"Great Cash In" Sends $6.4 billion to Carlyle Investors

Bloomberg reported:

Carlyle Group, the buyout firm that may go public this year, distributed more than $6.4 billion to investors in the first quarter, the most in its 24-year history.

The carry on $6.4 billion would be $1.6 billion.   Carlyle's founders, nicknamed the DBD's, owe Senators Schumer, Bayh, and Baucus, as well as President Obama, a huge thanks on extending their preferred carried interest taxation.  That saved $400 million in taxes.

Carlyle's first IPO came in Europe via Carlyle Capital Corporation (CCC).  It and hedge fund BlueWave Partners collapsed in 2008.  The two moves came while financial firms felt they could do no wrong.  Carlyle unwound BlueWave at a huge loss for investors.

Interestingly, Carlyle bought into hedge fund Claren Road in December.  Is it a sign of frothiness?  Apparently not.

“Now is an opportune time to put capital to work,” (Carlyle) founders William E. Conway, Daniel A. D’Aniello and David M. Rubenstein said in the letter. The firm has “endeavored to find attractive investment opportunities which we believe will ultimately result in superior absolute investment returns.” 

These three are consummate salesmen.  Beware the puffery.

Update 5-5-11:   Bloomberg reported Rubenstein de-emphasized the buyout side of Carlyle's business for the looming IPO.  Carlyle's "great cash in" should make their financial statements shine in the S-1.  Investors may jump in as the barn door closes.  Through the cracks they'll see the DBD's hauling away trailer loads of cash.

Update 5-23-11:  WSJ finally catches up to the story, or are they pumping Carlyle's looming IPO?  Bloomberg added to the hype by re-running the $6.4 billion payout story.

Carlyle's Rubenstein on Risk

“Political risk is as high in the United States as it is in emerging markets,” David Rubenstein, Carlyle Group co-founder, at Thomson Reuters Buyout Conference

Rubenstein cited the debate over Social Security, other entitlement problems and the large deficit. Carlyle affiliates milked the federal government at multiple turns:

Advising-Booz Allen Hamilton
TARP-Boston Private
Tax breaks for buying back debt for pennies on the dollar-LifeCare
Direct subsidies/earmarks-Vought Aircraft
FDIC recapitalization (over $2.2 billion)-BankUnited

I'm sure there are many more, especially for a man so prescient in reading tea leaves.  PEU Carlyle benefited from eight years of Bush tax cuts, which became Obama tax cuts.  Four times Congress maintained preferred carried interest taxation for PEUs, which helped Rubenstein crack Fortune's Richest list in 2007.  Carlyle off-shored many investments, DBD Cayman, and their corresponding profits, not to mention jobs-UCI.. 

Rubenstein continued at the Buyout Conference, "until those (problems) are solved, the country will not be able to resolve its high unemployment rate."  Carlyle's brand of greed helped shrivel America's middle class, not to mention cracking its financial foundation.

“The problem is that we don’t have enough financial stability in our economy.”  

That means Rubenstein must look elsewhere for 30% annual returns, China, Asia and the Middle East, i.e. centrally controlled governments with sovereign wealth firms and billions to invest in PEU's.  Rubenstein isn't ready to declare the end of Carlyle's sweet U.S. run.

The United States will still dominate the (private equity) industry for another five years or so

If he said any shorter, investors might not pony up for Carlyle's independent public offering.  Watch for puffery.  David Rubenstein and his ilk helped create the current state, much more so than the average citizen. 

I recently told my 95 year old grandmother that America started another war with Libya.  She said, "A rich man must need to make money."  That's the same reason Rubenstein will milk America, while setting up other nations to fatten his pocketbook.  By the way, Rubenstein courted Gadhafi beginning in 2006.  Is the political risk high because citizens paid attention to American leaders, their influence peddling and money flows?  That'd be my hope.

Tenet CHS Fight Turns to Hair Pulling

Community Health Systems (CHS) made an unsolicited offer to buy Tenet Healthcare.  The gloves came off almost immediately.  After several months in the acquisition cage, both fighters are bloody, beaten and tired.  With no access to a barber, their locks are now long.  Tenet grabbed a big chunk of Community's teal green hair and yanked with its latest accusation (Courthouse News):

Tenet says CHS increased the revenue of Triad, a hospital operator it acquired in 2007, through "CHS's systematic reduction in the observation rate at the former Triad hospitals - a stunning 52 percent drop in one year following the acquisition."

Tenet says CHS uses "liberal" criteria to decide whether to admit patients or treat them as outpatients, at a lower cost, and claims that "CHS artificially increases inpatient admissions for the purpose of receiving substantially higher and unwarranted payments from Medicare and other sources.

CHS has reaped enormous sums through its admissions practices. Avalere, a leading healthcare advisory firm, estimates that, between 2006 and 2009, CHS received approximately $280 million to $377 million from treating inpatient admitted Medicare patients in CHS hospitals" who could have been treated in observation, the complaint states.

Tenet says Medicare pays as much as $7,000 more per hospitalized patient than it would for outpatient services for the same patient.

Tenet adds that by improperly billing Medicare, CHS has violated the False Claims Act, and may be liable for more than $1 billion in penalties.

It takes one to know one.  Tenet settled with Medicare for unlawful billing practices at a cost of $900 million.  The Justice Department news release stated "the agreement requires Tenet to pay:"
:

-- more than $788 million to resolve claims arising from Tenet’s receipt of excessive “outlier” payments (payments that are intended to be limited to situations involving extraordinarily costly episodes of care) resulting from the hospitals’ inflating their charges substantially in excess of any increase in the costs associated with patient care and billing for services and supplies not provided to patients;

-- more than $47 million to resolve claims that Tenet paid kickbacks to physicians to get Medicare patients referred to its facilities, and that Tenet billed Medicare for services that were ordered or referred by physicians with whom Tenet had an improper financial relationship; and,

-- more than $46 million to resolve claims that Tenet engaged in “upcoding,” which refers to situations where diagnosis codes that Tenet is unable to support or that were otherwise improper were assigned to patient records in order to increase reimbursement to Tenet hospitals.

