Reuters DealZone

Turmoil in the credit markets has put deals on the backburner across the board – including a number of planned sales of broadcasters. 

Television broadcasting group Nexstar Broadcasting Group Inc. said earlier in August it was suspending talks with prospective buyers because of the difficult conditions in the financing markets. Another broadcaster, LIN TV Corp. had been exploring a sale but indicated on a recent earnings call that a sale may be delayed by the weakness in the debt markets, according to a research report by Bear Stearns analyst Victor Miller. A call to LIN was not immediately returned.

Despite the current turmoil, Bear Stearns thinks those two will be sold in 2008, and also thinks Cox Radio Inc.  should “more agressively repurchase shares or lever itself and go private”.

Clear Channel Communications Inc. is another stock that’s been beaten up a bit lately. Shareholders are due to vote on a $39.20 a share buyout in September while the stock is trading at $34.83. ”We believe … a renegotiation of the price seems unlikely given that that has occurred twice already,” wrote Bear Stearns, which has the company as a one of its three top broadcast stock picks.

Bear Stearns points out that while the Nasdaq has fallen 6 percent from recent peak levels, broadcast stocks have fallen 32 percent with leveraged and/or deal-tinged broadcast stocks particularly hurt.

Maybe the picture for TV won’t be in tune until the finance markets stop trembling? 

After taking more than a year to put the finishing touches on its fifth private equity fund, Blackstone Group President and COO Hamilton James said on Monday’s quarterly earnings conference call that the firm is in fund raising mode again. Again? But the fund, known as Blackstone Capital Partners V, just closed on Aug. 8 at $21.7 billion. How is this possible?

Well, for one, Blackstone closed the fund last summer, and reopened it when it wanted to raise more money. In the meantime they did some huge leveraged buyouts, leading James to reveal on Monday that the fund that they just finished raising, is almost fully invested.
     
“In terms of fundraising, we added 1.1 billion to our assets under management and finalized closing BCP V at $21.7 billion; it is the largest fund in history,” James said on the call. “And it’s already 70 percent invested. It’s our typical practice to start raising a new fund when we get to be about three-quarters invested. So that’s something we anticipate doing shortly.”
     
The long history of BCP V’s opening and closing shows how willing institutional investors have been to shell out money to private equity firms, and just how determined Blackstone CEO Stephen Schwarzman was to holding the title of the world’s largest LBO fund.

Blackstone sent a formal press release on July 11, 2006 titled “Blackstone Private Equity Fund Closes on $15.6 billion.” But the firm quickly re-opened the fund, when it became clear that Texas Pacific Group and Kohlberg Kravis Roberts & Co. were raising buyout funds likely to top Blackstone’s. Blackstone was expected to push its fund total up to $20 billion. 
     
Sure, Blackstone recognized LP demand was there, and opened the fund raising door again while the LBO market was red-hot. But it’s no secret that Blackstone’s founder and CEO is extremely competitive, and very much wanted bragging rights to the world’s largest buyout fund. That title was in jeopardy when Goldman Sachs announced it was raising a $20 billion to $21 billion LBO fund in March. Blackstone’s S-1 filing before its June IPO said its private equity fund was up to $19 billion, still shy of Goldman’s target. 
     
Now Blackstone has officially closed its fund and it’s nearly all invested. Blackstone deals that used some of that money include the $17.6 billion deal for Freescale Semiconductor, the $10.9 billion deal for Biomet and the $26 billion deal for Hilton Hotels.

So if KKR’s fund closes at $22 billion, will Blackstone re-open its fund raising?

(Photo: Hamilton James, Reuters file)

Add Cerberus Capital Management to the list of firms hit by the subrime mortgage meltdown. Its portfolio company Aegis Mortgage Corp. filed for bankruptcy on Monday. And Aegis isn’t Cerberus’ only bet on the mortgage industry. 

Before the subprime mess descended on the U.S. and abroad, H&R Block said in April it will sell its subprime lender Option One Mortgage Corp. to Cerberus for what analysts estimated would be around $700 million to $800 million. On Aug. 9, H&R Block said it might not complete the deal until the end of December. Block said at the time that its subprime mortgage unit planned to cut more jobs this year than the 615 announced in May.

