Filed under: KKR, Financials and analyticals

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.

Although 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 massive 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 has the ability to 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 On the web Guide to Decoding Financial Statements

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Filed under: Financials and analyticals

There was lots of trepidation on the eve of Fortress Investment Group’s (NYSE: FIG) Q3 earnings report yesterday. After all, Blackstone (NYSE: BX) disappointed the Street.

Well, there was some relief (it also helped that there was a huge rally in equities). The company, which operates private equity and hedge funds, posted a net loss of $38 million, or $0.52 per share in Q3. Even though, if you strip various elements — such as certain tax and compensation — the firm earned $111 million, or $0.19 per share (which is known as pretax distributable earnings).

It was a relief that Fortress indicated there was little exposure to the subprime mess. If anything, the firm sees opportunities in the sector.

In fact, Fortress has some large plans. The firm is in the process of raising funds, with assets of $10 billion to $15 billion. The initiatives will range from infrastructure, commodities, emerging markets and Asian real estate.

What’s more, Fortress had a nice realization on its Crown Castle investment. The original investment came in 2002, which involved an initial $120 million stake. The total proceeds since then? A cool $1.7 billion.

Yes, it’s a reminder that the private equity business can be very enticing indeed.

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

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Filed under: The Blackstone Group, Financials and analyticals

The wizards of Wall Street seem only to generate losses lately. Take the premier substitute asset firm, Blackstone (NYSE: BX). On yesterday’s Q3 earnings report, the stock fell 8%. Weren’t these the folks supposed to have the Midas Touch?

Well, Blackstone’s Q3 was actually respectable in light of the severe credit crunch and financial instability. Revenues increased 14% to $526.7 million and economic net income (NEI) was $299.2 million, which is adjusted for income taxes and equity compensation.

But as Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM), and Bank America (NYSE: BAC) clean up their mortgage mess, there is prone to be a void for lending on huge transactions. Unfortunately, Blackstone’s chief offering officer, Tony James, has no idea when this things will clear up but did call the situation a “black hole.” In fact, the problems seem to be spreading into Blackstone’s commercial real estate business, which saw a 44% drop in revenues to $109.1 million.

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

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Filed under: Deals, The Blackstone Group, Rumors, Financials and analyticals, Engagements, Private equity industry, Investments, Public or private?

Allegheny Tech (NYSE: ATI) is recently up $2.60 to $96.83 on renewed buyout chatter. ATI, a diversified specialty metals producer, has a market cap of $9.4 billion. ATI November 105 calls have traded 155 times on transaction volume of 2,017 contracts, above its open interest of 1,813 contracts. ATI November 95 straddle is priced at $7.50. ATI December option implied volatility of 53 is above its 26-week average of 43 according to Track Data, suggesting bigger price risks.

Alliance Data Sys (NYSE: ADS), a provider of loyalty and marketing solutions derived from transaction-rich data, announced on 5/17 it would be acquired for $81.75 in cash ($7.8 billion) by Blackstone Capital Partners (NYSE: BX). ADS is recently trading at $76.91. ADS call option volume of 5,935 contracts compares to put volume of 28,841 contracts. BX is expected to shut on the purchase of ADS before the end of the year. ADS December option implied volatility of 26 is above its 19-week average of 16 according to Track Data, suggesting more massive risk.

Merger Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

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Filed under: Rumors, Financials and analyticals

Today’s headlines that IBM (NYSE: IBM) Is looking at beefing up its security offerings raises the question if management would acquire Israel-based Check Point Software (NASDAQ: CHKP). Val Rahmani, IBM’s general manager of infrastructure management for global technology services, sees security as a key to growth. Val said, “We’re looking at a lot of different companies right now, as we always do in a number of different spaces within security.”

Until now, the thought on the Street was that Check Point was going to continue as a stand-alone company, but with IBM on the prowl, it may be too much for CEO Gil Schwed to resist. Check Point currently trades at a market cap of $5.53 billion, and an acquisition would certainly come with a much higher price tag. Based on valuation, it would take between $7-8 billion to buy the company. For deep-pocketed IBM, that’s not too high a price. For Schwed, a takeover at that price would tough to reject, and it would break all records for M&A of an Israeli company.