Tenet paid a $54 million fine for performing unnecessary cardiac procedures at their Redding, CA facility. In addition they set up a $395 million fund to compensate over 700 victims.

Tenet also settled with the state of Florida for $7 million regarding unethical billing practices under Medicare & Medicaid.  Ex-Florida Governor, John Ellis (Jeb) Bush, landed a spot on Tenet's board in April 2007, after W.'s Justice Department reached the $900 million Medicare settlement.  Tenet lobbied the White House in early 2006.  They addressed two issues, corporate governance and the federal response to Hurricane Katrina where Memorial Medical Center, a Tenet owned facility, lost 35 patients.

Tenet has no credibility on the ethics front.  Pot meet kettle.

PEU Benefits: Girth or Dearth?

The PECKER Council commissioned a study by Price Waterhouse Coopers on the impact of private equity underwriters.  The PriceWaterhouse study begins on page 7 of the linked report.  Peruse it closely for how PEU's operate ethically.  It details how The Carlyle Group shot their load on Carlyle Capital Corporation, the canary for the 2008 financial crisis.  Pay attention to Carlyle Capital Cayman, short term repo financing of long term assets, Bear Stearns/Lehman Brothers' role in financing CCC and credit derivatives.

The world has seen at least six financial crises that arose largely because companies and banks were financing illiquid assets with short-term debt--McKinseyQuarterly. 

No systemic risk here, just peckers screwing somebody.  It's a never ending cycle.

Update 4-28-11:  Not surprisingly the biggest PECKERS come from politics.  Don your flak jacket, PECKERS are coming.

Update 4-30-11:  The Economist followed up with a "size matters" sexual innuendo piece on Carlyle.  For some reason Economist found only five Carlyle failures, when there were twice that many.  They did note the powerful impact of the DBD's, but failed to cite their Cayman connections or citizen supplied corporate welfare.  Posing for an IPO, Carlyle shows lots of skin.  Not a pretty sight for fat men.

Update 6-23-11:  Carlyle seeks to penetrate Africa's lower region. Recall how Carlyle's Rubenstein compared the PEU buyout boom to sex? 

McCain's Return Trip to Libya

Senator John McCain visited Libyan rebels, making a point to say they weren't al Qaeda.  McCain compared them to the Afghan muhajadeen.  Did McCain forget they were an al Qaeda ally against the Russians?

Citizens are expected to trust McCain, who tweeted from the Gadhafi ranch in August 2009.

Late evening with Col. Qadhafi at his "ranch" in Libya - interesting meeting with an interesting man.

Did McCain find his meeting with rebels "interesting?"  While  John's assessment skills are questionable, the rebels corporate abilities are impressive.

Carlyle Sets Sights on Malaysian Bank: RHB Capital

Reuters reported:

Carlyle Group and TPG Capital are in talks to launch a joint bid for a $1.5 billion stake in Malaysian lender RHB Capital, three sources with direct knowledge of the matter told Reuters on Thursday.

Abu Dhabi Commercial Bank owns the stake and has hired Goldman Sachs and Bank of America-Merrill Lynch to run the auction.

Under-capitalized Abu Dhabi Commerical Bank will sell its 25% stake in RHB.  Originally ADCB approached banks, but private equity underwriters (PEU's) got involved. 

How might PEU's impact Malaysia, which suffered a currency crisis and property crash in the late 1990's.   PEU's bloodied their nails during America's financial implosion in 2008.  Where will Malaysia and Carlyle be in 2018?  Bubbly...

Blackboard: Chalking Up Profits for Shareholders?

Blackboard is for sale. The company hired Barclays after receiving unsolicited proposals. The Carlyle Group took Blackboard public in 2004. It might return to private equity underwriter (PEU) hands.

Major shareholders as of 4-21-10 included:

Janus Capital Management, LLC(2)			3,676,260				10.83	%
151 Detroit Street Denver, CO 80206
BlackRock Inc.(3)			2,846,409				8.38
40 East 52nd Street New York, NY 10022
Waddell & Reed Investment Management Company(4)			1,921,646				5.66
6300 Lamar Avenue Overland Park, KS 66202
Artisan Partners(5)			1,815,300				5.35
875 East Wisconsin Avenue Suite 800 Milwaukee, WI 53202

Much changed over the last year, including Blackboard's share price:

.

Janus Capital upped its stake to 4.3 million shares or 12.6% of Blackboard common stock.  Artisan Partners holds 2.9 million shares or 8.5%, while Waddell & Reed lightened its share load to 173,000 shares.

New entries included Blackrock and T. Rowe Price.  T. Rowe Price owns 3.5 million shares or 10.2% as of 1-31-11, buying the last 600,000 shares in January.  Blackrock holds 2.8 million shares or 8.3% of Blackboard.  Blackrock's Larry Fink likes totalitarian governments.  Might a sovereign wealth fund (SWF) bid on BBBB?  Russia has $10 billion to co-invest with PEU's and SWF's.

Who wins and how much under a Blackboard sale?  You do the math.

P.S. Standard Times legendary publisher Houston Harte insisted reporters find the local angle to any story.  Angelo State University uses Blackboard.  If other universities are as financially stressed as ASU, Blackboard's customer base is severely limited, at least in purchasing power.