As Reuters points out in a story that day:

    The company, which bought Irvine, California-based Option One in 1997 for $190 million, says the unit generated more than $2 billion in pretax income through the end of 2007 from making loans to home buyers with weaker credit.
    But the lender began bleeding money in the past year as U.S. subprime mortgage markets imploded. Housing prices slumped and loan defaults climbed.

Cerberus outside spokesman Peter Duda at Weber Shandwick didn’t return a call seeking comment or explanation about Aegis. Neither did JJ Rissi, also of Weber Shandwick. A call to the company’s “media line” went unanswered.

Cerberus has prided itself on flying below the radar to the point of secretive, as this recent Portfolio story of founder Stephen Feinberg points out. 

But if more of its portfolio companies keep hitting the skids, it will be tough for Feinberg to remain in the dark. That “secretive” has already been lifted by Cerberus’ agreement to buy Chrysler, another deal under pressure. Hence the title of the Portfolio article:     “The Most Dangerous Deal in America.”

(Image credit. Alison Smith, http://www.amosink.com/)

Tribune Co., owner of newspapers including the Los Angeles Times and baseball team the Chicago Cubs, agreed back in April to be taken private for $34 a share. So why’s the stock currently trading under $26? 

Investors have lately seemed as nervy about this deal as Cubs fans before a big game.  

Monday saw Tribune’s shares sink to the lowest point since the deal got announced — falling 2.7 percent to $25.77.  The company is being taken private is a two-part deal, the first of which was a tender offer completed in May at $34 a share for 52 percent of the shares. The second stage, to buy out the remaining stock, is still to come.

“In general the tug-of-war is between the notion that all of the aspects of the deal were in place and that there would be nothing happening to prevent the remainder (of the deal) happening at $34 on schedule, versus the risk that something happened to change the ultimate closing of the deal,” said Barrington Research analyst James Goss.  ”It’s very possible some one could buy (the stock) right now and be very well rewarded,” Goss said. On the flip side, there’s a risk that terms of the deal could get renegotiated, he said. 

Hurdles still to vault include a shareholder vote next week and Federal Communications Commission approval.

Some analysts also have wondered whether Tribune will generate enough cash flow to meet a leverage-test detailed in its deal agreement, although the company has the flexibility to do more asset disposals on top of its planned sale of the Cubs.

Goldman once agains turned market lemons into lemonade. 

The Broad Street bulls did an admirable job keeping the focus off those pesky computer algorithms that last week lost billions of dollars for clients in its Global Equity Opportunities fund. Instead it stressed the decisions by Goldman, along with billionaires Hank Greenberg and Eli Broad, to invest up to $3 billion in the fund.

So in Goldman’s kitchen, a more than 30 percent plunge in a black box fund wasn’t an investor relations nightmare. It became a distressed investment opportunity.

“I think we see this type of event everyday at Goldman Sachs, where we find market abnormalities and total dislocations in price, and Goldman Sachs is prepared to commit their capital in these situations,” said Gary Cohn, one of Goldman’s two presidents and chief operating officers.

Shares of Goldman, after rising as much as 1 percent, were down slightly in late trading. Compared with the beating handed to Bear Stearns shares two months ago, when it announced its bailout plan for two mortgage funds, it was a rally.  The willingness of Goldman and its billionaire friends to step in and buy stocks helped to lift the U.S. stock market earlier in the session.

Goldman stressed that losses at Global Equity and many other quantitative funds were caused by market volatility and the decision by many funds to sell down their positions. Indeed, Goldman executives placed some of the blame on fund managers playing in markets they didn’t fully understand. 

“I do think we are seeing new investors looking at different asset classes today than they have (looked at) historically, based on some of the general market dislocations that have occurred over the last couple of months,” Cohn said.

One caveat: Goldman acknowledged that not all of its fund investors will want to stick around for the ride.

“There always are some redemptions and some inflows,” said David Viniar, Goldman’s always cryptic chief financial officer. “We will have to see what redemptions are in the future.”

