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Masters of Universe take a breather

Here's the short version of a panel on private equity at Davos today: smaller new deals, rising defaults on older ones but no re-run of the mass defaults of the 1980s."Those (big) buyouts will come back in time, but money over next few years will be made not by doing new deals, but by improving companies they already have," said Carlyle Group founder David Rubenstein."There will be leveraged buyouts (in 2008), but deals will be smaller -- most likely $1, 2, 3, 4 billion deals as opposed to $30 to 40 billion deals," he said on the sidelines.While there are some meaningful differences to the bad, old days - less aggressive structures and better resourced private equity firms - there are quite a few areas of concern.The economy is turning sour, recent vintages of deals were highly leveraged in their own right and anyone hoping to refinance to buy time is likely to be disappointed. And while the lack of strong covenents on many deals will give them room to manoevre, eventually you gotta repay debt.Still, we can all agree the next 18 months will be a very good test of private equity's vaunted management skills. If they come through this with their reputations and returns intact, they will deserve all the praise they get.Someone remind me to write a nice story if it happens.James Saft is a Reuters columnist. The opinions expressed are his own.

Daily Briefing: Taking Liberty

The air is getting thicker over at Liberty Media Corp. Liberty is seeking the ouster of IAC/InterActive Corp Chairman Barry Diller (pictured) from its board of directors in an escalating dispute over how to restructure the Internet conglomerate, legal filings showed on Monday. Liberty also wants to remove Diller’s wife, Diane Von Furstenberg, Edgar Bronfman Jr, Victor Kaufman, Arthur Martinez, Steven Rattner and Alan Spoon. Tensions between Diller and Liberty Chairman John Malone went public last week over a plan to spin off the HSN shopping network, Ticketmaster box office service, Interval time-share exchange and LendingTree morgage service from IAC. In a statement, IAC called the action 'preposterous”.The saga at Societe Generale, reeling from an alleged $7 billion fraud the banking giant said was committed by a lone rogue trader, has taken another twist. French prosecutors will not appeal a decision to throw out the accusation of fraud leveled against the trader, Jerome Kerviel, a senior judicial source said on Tuesday. This would be a blow for SocGen managers, because it is likely to spread the blame. Meanwhile, France’s economy minister, stating the obvious, said the bank is in crisis and may need to ditch its chairman. Really? Rival bank BNP Paribas may be getting giddy - speculation has reignited that France’s biggest listed lender might make a bid.Market talk that Qatar was interested in building a stake in Julius Baer helped push the Swiss banking group’s stock up 3.5 percent on Tuesday. Julius declined to comment on the talk. Qatar Investment Authority, the Gulf Arab state’s $60 billion sovereign wealth fund, last year bought stakes in the London Stock Exchange and Nordic and Baltic bourse company OMX AG as part of a strategy to build up non-oil assets.

Lazard’s results nearly a private affair

After 157 years as an eliteprivate partnership steeped in Old World secrecy and intrigue, investment bank Lazardwent public in May 2005 on the New York Stock Exchange. Alas,old habits die hard.We submit as evidence this late breaking news release from Lazard, which waited until after US markets closed Tuesday toreveal it would announce fourth-quarter results Wednesday. That translates to roughly 12 hours notice for analysts, investors and reporters who follow the activities of this expanding merger advisor.Not that anybody is breaking the rules here, but it makes you wonder why a company held by small and big investors alike waited so long. Certainlyfamed Lazard chief Bruce Wasserstein wantshis efforts to get plenty of attention, right?According to this glowing profile in Portfolio magazine,”Bid ‘em up Bruce” has made a full recovery from a wealthybut somewhat marginalized banker to become an even richer, vindicated genius. That’s because he runs a firm that makes most of its moneyby providing advice to companies and governments and by managing money: no exotic CDOs, no ill-advised bets on mortgages, no hung LBO loans.Analysts expect Lazard fourth-quarter earnings to soar, capping off a strong 2007 with a second half much stronger than the first. Company executives in recent monthsassured that the outlook for strategic M&A, ordeals not involving leveraged buyout firms, should remain healthy.Yet Lazard’s share price tells a more cautious story. Despite its lack of exposure to the credit crunch and its recent success serving as consigliere to sovereign wealth funds, Lazard stock is down 15 percent in the past month and down 31 percent over three months. The market seems to be taking the position that if corporate chiefs choose to stay on the sidelines, a firm depending on M&A will suffer.Which brings us to Wednesday’s surprise earnings results. Investors can only hope thatLazard is more forthcoming about the outlook for its business than it was about the date of their quarterly confessional.

