Japan has its first trade deficit since 1980. (Reuters)

Yahoo! (NASDAQ: YHOO) posts weak earnings on a revenue drop. (Reuters)

International Monetary Fund’s Lagarde says that if Europe combined the ESFS and ESM rescue funds, it would raise confidence in the chance that a bailout of weak economies would work. (Reuters)

A PricewaterhouseCoopers study shows CEOs are concerned about a negative reaction to the  situation in Europe. (Reuters)

More cracks are found in the wings of Airbus A380 super jumbos. (Reuters)

Roche offers $5.7 billion to buy gene map firm Illumina (NASDAQ: ILMN). (Reuters)

The Baltic Exchange’s measure of the cost of shipping commodities plunges, an indication of a slow economy. (Reuters)

Ericsson’s (NASDAQ: ERIC) shares plunge after it said profit for Q4 dropped sharply. (Reuters)

Facebook will suspend trading in its shares for three days, but does not explain why. (Reuters)

EU executives will block an NYSE Euronext (NYSE: NYX) merger with Deutsche Borse. (Reuters)

Google (NASDAQ: GOOG) to combine information on users, which will make it harder for them to keep private. (WSJ)

Morgan Stanley (NYSE: MS) presses to lead the Facebook IPO. (WSJ)

The parent company of British Air may be part of an AMR buyout. (WSJ)

The IMF cuts its forecasts for most nations around the world. (WSJ)

AMD (NYSE: AMD) shows a loss on large write-downs. (WSJ)

The Defense Department to reveal its plans for budget cuts. (WSJ)

The PMI of many parts of Europe rises. (WSJ)

EU finance ministers press Greece and its private creditors to settle differences on refinancing. (WSJ)

General Motors (NYSE: GM) is accused of using the government bailout as the means to make the Chevy Volt. (WSJ)

McDonald’s (NYSE: MCD) quarter is driven in part by late-night food sales. (WSJ)

Del Frisco’s Restaurant Group plans to go public to raise $100 million. (WSJ)

Olympus is in talks with Sony (NYSE: SNE) to raise $1.3 billion. (WSJ)

The Avenue Capital Group will take over Quiznos as part of a debt restructure. (WSJ)

Gannett (NYSE: GCI) buys Fantasy Sports Ventures so that it can focus more on sports news. (WSJ)

Daniel Mudd, CEO of Fortress (NYSE: FIG), leaves after charges of securities fraud. (WSJ)

Morgan Stanley makes only a small number of its executives new managing directors. (WSJ)

European banks restructure to improve balance sheets, but some moves may be blocked by regulators worried the changes could hurt the financial system. (NYT)

The European Central Bank faces losses on Greek bonds that could reach 55 billion euro. (NYT)

Oil imports helped drive Japan’s rare trade deficit. (NYT)

The IMF presses the ECB to take larger losses on Greek bonds. (FT)

Citigroup (NYSE: C) may make more spending cuts in its securities group. (Bloomberg)

Douglas A. McIntyre

Some of the private equity firms which will be watching this offering closely are The Blackstone Group (NYSE: BX) worth $7.4 billion, Kohlberg Kravis Roberts & Co. (NYSE: KKR) worth $3.1 billion, American Capital, Ltd. (NASDAQ: ACAS) worth almost $2.5 billion, Och-Ziff Capital Management Group LLC (NYSE: OZM) worth about $925 million, and Fortress Investment Group LLC (NYSE: FIG) worth about $665 million.  There is also the PowerShares Global Listed Private Equity (NYSE: PSP) ETF that Carlyle will ultimately become a part of when it comes public.

Carlyle is going to list on NASDAQ rather than on the NYSE and it is going to list under the ticker “CG” for its units.  No financial terms have been set for the deal.  The private equity giant has selected J.P. Morgan, Citigroup, and Credit Suisse as the listed book-runners for this IPO.

It is hard to admit that it was hard to ignore that the founders made a combined $413 million in 2011 ahead of this IPO.  The full amended filing is here.

One reason that private equity deals matter to the public right now is because of Mitt Romneys’s roots back to Bain and the current misconceptions about what private equity firms actually do.  While layoffs happen at most private equity buyout targets, many of those businesses were failing to generate profits and many may have eventually folded on their own.  Who are the largest clients of private equity firms?  Usually company and governmental pension funds.

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JON C. OGG

While financial terms have not been set, it is interesting that this initial public offering is currently for only “up to $100 million” in common units for sale in the filing.  The underwriters so far named are J.P. Morgan, Citigroup, and Credit Suisse.

As of June 30, 2011, Carlyle showed roughly $153 billion in assets under management.  That was up from $107 billion at the end of 2010, but that gain includes the benefits of the acquisitions of AlpInvest Partners B.V. and Emerging Sovereign Group LLC on July 1, 2011.

