable. The IPO was withdrawn.
#3. DaimlerChrysler Pays to Unload Chrysler
The German company DaimlerChrysler offloaded 80.1% of Chrysler, its money-leaching American car brand, to private equity firm Cerberus Capital Management for $7.4 billion. DaimlerChrysler — now renamed Daimler — jettisoned some $17 billion in healthcare and pension liabilities in the deal, but had to loan Cerberus $400 million to close the sale. It gets worse: Daimler saw only $1.4 billion of Cerberus’ payment — $5 billion went to Chrysler’s auto business and another billion to its financial services arm. And worse yet: After all the puts and takes of the transaction, Daimler actually ended up paying out nearly $2 billion to dispose of Chrysler. It was an expensive undoing of an expensive merger. In 1998, the German automaker, then called Daimler-Benz, bought Chrysler for more than $36 billion, a move that was designed to add a little German engineering spiffiness to the American auto, but ended up being a slow-motion collision of corporate cultures, management and manufacturing styles. Auf Wiedersehen, Dr. Z.
#4. Microsoft Overpays for Facebook
Here we go again in technology land. Microsoft invests $240 million for a 1.6% stake in Facebook, plus the right to broker the social networking site’s international ads. The deal gives Facebook an implied value of $15 billion, for a company expected to earn just $30 million in 2007 but is nonetheless considered the model website of the future. Er, wasn’t that AOL a couple of years ago? Are we in 1999 again, or is Microsoft as prescient as it says it is?
#5. Cerberus Abandons United Rentals
Having agreed to a $4 billion takeover of the construction-equipment rental outfit in July, buyout firm Cerberus was shocked — shocked! — to discover that funding this high-priced deal might be a stretch, what with the credit market tightened like a noose around private equity’s neck. Cerberus, which agreed to give United a $100 million break-up fee — a standard provision in such a deal — wants to pay the money and walk. United Rentals won’t let Cerberus go. The parties are suing each other.
#6. KKR and Goldman Sachs Break Up with Harman
Private equity shop Kohlberg Kravis Roberts & Co. and Goldman Sachs Group’s private equity unit pulled out of their $8 billion offer to buy high-end audio equipment manufacturer Harman Industries International, claiming a “material adverse change” in Harman’s business. Harman’s stock plummeted more than 20%.
#7. J.C. Flowers Reneges on Sallie Mae
Sensing a bargain, hotshot private equity billionaire, J. Christopher Flowers — along with partners Bank of America, JPMorgan Chase and Friedman Fleischer & Lowe — made a $25 billion buyout offer in April for the nation’s largest student-loan provider. Six months later the group publicly lowered its offer from $60 a share to $50, on the grounds that the credit crisis and new legislation reducing student-loan subsidies would cut Sallie Mae’s earnings. Sallie immediately sued Flowers et al. for breach of contract. Analysts say Flowers has the edge: If he doesn’t make good on his original offer, the most he’ll owe Sallie is $900 million in termination fees — about two bucks a share.
#8. Citigroup Sells Cheap to Abu Dhabi
Citi needed cash in the worst way to shore up its leaky balance sheet in the aftermath of the subprime debacle that cost CEO Chuck Prince his job. And Citi got it. Petrodollar-rich Abu Dhabi Investment Authority bought 4.9% of Citigroup for a cheap $7.5 billion — and Citi is paying out a stiff 11% coupon to the Middle Eastern investment fund. Some analysts say that’s way too high a rate. Maybe Citi should have gone to a bank for a loan.
#9. Bank of America Sinks $2 Billion in Countrywide Financial
Better make that $1 billion — at least that’s what B of A’s investment was worth as of December 1. Bank of America thought it had picked an opportune time in August to invest in Countrywide’s mortgage machine, but the mortgage mess hadn’t bottomed out yet.
#10. Virgin Money Bids for Northern Rock
The stolid English mortgage bank is deflowered by collateral damage from the subprime crisis. Although it’s not a player in CDOs, it relies on short-term commercial paper for funding. So do CDOs. That market grinds to a halt. Result: a straight-out-of-the-Depression run on the bank, forcing the Bank of England to bail it out. Sir Richard Branson’s Virgin’s consortium offers to buy the Rock at a steep discount, diluting shareholders with a rights offering. Shareholders are not amused.