Carlyle Group Adds R to PEU

The Carlyle Group announced plans to form the largest private equity underwriter (PEU) in Peru.  This came after their partner spilled the beans.  Peru has a rising middle class, something citizens in America and the Middle East would like.

Carlyle's plans to invest in the Middle East remain on track, according to co-founder David Rubenstein..  WSJ reported:

Rubenstein declined to comment on how middle-east investors may react to foreign investment firms in the area in particular those with existing or past links to Western governments.

Hosting that 2008 dinner for Saif Gadhafi at The Washington Club may or may not come back to haunt The Carlyle Group.  How about the Tripoli wedding Rubenstein and fellow PEU Stephen Schwarzman attended in 2009?

Rubenstein spoke at the Super Return conference in Berlin.  He did his impression of Donald Rumsfeld with known "knowns and unknowns:"  Here's his list:

Known positives

1. The economy has rebounded
2. Stock markets have improved
3. The unemployment problem has improved
4. Regulatory constraints are now largely known
5. Press attention has been elsewhere
6. Business communities are now more accepting of private equity
7. Exit opportunities are better
8. Limited partner distributions are coming back
9. Investment pace is increasing
10. Fundraising is picking up slightly and will probably rise
11. Relationships between general partners (buyout firms) and limited partners (investors in buyout funds) have improved since the crisis

Known negatives

1. Price multiples are increasing
2. The general view of private equity is still sub-optimal
3. First time funds are becoming harder to raise
4. Tax issues will continue to be debated

Known unknowns

1. The impact of Middle East turmoil on valuations and opportunities in the emerging markets
2. The effect of social networking on private equity
3. The impact of US government resolution of budget and debt problems
4. The ability of EU banks to deal with their debt problems
5. The ability of the EU to support the euro in light of sovereign debt issues
6. The impact of Middle East uncertainty on oil prices
7. The willingness of sovereign wealth funds and pension funds to remain committed to the private equity model

The general view of private equity is sub-optimal.  Which is why Carlyle calls itself a "global alternative asset manager" and their trade group changed its name, adding "growth capital:".

GAAM, PEU, PERU, PEGCC...

In other news Carlyle finally exited JMC Steel.  A planned 2008 sale to a Russian firm fell through.  Terms were not disclosed.  It's not clear how much federal ERRP funding added to Carlyle's take home.

The following deal added to Carlyle's general creepiness:

DIGIOP Technologies, a developer of video and data management software (VDMS) solutions for the surveillance industry, today announced that an investor group led by The Carlyle Group, a global alternative asset manager, has acquired the Indianapolis-based company.

Carlyle knows how to find the sweet spot. 

Also, the Russians are calling all PEU's, dangling a $10 billion lure.

Power Squared: Albright & Soros

Reuters reported:

A fund affiliated with hedge fund billionaire George Soros and one linked to former U.S. Secretary of State Madeleine Albright are buying a controlling stake in APR Energy, a company that mainly supplies temporary power in developing countries, for $250 million.

Albright Capital Management LLC is an investment firm dedicated to emerging markets, available only to institutional and accredited investors.  It does not offer generally offer investment advice to the public.  Does that apply to any work done for U.S. Treasury?

Despite Albright's eschewing of public markets, it has two subsidiaries registered with the SEC  Albright Multi-Strategy Fund I, L.P. has a minimum investment of $5 million with virtually everything else indefinite.  Albright Securities LLC is a securities broker dealer.  Ernst & Young described Albright Securities:

The Company was formed primarily to serve as the private placement agent in connection. with one or more private funds sponsored by Albright Capital Management.  

Ernst & Young mentioned another fund, the Flagship Multi-Strategy Fund   The most interesting revelation about Albright Securities LLC came under the tax section of the audit:

No provision for federal or state income taxes has been made since the company is not a taxable entity.   

Globalist Madeline Albright shared her motivation in launching an emerging markets fund.  Bloomberg reported:

She got into the business because "she sees a need for investing to create a middle class" in emerging markets.

Why isn't Madeline helping the average investor here at home?

"To be blunt, the access that Madeleine Albright gives (clients) through her global contacts is unprecedented."

Unprecedented like Hurricane Katrina, the BP Oil Spew or Forbes latest billionaire list?  America's middle class plummets while billionaires grow 21%.  It's clear who Madeline is working for.

(Thanks to Economic Policy Journal)

PEU's Splatter Forbes Billionaire List

Forbes Billionaire list showed over 200 new billionaires on the world stage.  SkyNews reported:

Despite the global economic downturn, the Forbes 25th list of the richest people on the planet saw the number of billionaires increase by 214 to a record 1,210.

