Friday, March 2, 2012

Carlyle's Allison Road

Allison Transmission, an affiliate of The Carlyle Group and Onex Corp., will finally go public.  It's seventh S-1 showed how this pair profited pre-IPO.  Take the annual $3 million management fee over five years, that's $15 million.  Add a $16 million breakup fee, which pushes the total to $31 million.

While there's no evidence of a liquidity recap (debt for dividends) in the filing, Allison's executives have an unusual stake in the firm as corporate debt holders.

As of February 28, 2012, Lawrence Dewey, our Chairman, President and Chief Executive Officer, David Graziosi, our Executive Vice President, Chief Financial Officer and Treasurer, and Robert M. Price, our Vice President, Human Resources, held approximately $33,000, $31,000 and $62,000, respectively, in aggregate principal amount of the 11.0% Senior Notes and Mr. Graziosi held approximately $400,000 in aggregate principal amount of the 7.125% Senior Notes.
Besides holding Allison debt, Mr. Dewey has $550,000 in options from a 2007 SEC filing.

What "hat" does management wear as it executes the following responsibilities?

ATI may from time to time seek to retire Senior Notes through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, contractual redemptions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. For the years ended December 31, 2011, 2010 and 2009 ATI repurchased $646.0 million, $0.0 million and $26.3 million (at face value) of its Senior Notes, respectively.
Greed overtakes appropriate boundaries, as PEU's make money in byzantine ways.  Are Carlyle, Onex or members of management on the other side of any of Allison's derivatives? 

All twenty subsidiaries are listed outside the United States.

Through 2011, the Company has continued to expand production capacity in its Chennai, India facility for emerging markets and expects to commence production in the second half of 2012.

As for employment under PEU ownership, here's the tape:

At the time of the sale, Allison Transmission employed approximately 3,400 people.

As of December 31, 2011, we had approximately 2,800 employees, with more than 90% of those employees in the U.S.
That's a headcount decrease of 600 or 17.5%. Cue Carlyle co-founder David Rubenstein to say how much worse it would've been without PEU ownership

Allison's IPO is an expected Three Bagger for The Carlyle Group and Onex.  Forty two stockholders will benefit.  That's 42 people in a country of 300 million.  It's the PEU way.

Update 3-13-12:  This Carlyle IPO expects institutional interest.

Update 3-14-12:  Carlyle expects Allison to be a three bagger.