(Image credit. SeekingAlpha http://seekingalpha.com/)

It was a week of “unprecedented disruptions” in the credit markets, of reassurances from President Bush that there is enough liquidity following by urgent Federal Reserve moves to shore it up. Here is the DealZone week in quotes:
    
“There is a lot of liquidity in our system and liquidity will provide the capacity for our system to adjust.” — President George W. Bush. (August 8)
    

    “I’m told there is enough liquidity in the system to enable markets to correct.” — President George W. Bush (August 9)
    
    “The Federal Reserve will provide reserves as necessary through open market operations to promote trading in the federal funds market at rates close to the Federal Open Market Committee’s target.” — the first Fed statement of its kind since the Sept. 11, 2001 terror attacks. It followed moves to pump $38 billion into the banking system. (August 10)
    
    “These markets are currently experiencing unprecedented disruptions, which could have an adverse impact on the company’s earnings and financial condition, particularly in the short-term.” — Countrywide Financial Corp. in a regulatory filing. (August 9)
    
    “Ben Bernanke must feel like the captain of the Titanic. He knows the ship has hit an iceberg but, through the dark and fog, can’t see how bad the damage is.” — Sherry Cooper, chief economist at BMO Capital Markets in Toronto, referring to the Fed chairman. (August 10)
    
     “In the months ahead, we should expect to see the liquidation of billions more in subprime-related assets by all manner of investors as further waves of downgrades and defaults roll over the market.” — Jeffrey Gundlach, chief investment officer at TCW Group in Los Angeles. (August 10)
    
    “There’s a good chance it will get worse. We think there is going to be a lot more trouble to come in the way of defaults.” — billionaire investor Wilbur Ross. (August 6)
    
    “The last thing I would want to be as part of the new Chrysler is a distraction.” — Chrysler’s new CEO Robert Nardelli. (August 6)
    
    “When a CEO has to say … he has no desire to leave, it means people are talking about him leaving.” — James Ellman, hedge fund portfolio manager at Seacliff Capital in San Francisco, commenting on Bear Stearns CEO Jimmy Cayne. (August 6)
    
    “I do strongly believe that Alan Schwartz should be made CEO of the company, immediately.” — Richard Bove, bank analyst at Punk Ziegel & Co, on Bear Stearns (August 5).
    
    “When you build a stock up this much before the IPO, you have to wonder what’s for the encore? How will this company do in the aftermarket?” — Francis Gaskins, president of IPODesktop.com (August 10).

    “This is a classic example of the closer you are to Ned Johnson, the shorter the career.” — David O’Leary, chairman of Alpha Equity Research, on the departure of Fidelity Investments executive Ellyn McColgan and the role of the firm’s CEO Ned Johnson. (August 7)
    
    “It would be a terrible idea for Nasdaq to enter into a bidding war,” said Morningstar analyst Patrick O’Shaughnessy in reference to a struggle for control of Nordic bourse operator OMX AB with Borse Dubai. (August 9)

    “As fiduciaries, the defendants had a duty to put Refco’s interests ahead of their own. “Faced with their need for a substantial payday, (they) chose to pursue their own interests and line their own pockets.” — a lawsuit from two trusts representing creditors against private equity firm Thomas H. Lee Partners LP over its alleged role in the collapse of Refco Inc. (August 8)

Traders and bankers struggling through the rain for another roller-coaster day on the markets must have wished they were at the beach.M&A tends to be subdued anyway in August but has turned deathly quiet amid the market tumult that worsened in recent days. The concern is whether those deals already inked will be renegotiated or could get cancelled altogether. That’s not a happy thought for an M&A banker whose bonus relies on deal flow.

Thomson Financial data for the first eight days of August showed $15.2 billion of U.S. deals, the lightest amount for that same eight day period since 2003.

But some remain optimistic.

“It could very well be that this is a cooling off,” said Anthony Sabino, Attorney for Sabino & Sabino, New York and Professor of Law and Business at St. John’s University, NY.

“Its almost the M&A market deciding to take a summer vacation… After Labor day, who knows, it may pick up again. But it will be a smarter market. My thought would be if I’m a wheeler dealer — I’m going to hold back with my money and my company and I’ll wait for the fall. That’s the time where better deals, more sensible deals will be made.”