A number of private equity underwriters (PEU's) made the list

#169 Stephen Schwarzman- $5.9 billion, up $1.2 billion
#281 Henry Kravis-$3.9 billion, down $300 million
#310 Leon Black- $3.5 billion, up $1 billion
#347 Ron Burkle- $3.2 billion, no change from 2010

The Carlyle Group's DBD (David, Bill and Danny) showed little change, despite their "Great Cash-in" in 2010 and early 2011:

#440 David Rubenstein- $2.6 billion, an increase of $100 million
#540 William Conway- $2.2 billion, a decline of $300 million
#540 Daniel D'Aniello- $2.2 billion, a decline of $300 million

Carlyle's founders have a number of DBD named corporations, including two in the Cayman Islands.  How did DBD investments fare this last year?

DBD Investors V, LLC benefited from two IPOs, Booz Allen Hamilton and Coresite Realty, as well as the sale of Vought Aircraft Industries to Triumph Group.  Their latest filing shows investments valued at $378 million, up from $9.3 million the prior year. 

DBD Cayman Holdings, Ltd has $515 million in holdings as of early 2011. It is this funds first filing

DBD Cayman, Ltd had held investments worth $406 million in late 2010.  The Cayman fund has $48 million in Boston Private stock, a TARP beneficiary.  It benefited from IPO's for BankUnited and Nielsen Holdings N.V.  DBD Cayman took a stake in Central Pacific Bank, as well as Hampton Roads Bankshares .  In late 2009 DBD Cayman had holdings of $154 million. 

The two DBD funds rose over $600 million in the last year.  Throw in the new Cayman fund and the increase exceeds $1.1 billion.  This is not reflected in the Forbes numbers.

The four IPOs are a fraction of Carlyle's "Great Cash-In,"  where they sold or took public dozens of firms. One thing could've impacted Carlyle's returns, taxing carried interest as income. 

With the Senate considering eliminating PEU's preferred taxation, robber barons descended on the Capital.  David Rubenstein personally visited with Senators to keep Carlyle's money train chugging.   Tax hating William Conway's ensured his voice was heard.  Carlyle associate political contributions during this tense time included:

William E. Conway, Jr.  5/10/2010  $4,800   Chuck Schumer for U.S. Senate

Peter Clare 5/20/2010   $2,400  Kent Conrad
William E. Conway, Jr. 5/20/2010  $4,800   Kent Conrad

Allan Holt  5/20/2010   $4,800   Kent Conrad

Brooke Coburn  6/9/2010   $1,000  Charles Schumer

David Marchik  6/9/2010   $1,000   Charles Schumer

Oliver Sarkozy   6/9/2010  $1,000  Charles Schumer

Ray Whiteman   6/24/2010  $2,400  Kent Conrad

David Marchik  6/24/2010   $2,400  Kent Conrad

Contributions to Senators Conrad and Schumer paid off in late June, when Congress saved PEU carried interest taxation. How much did $25,000 in timely political donations pay off for Carlyle?  I expect the multiple was huge.

David, Bill and Danny had billions flow through their hands last year.  It's odd that Forbes found little of landing in their pockets.  We know some is funneled through the Walker House, 87 Mary Street, George Town in Grand Cayman.

George, Walker...   Bush paved the way for PEU success.  It continues unchecked under Obama with billionaires up 21%.

Update 3-13-11:  Carlyle Group's General Partnership received $500 million from Mubadala Development Company, which already held 7.5% of the the PEU. The $500 million bought convertible notes and additional equity.  This December 2010 deal had to add to the DBD's significant wealth.

Running from Libya

Who didn't court Libya in 2008 and 2009?  Numerous American and British political and corporate heavy hitters courted Colonel Gadhafi's son Saif.  Approaching from the British side were Tony Blair, Gordon Brown, Lord Mandelson, Tony Hayward, Queen Elizabeth Edward Miliband and Sir Howard Davies.  James A Baker, III, George W. Bush, Condoleezza Rice, Stephen Hadley, Frank Carlucci and David Rubenstein hosted Saif in Washington, D.C.  The Carlyle Group held a dinner in Saif's honor at The Washington Club in 2008.

White House Homeland Security Adviser Frances Townsend visited Gadhafi at this Tripoli compound in summer 2007.  She characterized the visit as bizarre.  So why did the Bush administration continue a full court press with Gadhafi in 2008?

