24/7 Wall St. » FDC

KKR Knuckles Under

247wallst — Mon, 10 Sep 2007 04:52:03 +0000

After weeks of sabre rattling about how its would hold banks to their lending commitments on money to finance its takeover of First Data (FDC), KKR "appears willing to agree to a covenant that places a performance criteria on First Data’s debt," according to The Wall Street Journal. The paper says that banks may still lose as much as $1.3 billion on the debt.

But, large banks and investment houses have make billion of dollars in fees providing financing for similar deals, and, in a bad environment, it may be time for them to part with some or all of their gains as they stick to contracts that promise that they will provide debt for individual private equity financing.

The larger question is whether KKR has done itself and its competitors any favor by giving in even a little. It could certainly make the argument that banks have gotten rich off it deal that the private equity firm has brought them. As the Journal writes: "It is to everyone’s benefit for the syndication process to move smoothly," says one person who worked on the deal. "And it benefits both KKR and the banks for the debt to trade well."

That may not be true. KKR makes it money from buying companies and collecting fees, in part, on how well those companies do in the future. Anything that begins to tie its hands in the operations or financial activities at the companies adds to the firm’s risk.

Giving the banks even a little is a slippery slope.

Douglas A. McIntyre

New Digest 9/10/2007 Reuters, WSJ, NYTimes, FT, Barron’s

247wallst — Mon, 10 Sep 2007 03:08:53 +0000

According to Reuters, Citigroup (C) will list its shares on the Japanese stock market as early as November.

Reuters writes that Capgemini, Europe’s largest computer consultancy, will start to incorporate Google (GOOG) Apps into its offerings for clients.

Reuters reports that most OPEC ministers support holding oil prices at current levels.

Reuters reports that AMD (AMD) has launched its Barcelona chip in an effort to improve its competitive position against Intel (INTC).

Reuters writes that Australian authorities are looking into Google’s bid for Doubleclick due to concerns about antitrust.

The Wall Street Journal writs that KKR is willing to make concessions to its banks on its purchase of First Data (FDC) agreeing to performance criteria on First Data’s debt.

The Wall Street Journal writes that Yahoo! (YHOO) has considered outsourcing its search functions to Google (GOOG).

The Wall Street Journal writes that PC maker Lenovo will introduce laptop and desktop computers for its new consumer segment.

The New York Times writes that Disney (DIS) will test toys based on its characters to make certain that they are safe.

The FT writes that hedge funds are concerned about large redemptions in September due to poor August performance.

The FT reports that credit agencies could face lawsuits over their ratings of sub-prime debt.

Barron’s writes that Berkshre Hathaway (BRK.A) was the most admired company in recent poll of professional investors.

Douglas A. McInyre

Media Digest 8/30/2007 Reuters, WSJ, NYTimes, FT, Barron’s

247wallst — Thu, 30 Aug 2007 03:08:46 +0000

According to Reuters, Yahoo! (YHOO) has pushed out its top sales executive and combined its sales and e-commerce units.

Reuters writes that Microsoft (MSFT) has purchased a corporate group chat provider.

Reuters writes that Apple (AAPL) is about to introduce a new series of iPods.

The Wall Street Journal writes that a battle between banks and KKR is heating up over the purchase of First Data (FDC).

The Wall Street Journal said that Altria (MO) was working on spinning off its international operations.

The Wall Street Journal says that Sony Ericsson is starting to build phones for the low end of the market.

The New York Times reports that the CFO of Gap (GPS) left to go to Visa.

The FT reports that the Pritzgers will sell a $1 billion stake in Hyatt Global.

Barron’s writes that Tivo (TIVO) issued weak Q4 guidance.

Douglas A McIntyre

Pending Merger Arb Spreads Remain (Part 1) (ACS, URI, FDC, CCU)

247wallst — Mon, 20 Aug 2007 13:05:00 +0000

There are still over 150 pending mergers out there that have not yet closed. After the Fed’s recent actions, there are still some deals out there that are perceived to be at risk as far as the deals closing or if the deals can close at the announced buyout price. Some of these spreads have tightened in merger-arb scenarios, but there are quite wide spreads on many pending deals. We have included most of the proposed closing prices or what discount the pending deals are to the actual price.

We’ll be sending out a few selected deals we expect to go through without issue before Labor Day to our Special Situation Investing Newsletter subscribers. Here is a partial list of some of the larger mergers out there that are still pending, and the total consideration pending here out of all the names we are covering today is more than $175 Billion:

The MBO of Affiliated Computer Services (NYSE:ACS) for some $8.2 Billion is also though of at risk or at least at the original terms because of the debt involved. Chairman & founder Darwin Deason partnered with Cerberus Capital Management to offer $59.25 per share back in March, and shares at $49.90 are only 10% above 52-week lows and are roughly at a 16% discount to the acquisition price.