Maurice “Hank” Greenberg, the 82-year-old head of insurance broker C.V. Starr and former chief executive of American International Group Inc. <AIG.N>, the world’s largest insurer, also claims to be sanguine.

“This has become a global issue,” he told Reuters on Friday. “The European Central Bank and the Federal Reserve have both injected huge liquidity into the market. The trick is to ride this out and not get spooked. It’s happened many times before.”

–By Megan Davies and Ed Leefeldt

We were struck by the survey of 2,000 executives in BusinessWeek’s latest double edition featuring a 55-page spread (including ads) about the future of work.  

The survey yielded some intriguing insights into the human condition while chained to the cubicle:

- Men and women, when answering what scares them most, picked China (46%). That’s right. The whole country. Runners-up for both genders were “Wall Street”(35%), “My spouse”(5%), “My boss”(7%) and “My computer”(7%).  At least they know their ways around computers.

- 90 percent of managers think they’re among the top 10 percent of performers in their workplace.

- The places where people want to work, in descending order, are “The place I’m working now,” “Google,” “the government” and “Goldman Sachs.” In other words, the survey revealed that the least popular option was the one with the quickest path toward becoming a millionaire.

- More than 25 percent of workers aged 55 and up said they expect never to retire. We know the feeling.

- And our favorite: 6 percent of respondents under age 30 said they’ve accidentally called their boss “Mom” or “Dad.”

We also know that feeling.

(Graphic courtesy of BusinessWeek)

Poor Nasdaq: just out of one international mess, the electronic exchange gets thrust into another. And this time it’s in Stockholm. By way of Dubai.

Nasdaq’s bid for Scandanavian exchange OMX - which looked like a done deal - is in question after Borse Dubai said it intends to buy at least a quarter of Stockholm-based exchange…at a price that trumps Nasdaq’s offer.

Dubai has been diversifying beyond sail-shaped hotels. Its bourse - which consolidates government holdings in the Dubai Financial Market and Dubai International Financial Exchange - was formed earlier this month and is seen as a vehicle for acquisitions. And the state-owned holding company, headed by a former OMX chief, has a shot at owning OMX.

That’s bad news for Nasdaq, which has been long under pressure to do something in the consolidating exchanges space: Frankfurt-based Deutsche Borse is buying New York-based options giant ISE while the top U.S. commodities exchanges, CME and CBOT, just combined. And arch-rival New York Stock Exchange merged with Paris-based Euronext.

While the NYSE was out charming the French, Dutch, Portuguese and Belgians into selling Euronext, Nasdaq’s attempts at a partner fell flat. A hostile run at the London Stock Exchange met with derision - and under 1 percent of acceptances. That left a rebuffed Nasdaq owning about a third of the unwilling LSE - and in the awkward position of blessing the LSE’s subsequent bid for Borsa Italiana.

If the Gulf bourse wins out on OMX, an unrequited Nasdaq could think about sticking closer to home and focusing on regionals. They seem willing and Nasdaq’s domestic business remains strong.

Plus shareholders - having lost a tenth of their value since the failed LSE run - might like to hear CEO Bob Greifeld is putting his passport down.

Home Depot Inc.’s auction of HD Supply seemed troubled from the start. Now the deal may be renegotiated as the private equity buyers balk at the $10.3 billion price tag amid the floundering housing market and tight credit conditions.  

“This clearly is not a near term positive to (Home Depot) nor to a market nervous over credit,” said Credit Suisse analyst Gary Balter.  “The deal was not contingent on financing, though the material adverse change (MAC) clause may be broad enough to push for renegotiation.”

Balter said it was likely that HD Supply, which sells building materials, waste water and utility products to municipalities and contractors, would be sold for “materially less” than the current agreement.

“We would not be surprised if (Home Depot) ends up with a piece of the equity similar to Daimler’s retained interest in Chrysler—maybe up to 20 percent as that would create a better equity floor for the debt financing. Over time, this would not be the worst thing for HD as we believe there is value in HD Supply.”

Shares of Home Depot shed $1.71, or 4.5 percent, in midday trading after it said it may reprice the HD Supply deal and cut the price of a planned share buyback. 

“This is clearly a negative near-term for (Home Depot) … and may have broader implications for other pending capital markets transactions.”