People familiar with the matter said the lead bank on the deal, J.P. Morgan Chase & Co., helped keep the shares in the black.WSJ went on to say:
J.P. Morgan must have been earning their keep. The stock barely budged during its first four days as a publicly traded company.Carlyle co-founder David Rubenstein promised a pop, although he suggested it would be positive for investors. CG fell on low volume. Oddly, deeper discounts didn't bring more buyers.
We will enter into a tax receivable agreement with our existing owners whereby the corporate taxpayers (affiliates) will agree to pay to our existing owners (partners) 85% of the amount of cash tax savings, if any, in U.S. federal, state and local income tax that they realize as a result of these increases in tax basis.
Based upon certain assumptions, we estimate that the corporate taxpayers aggregate amount (owed) would be approximately $1,035.6 million.Post $22 per share IPO, Carlyle's latest filing has this down over $120 million::
Based upon certain assumptions, we estimate that the corporate taxpayers aggregate amount (owed) would be approximately $915.2 million.
Payments under the tax receivable agreement will be based on the tax reporting positions that we will determine. The corporate taxpayers will not be reimbursed for any payments previously made under the tax receivable agreement if a tax basis increase is successfully challenged by the IRS.As a result, in certain circumstances, payments could be made under the tax receivable agreement in excess of the corporate taxpayers’ cash tax savings.In the event that The Carlyle Group L.P. or any of its wholly-owned subsidiaries become taxable as a corporation for U.S. federal income tax purposes, these entities will also be obligated to make payments under the tax receivable agreement on the same basis and to the same extent as the corporate taxpayers.
It remains to be seen how that odd "qui pro quo" at the end materializes. The end result is a cash bypass of new Carlyle stock holders. These payments are made to exiting owners, not unit holders.
How many new Carlyle investors are aware of this? I envision them standing and staring at their unit.
Update 5-7-12: Forbes speaks of the potential conflict between PEU partners and unit/stock holders.
Update 8-3-15: Naked Capitalism noted this PEU trick to strip cash from affiliates going public.
Update 8-4-22: A pension fund sued Carlyle Group Inc.'s senior leaders in Delaware, challenging a $344 million payment to the private equity firm’s founders in connection with the end of tax agreements they reached when taking the asset manager public.
Update 8-15-24: A large pension fund sued KKR over its tax receivable agreement with founders Henry Kravis and George Roberts.
The deliberate discount, together with no first day pop, means that Carlyle’s billionaire founders, David Rubenstein, Daniel D’Aniello and William Conway, hold stakes in the company worth $1.03 billion each. And while, with their personal cash reserves, including last year’s distribution of $134 million apiece, the trio are still comfortably billionaires boasting net worths in the $1.8 billion range, they themselves have been heavily discounted from the $2.8 billion each was tagged with just a few months ago.
But that being said, the fact that Carlyle enjoyed a relatively quiet IPO is a good thing. It means the firm’s shares haven’t tanked yet and Rubenstein, Conway and D’Aniello have successfully avoided the pervasive negativity that would have accompanied an immediate flop. So while they are by no means out of the woods yet, it is so far so good for the newly public Carlyle Group and the three billionaires behind the $147 billion private equity behemoth.
But it wasn't enough for Carlyle co-founder David Rubenstein to save face. He had told investors during the company's road show that by valuing the firm conservatively, he hoped Carlyle's stock would rise after the firm went public, unlike the selloffs that followed the recent IPOs of its peers.
"Our principal focus in the offering was to attract a large number of highly respected institutional investors who support our emphasis on cash earnings and who will support our efforts to grow the firm over the long term. We think we have accomplished that objective," Rubenstein said in a statement after the market close on Thursday.
The company (The Carlyle Group) priced its IPO at $22 per share after the closing bell, according to TradeTheNews.com, the low end of a $22-$23 anticipated range that had already been lowered from $23-$25. The 30.5 million common units sold raised $671 million.Not long ago estimates were that 10% of Carlyle would fetch $850 million.
Shares of Carlyle will begin trading Thursday on the Nasdaq stock exchange.The DBD's, Carlyle's co-founders who plan to liquefy their stake, hope Carlyle doesn't pull an Oaktree and fall out of the IPO gate.