Senator John McCain tweeted from the Gadhafi ranch in August 2009.  His message stated:

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

The only person to resign as a result of their Libyan contacts is Sir Howard Davies, Director of the London School of Economics and Political Science.  LSE sponsored a lecture series on The Future of Global Capitalism, which featured Saif Ghadafi.  In promoting his talk on May 25, 2009, LSE stated:

Saif Ghadhafi received his Ph.D. from the London School of Economics in 2009. The topic of his thesis was "The Role of Civil Society in the Democratization of Global Governance Institutions: From 'Soft Power' to Collective Decision-Making?"

How are the Ghadhafis moving toward civil society, democratization or collective decision making?  It seems they've gone well past "soft power" in putting down protesters. Government forces and rebels battle over Libya's oil sites.  Roughly half of Libya's oil production is shut down.  Western companies want to keep their recent contracts with Gadhafi, but a greater bonanza could come from new rulers

CNBC said Libyan oil comes out the ground for the low cost of $1 per barrel.

With oil at $102, anyone holding cheap Libyan oil would have a golden goose.  The chess game for Black Gold continues.  Rest assured Western oligarchs, government and corporate, will do their best to reorder Middle East uprisings to their advantage.  I expect it will involve the people formerly courting the Gadhafi family, minus Sir Howard Davies.  He's their abject sacrifice for hope.

(Thanks to Economic Policy Journal )

Update 3-5-11::  Judith Miller sacked Harvard's Michael Porter and Monitor, a consulting firm, for their ties to Saif.  Her Daily Beast piece mentioned the younger Gadhafi's outreach to the West from 2003 to 2007.  She omitted his oversight role in negotiations to release the Lockerbie bomber and steering a Gaza aid ship to Egypt to avoid confrontation.  In those deals Saif ran with the global capitalist crowd, Baker, Blair, Mandelson, Rothschild, & Rubenstein.  None got a mention in her piece.  I expect Blair and Baker's business deals have many similarities to the Gadhafi family's "kleptotocracy."  Howard Davies and Michael Porter are the West's burnt offerings, at least for now.

Update 3-7-11:  David Corn of Mother Jones and NPR ran with the 2006 Monitor story   How long before they find The Livingston Group?  RollCall reported on the $2.4 million deal.  According to Harpers, Livingston "organized events at Libya’s Embassy, met with Senators/Congressmen, pitched corporations (ExxonMobil, Carlyle Group, Northrop Grumman) and squired a military delegation around D.C."  I found the Carlyle meeting in 2008, courtesy of Libyan news sources.  Harpers noted it in March 2009.  The Monitor Group continues to roast.  Livingston, Carlyle and 31 Congressmen aren't close to sweating.

Update 3-9-11:  50 Cent is the latest artist to make a donation to charity after it was revealed he performed at a 2005 Venice Film Festival event linked to the clan of Libyan leader Moammar Gadhafi.  Who's next?

Update 6-18-11:  Bloomberg found the Livingston Group

Update 7-1-11:  The media continues offering small fries as sacrificial lambs in the West's efforts to open up Libya.  The big boys skate under the radar. 

HCA IPO: Ready to Go

After lingering for ten months, KKR and company are ready to pull the trigger on HCA's latest IPO.  In the interim investors bled HCA for $4.25 billion, partially financed by issuing $1.5 billion in debt..  WSJ reported:

Bain Capital, Kohlberg Kravis Roberts, Bank of America Corp. and the brother of former Senate Majority Leader William Frist are each in line to make nearly $3 billion from $1.2 billion investments in the 2006 leveraged buyout of hospital chain HCA Holdings Inc.

The gain—about 250% over five years that were trying for the economy and health-care companies—would amount to one of the largest ever from a private-equity deal.

 I almost choked when I read how Bain, KKR and BOA spun the IPO.

Public investors also grew more optimistic about hospital shares, anticipating that the Obama health plan will keep a lid on hospitals' costs for uninsured patients. That helped set the stage for the initial public offering, expected next week.

Come 2014 the "lid on hospital costs" will close somewhat.  Until then costs should soar as virtually everybody pulls their markers from the table.  That includes employers, the government and individuals no longer able to participate in an "out of control" financing system.

CBO scoring of Obama reform assumes 6 million people will go off Medicaid and CHIP from 2011-2013.  The exact opposite is happening.  States find legions of new citizens in need of Medicaid and CHIP.

What source of rising healthcare costs is never mentioned?  Interest expense associated with buyout deals.  KKR's purchase of HCA and CHS' buyout of Triad Hospitals added over $2 billion in annual interest costs to the system.