Daily Briefing: The French Connection

Talk of a potential bid by BNP Paribas for its rogue trading-stricken compatriot Societe Generale pushed up SocGen shares by more than 10 percent on Tuesday, and BNP isn’t doing much to squelch the rumors. Chief Financial Officer Philippe Bordenave ducked questions on whether BNP might bid for its French rival, which it previously tried to buy in 1999, saying: 'My team and I have worked around the clock to get the figures that we are publishing today. During that very short timeframe I have not had much time to elaborate much further on SocGen.” Given the French government’s determination to fend off foreign aggressors, the market seems to like BNP’s chances.The cheap dollar has Italy’s biggest insurer Generali hunting for bargains in the United States, particularly in specialized sectors like pensions and long-term care, its co-CEO said on Wednesday. Even if the dollar strengthens, 'an investment in the United States does not depend only on that, the first objective is to create value,” Sergio Balbinot said.Lazard Chief Bruce Wasserstein has received a hefty payday: restricted stock worth $96.3 million as part of new five-year employment agreement, plus additional shares to be granted over three years at the discretion of the merger advisory firm’s compensation committee. Lazard shares are down 31 percent over the past year.

Cov lite hangover a headache for LBO lenders

Private equity’s 'golden age” is looking a little less shiny for lenders behind the LBO boom.Here’s what has them nervous: many LBOs were in industries which are vulnerable in a downturn; borrowers were leveraged to the hilt after a buyout, andalot of leveragedloans are 'covenant lite” - which means they lack fundamental control mechanisms.With the specter of a recession looming, that’s enough to make even the most solid LBO credit loose its luster - which may be why banks have struggled placing $2 billion in loans behind the LBO of computer retailer CDW Corp by Madison Dearborn and Providence Equity Partners.And the leveraged loan default rate, while at a historic low, may not give much comfort - in the case of covenant lite loans, low defaults may mean low recoveries as companies deteriorate without triggering defaults.Of the nearly $690 billion in leveraged loans issued last year, 10 percent were covenant lite, according to Reuters LPC. That’s up from 4 percent of the $612 billion issued on 2006. Below is a chart on covenant lite issuance from RLPC.

Daily Briefing: Betting on a better bid

The BHP-Rio Tinto saga is heating up again, with a growing consensus among investors that BHP will issue a sweetened offer by next Wednesday’s 'put up or shut up” deadline set by Australia’s Britain’s Takeover Panel. Rio Tinto shares surged 7.6 percent and BHP climbed 2.6 percent. 'I just expect them to come back with a definite offer and get the ball rolling. And their first offer won’t be their last offer,” said Warwick Cumming, deputy head of equities at Tyndall Investment Management, which holds shares in both companies.Surprising absolutely no one, BNP Paribas has confirmed that it is indeed weighing a takeover bid for its weakened compatriot Societe Generale, laid low by a rogue trading scandal. 'We are studying it because all Europe’s banks are studying it,” said a spokesman. Of course, all of Europe’s banks except the French ones would have to overcome the government’s determination to fend off foreign 'predators.”Tata Group isn’t about to stop its acquistion binge. Already on the verge of buying Jaguar from Ford, the Indian conglomerate’s Tata Chemicals unit has agreed to acquire US soda ash makerGeneral Chemical Industrial Products for $1.005 billion from Harbinger Capital Partners.

Betting on Buffett

Reuters correspondent Jonathan Stempel reports that whenever the dust settles from turmoil in the bond industry, there’s likely to be one familiar winner sitting atop the debris.Berkshire Hathaway’s Warren Buffett is well-positioned to cash in whether bond insurers get rescued as regulators seek possible new sources of capital for them, or suffer credit rating downgrades that threaten their business, or even their survival.Berkshire, which created Berkshire Hathaway Assurance Corp on December 28 to enter the bond insurance market, has the balance sheet, credit ratings and pedigree to gain a strong foothold and become a major force, experts said. In creating a bond insurer, Buffett is counting on issuers paying him higher fees for the security of having the backing of 'triple-A” rated Berkshire and its $47.08 billion cushion of cash.He has not shown any interest in bailing out an entire business, as he tried in 1991 when he took over Salomon Brothers after a scandal involving fictitious bids on US Treasury sales. That is considered one of Buffett’s worst investments.Click here to read the full story.