Based on IBM’s track record, I would doubt that it is going to try to grow its own security business organically; rather, it will most probably buy a serious player. Stay tuned to see if that player will be Check Point.

Disclosure: Writer holds a position in CHKP. He has no other position in any stock mentioned as of 11/2/07.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com.

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Filed under: Financials and analyticals, Value and lack thereof

While it has been shaky so far, Wall Street is finding ways to deal with the large buyout loan overhang. Then again, in some cases - such as with the failure of the Harman International Industries Inc. (NYSE: HAR) buyout - things have been fairly brutal.

Ironically enough, this situation can be an opportunity. In fact, according to a report in Bloomberg.com, Lehman Brothers Holdings Inc. (NYSE: LEH) has put together a $3 billion fund to invest in leveraged loans.

It does seem like a good idea. After all, there has been quite a bit of distressed selling. And, there are many quality issues on the market. Of course, Lehman is not alone. Other such funds include offerings from BlackRock and Eaton Vance. No doubt, I suspect this is only the beginning.

So, yet again, Wall Street has found a way to deal with a massive mess — and in the process, will probably make a nice profit.

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

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Filed under: Deals, KKR, Financials and analyticals, Texas Pacific Group, TXU Inc., 2007

Yesterday’s $11.5 billion debt offering for Energy Future Holdings, formerly known as TXU Inc, proceeded nicely considering the market turmoil of the last few weeks, according to TheDeal.com.

It’s still just a small portion of the $36 billion commitment, but the discounts were smaller than expected. This must come as a relief to KKR and Texas Pacific Group, which launched the $44 billion buyout in February.

Does this mean the debt markets are recovering? Perhaps. Meanwhile, there’s still a lot of debt to sell.

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Filed under: Deals, Financials and analyticals, Value and lack thereof, Public or private?

Legendary fund manager Mario Gabelli thinks that price for the Cablevision Systems Corp. (NYSE: CVC) buyout is way too low, and he has some independent backing. According to The Wall Street Journal, ISS Governance Services, one of the leading proxy advisory firms to institutional investors, stated in a report Friday that “the theoretical target price for Cablevision, by a number of analysts, is much higher than the current offer price.”

Gabelli’s funds own over 8% of Cablevision. While the company’s shares trade below $35, Gabelli states they’re worth $50.

The fight between the powerful fund manager and the Dolan family, which founded Cablevision and plans to take it private, is going to get messy and will probably end up in court. Gabelli probably has one of two goals in pushing the Dolans on the deal’s price. The first would be to get them to increase their buyout offer. The other would be to bring a third celebration like Comcast Corp. (NASDAQ: CMCSA) to the table to make a higher bid of its own.

The Dolans have tried to take the company private twice before. Each time the deal has floundered on price.

The founding family might have a card up its sleeve. The value of cable companies has fallen sharply in recent months on increased competition from satellite Television and broadband and video offerings from the massive telecom companies. Shares in Comcast have fallen from $30 earlier this year to $24.

For the Dolans, an interesting defense of their bid goes like this: the value of cable companies is falling, so actually we’re overpaying to take our company private.

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

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Filed under: Deals, Financials and analyticals, Private equity industry, Investments, Value and lack thereof, Public or private?

It was almost astonishing that private equity funds never did go acquire many banks or other depository institutions, despite the lending woes that came to pass. For some time there was value there before the logic and rationale behind credit evaluations were tossed out the window. We had discussed this with many groups last year and the answer was always that the private equity firms were sitting out to avoid the relative valuation erosion as peer-pressure drove down the value of the solid companies.

Wilbur Ross might soon be making a change to this approach of avoiding the group. Last week there many reports out of Reuters, Crains, and others discussing Ross’s intent to go after depository institutions.

The past articles discussed and pondered different aspects that Ross and his new backers might pursue, but new information from today may shed a bit more light on Ross intends to invest this money and how sovereign wealth funds may be involved in this.

Continue reading the full article at 24/7 Wall St.

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