The buyout of United Rentals (NYSE:URI) by Cerberus at $34.50/share is seeing shares trade at $30.60 mid-morning, has a merger-arb spread of roughly 11%. United Rentals is a municipal infrastructure player that is viewed to still have value on its own, and shares traded close to $40.00 on their own back in early 2006.

This $26 Billion buyout of First Data (NYSE:FDC) from KKR has been one of the cornerstone mergers that the skeptics are watching to see how strong deals can remain. The huge size of the deal makes it an esy one to target for being at risk, even though shareholders have already approved the buyout. The $34.00 buyout price was looking at risk last week when shares dipped to under $30.50, but now shares are at $31.85. That is still north of a 6% premium today.

Clear Channel (CCU) is one of those long-term at risk mergers that hasbeen ongoing. The buyout price led by Bain Capital and Thomas H. Lee Partners LP for $39.20 is still well above today’s $35.40price. Its shareholder vote is scheduled for September 25.

Jon C. Ogg
August 20, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Banks Eat Private Equity Debt (JPM)(GS)

247wallst — Tue, 17 Jul 2007 09:12:00 +0000

Bloomberg is reporting that JP Morgan (JPM), Goldman Sachs (GS) and several other large investment banks have had to keep $11 billion in private equity debt.

"The banks have had to dig into their own pockets to finance parts of at least five leveraged buyouts over the past month because of the worst bear market in high-yield debt in more than two years", data compiled by Bloomberg show.

Some of the deals that have yet to be funded include TXU (TXU) and First Data (FDC)

If the problem become more severe, it is certainly not out of the question that several money center banks and investment firms would have to take large hits to their P&Ls. Beyond that that big question is what occurs if one of the big private equity deals simply fall apart. Beyond lawsuits that is.

Douglas A. McIntyre

Cramer’s Got 2 More Financial Service Buyout Picks (TSS, ADP, ADS, BSG, FDC, SNV)

247wallst — Mon, 21 May 2007 17:53:21 +0000

Cramer came on MAD MONEY saying he thinks that Total Systems Services (TSS-NYSE) is one that can be taken over next in a sector and $40.00 would be a fair price based on Alliance Data prices. Synovis (SNV) is the parent and Third point is now being an activist investor. The earnings growth of 18% is reason enough to own this. The only issue he has in the sector is that Automatic Data Processing (ADP) might be acquired first. Alliance Data Services (ADS) was just acquired, First Data (FDC) is going private, and even Bisys Group (BSG) got gobbled up. We’ll see, but investors need to keep in mind that some of the premiums in this sector have been pidly. ADS was nearly a 20% stock jump, but BSG was a horrible low-premium buyout.

Jon C. Ogg
May 21, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Warren Buffett Rides More Railroads (BNI, NSC, UNP), Plus Other Holdings

247wallst — Tue, 15 May 2007 15:49:13 +0000

This is an edited version of the first story to run an expanded list.

Last month we all found out that Warren Buffett’s Berkshire Hathaway decided to take a ride on the Reading by investing in Burlington Northern (BNI-NYSE). He also said that he had invested in two others, and now we know the holdings out of today’s larger filing. Here are the positions noted in the filing.

Here is a full list out of the SEC FILING:

Here are the rail positions: Burlington Northern (BNI), Norfolk Southern (NSC), Union Pacific (UNP).

American Express (AXP), American Standard (ASD), Ameriprise, Anheuser Busch (BUD), H&R Block (HRB), Coca Cola (KO), Comdisco, ConocoPhillips (COP), Costco (COST), First Data (FDC), Gannett (GCI), General Electric (GE), Home Depot (HD), Ingersoll Rand (IR), Iron Mountain (IRM), J&J (JNJ), Lowe’s (LOW), M&T Bank (MTB), Moody’s (MCO), Nike (NKE), PetroChina (PTR), Pier 1 Imports (PIR), P&G (PG), Sanofi Aventis (SNY), Servicemaster (SVM), Sun Trust Banks (STI), Torchmark, Tyco International (TYC), US Bancorp (USB), USG Corp (USG), United Parcel Service (UPS), United Health group (UNH), Wal-Mart (WMT), Washington Post (WPO), Wells Fargo (WFC), Wellpoint (WLP), Wesco, Western Union (WU)

Jon C. Ogg
May 15, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.