Hot pursuit of remaining LBOs

The buzz around the handful of LBOs yet to close is reaching fever pitch.One deal in particular was on everyone’s lips at a two-day private equity conference sponsored by Dow Jonesthis week - Clear Channel.Leaning against walls incorridors andsettled in armchairs,conference-goers had hushed cellphone conversations about the$20 billion deal, still to close.Two executives at the private equity firms buyingthe radio operator â€“Bainand Thomas H. Leeâ€“ showed up to talk about trends in the buyout industry. That wasn’t quite satisfying enough for a pack of investors who hotly pursued them after the conference (admittedly that’s an assumption that they all hold positions in the stock but one wonders why the frenzied interest otherwise). The Bain execmanaged to escape by squeezing intoan elevator with his press representative.”No comment”was about the sum total that the crowd got.

Daily Briefing: Bidding for YHOO to take on GOOG

Microsoft has made its long-rumored takeover approach to Yahoo, in a proposed cash and stock deal worth $44.6 billion. The $31 per share offer represents a 62 percent premium to Yahoo’s closing stock price - but is almost exactly equal to its stock price back in May, when a potential tie-up was leaked to the press. The elephant in the boardroom for this deal is, of course, Google. As Microsoft stated in its letter to Yahoo: 'Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition.” The letter also said that Yahoo rejected an acquisition last February, and noted: 'A year has gone by, and the competitive situation has not improved.”China has muscled in on BHP Billiton’s attempts to buy rival Rio Tinto, with its biggest aluminum producer teaming up with US group Alcoa to buy a 12 percent stake in Rio. Friday’s $14 billion swoop by Aluminum Corp of China (Chinalco) comes days before a regulatory deadline next Wednesday for BHP to make a firm offer for Rio or to walk away.Societe Generale was studying bid defense options on Friday as a newspaper said Credit Agricole, France’s third-largest bank by value but the biggest in terms of retail branches, had hired Lazard and its own investment bank to study a bid. Top French bank BNP Paribas has already confirmed it will consider bidding for SocGen in the wake of a massive rogue trading scandal.

Keep an eye on: Microsoft’s $44.6 bln bid for Yahoo

All eyes on Friday will be focused on Microsoft's $44.6 billion bid for Yahoo, a deal that would combine the world's largest software maker with one of the biggest Internet media companies.But will this combination be enough to take on Google?Although the company doesn't mention Google by name, it appears Microsoft thinks so, at least as far as the online ad game is concerned:The online advertising market is growing at a very fast pace, from over $40 billion in 2007 to nearly $80 billion by 2010. The resulting benefits of scale along with the associated capital costs for advertising platform providers make this a time of industry consolidation and convergence. Today this market is increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a competitive choice while better fulfilling the needs of customers and partners. Microsoft offered to buy Yahoo for $31 per share, which it said represented a 62 percent premium above the company's closing stock price on Nasdaq on Thursday.The proposed deal comes on the heels of Google's reporting disappointing quarterly results, on rising capital spending and costs for acquiring advertising customers. It was only the third time in 14 quarters as a public company that Google failed to top Wall Street profit forecasts.Silicon Alley Insider's Henry Blodget called the offer a brilliant move and expects it to be accepted.PaidContent suggests the deal "adds urgency" to the idea that a Google-AOL deal may be next.Opinions on the proposed deal range from "It's about time" to "Shocking!"(Reuters)Keep an eye on:Former NBC Universal honcho Bob Wright said he is joining Lee Equity Partners as a senior adviser, combining with private-equity veteran Thomas Lee to seek deals in the media sector. (New York Post)Facebook expects 2008 revenue to grow to $300-$350 million in 2008, from $150 million in 2007, and will spend $200 million on capital expenditures, and also expects employee levels to rise to more than 1,000 in 2008 from 450. (All Things D)Newspaper publisher and broadcaster Gannett posted a 31 percent decline in quarterly profit due to lower broadcast and print ad sales and an impairment charge. (Reuters )Motorola Inc is considering splitting off its struggling handset business, which has been bleeding market share to rivals. Some speculate that these rivals could be prospective buyers. The company did not say what would become of its remaining businesses including television set-top boxes (Reuters)(Photo: Reuters)