Reform assures more hospital buyouts, many involving stressed safety-net hospitals forced to sell out on the cheap to their for-profit brethren.  How many safety net hospitals will survive three years of waiting for Obamacare to ride to the rescue?  It remains to be seen.

As for investors winning big, here's another clue, courtesy of HCA's revised articles of incorporation:

Increase the number of authorized shares of our common stock from One Hundred Twenty-Five Million (125,000,000) to One Billion Eight Hundred Million (1,800,000,000)

Also, HCA owns insurance divisions in Bermuda and the Cayman Islands.  Sweet.

Bain Capital and KKR will win big next week on the promise of health reform.  Government policy drives huge profits for America's robber barons, mostly in ways unseen by the public. Champagne?  I smell a PEU celebration (PEU stands for private equity underwriter).

Update 3-10-11:   HCA completed its IPO.

Update 5-24-11:  PEU's milked HCA with a $181 million fee for terminating their management agreement.

Carlyle Group Bids for Beckman Coulter

Reuters reported on bids for medical diagnostics company Beckman Coulter.  The Feb. 3 piece stated several private equity underwriters (PEU's) expressed interest:

Commitment letters from banks to finance private equity-led deals were also required to be submitted on Wednesday, one of those sources said. The sources declined to be named because the process is not public.

Two private equity consortia have been pursuing Beckman -- one made up of Blackstone and TPG Capital, and the second made up of Apollo and Carlyle, sources previously told Reuters.

The stock was $57 per share when Bloomberg reported on PEU buyout interest.   Blackrock submitted an SEC filing showing it purchased 4.85 million shares or 7% of Beckman Coulter.  Bank of New York Mellon also bought 1.26 million shares of Beckman.

Beckman Coulter joins Johnson & Johnson with numerous quality concerns. A company SEC filing stated:

Our recent U.S. quality challenges have prompted significant ongoing attention in this area to ensure that we live up to the expectations of our customers. We have identified root causes and developed remediation plans. Implementation is underway with some projects continuing through 2011. With customer satisfaction and retention our foremost objective, we have shifted some R&D resources from future products to current products until we resolve our quality issues.

Carlye knows quality problems.  The PEU invested in Yashili, a Chinese milk producer selling melamine poisoned products.  Like the Chinese, it's not Carlyle's only quality nightmare.  Affiliate Claris Lifesciences produced IV bags with floating matter.  Vought Aircraft Industries delayed the Boeing 787 Dreamliner and shorted Texas taxpayers on a $35 million refund.  LifeCare Hospitals lost 25 patients after Hurricane Katrina and has been aggressively fighting wrongful death lawsuits.  SemGroup, a staid energy pipeline firm, imploded due to billions in bad energy bets.  Carlyle's SemGroup defense is "puffery."

PEU's love health care.  Recall what KKR's purchase of HCA did to health care costs.  Interest expense rose by $1.5 billion.  KKR also milked HCA of $4.25 billion in special dividends, borrowing to do so.  Two things continue to soar, health care costs and Carlyle's assets under management.  Carlyle's Cedar I Holding Company raised $1.67 billion to invest in high tech companies.  Might it invest in Beckman?

Interim CEO Bob Hurley's base pay rose to $800,000 and his bonus potential to 120%.  How might a PEU deal wash into Hurley's personal finances?  That information could soon be available to shareholders.

Beckman Coulter's 2010 annual interest expense is roughly $100 million.  How high might that go under a buyout?  PEU's look to bleed Beckman Coulter, but who's counting?

Update 2-8-11:  Danaher won the battle for Beckman Coulter, paying $83.50 per share, a 45% premium from its December 9 price.  How did Blackrock and Bank of New York Mellon make on the deal?  How will Danaher control or lower health care costs through the buyout?

PEU Intrinsic Motivation: $9 million Pay Package

The Economic Club of Washington reunited The Carlyle Group's David Rubenstein and GM's Daniel Akerson, formerly a Carlyle managing director. DetroitFreePress reported:

David Rubenstein, who worked with Akerson when both were managing directors at the private investment fund Carlyle Group, introduced him Friday and said repeatedly that Akerson walked away from a lot of money to take the GM job.

Akerson said he did it because he believed GM was too big and too important to the American economy to fail. “There’s more to life than money,” he said.

Only in the world of private equity underwriters (PEU's) is a $9 million pay package considered "intrinsic motivation." Akerson walked away from Carlyle in the midst of a year long flipping spree.

As for Rubenstein's "a lot of money," he hates paying taxes on it.  His next "great cash in" is rumored to be a Carlyle Group IPO.

Update 1-12-11:  It's time to change the world, PEU style!