Carlyle is one of the most prestigious private equity players on the planet.  It is extremely diversified in portfolio companies and in geographies in multiple asset classes and in multiple investment strategies.  Its $153 billion in assets under management is spread among 86 funds and 49 fund of funds vehicles.  The company itself has over 1,100 employees, which are comprised of over 500 investment professionals, in 34 offices on six continents.

The company noted in the filing that it serves over 1,400 carry fund investors from 73 countries.
The company’s total footprint is shown as being over 200 portfolio companies that employ more than 600,000 people under its Corporate Private Equity and Real Assets segments.

Revenues in the first six months of 2011 have been $1.796 billion and distributable earnings have been $373.2 million.  Total segment revenues for all of 2010 were $2.385 billion with distributable earnings coming to $342.5 million.

The FULL SEC FILING is available here.

Keep in mind that investors can actually invest in a private equity ETF if they want to spread the wings out other than just in one firm.  There is the PowerShares Listed Private Equity (NYSE: PSP) which tracks the Global Listed Private Equity index with at least 90% of its assets in securities of publicly listed private equity companies, business development companies and other financial institutions or vehicles whose principal business is to invest in and lend capital to privately held companies.

JON C. OGG

We have outlined the analyst calls, shown an impact and added in color on each if applicable.  As a bonus, we also covered a list of biotech buyout candidates from UBS and we covered the mega-IPO from London-listed Glencore as the commodity giant’s quiet period ended.

Alcatel-Lucent (NYSE: ALU) was raised to Buy at UBS on Thursday, and the implied price target was raised to $6.61.  The argument is that the selling from the peak in May has led to an oversold reading in the stock.  This is still one of the best recovered networking and telecom equipment players out there for 2011.

Baidu, Inc. (NASDAQ: BIDU) may be a controversial call here.  Sure China is slowing, but things are just picking back up for the stock and for some China players after getting beaten for weeks due to accounting fears in all aspects of China.  S&P Equity Research downgraded the shares to “Hold” from “Buy” on Thursday during the afternoon.  The stock paid no attention to the downgrade for all practical purposes.

Biotech and Emerging Pharma was given an interesting call from the analyst teams over at UBS.  The research group came up with four biotech buyout targets this week.

Citigroup, Inc. (NYSE: C) was raised to Buy with a $53 target at BofA/Merrill Lynch this week and the macro-events must have been perfectly timed for this.  What is interesting is that this must have been a self-serving upgrade around the huge mortgage settlement that was also given an extra boost from the debit card swipe-fee being lifted from $0.12 to $0.21 on average.  We have always said this and still maintain it… “When analysts at investment banks upgrade their competitor shares, they may really be upgrading their own shares.”

Fortress Investment Group (NYSE: FIG) was given a big private equity valuation pop as being much better positioned than many private equity peers.  Credit Suisse started analyst coverage with an “Outperform” and it gave it a $7.00 price target objective.  What matters about that is the implication… it was calling for more than 50% upside in the units.

Google Inc. (NASDAQ: GOOG) made a huge score this week. Canaccord Genuity reiterated its “Buy” rating on Google, but it also came out maintained its Street-High $800 price target.  That might be too aggressive for our own breaches, but that implied more than 60% upside.  Shares were at $480 on Monday and up close to $520 on Friday.  Not bad.

Accenture plc (NYSE: ACN) Reiterated Buy and Raised target at Argus.
Cato Corporation (NYSE: CATO) Reiterated Strong Buy as Value at Zacks.
Five Star Quality Care Inc. (NYSE: FVE) Started as Buy at Jefferies.
Fortress Investment Group (NYSE: FIG) Started as Outperform with $7 target at Credit Suisse.
Hudson City Bancorp, Inc. (NASDAQ: HCBK) Raised to Market Perform at FBR.
MetLife Inc. (NYSE: MET) Reiterated Buy at Argus.
Sears Holding Corp. (NASDAQ: SHLD) Maintained Underperform as Bear of the Day at Zacks.
Sina Corporation (NASDAQ: SINA) Raised to Neutral at Goldman Sachs.
Spreadtrum Communications Inc. (NASDAQ: SPRD) Reiterated Buy at BofA/ML.
Telesp S.A. (NYSE: VIV) Raised to Outperform as Bull of the Day at Zacks.
Tim Hortons Inc. (NYSE: THI) Started as Buy at BofA/ML.

You are invited to join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Aruba Networks, Inc. (NASDAQ: ARUN) Started as Buy at UBS.
Cummins, Inc. (NYSE: CMI) Reiterated Outperform as Bull of the Day at Zacks.
Diamond Foods, Inc. (NASDAQ: DMND) Started as Buy at Jefferies.
Enzon Pharmaceuticals, Inc. (NASDAQ: ENZN) Cut to Underperform as Bear of the Day at Zacks.
Fortress Investment Group (NYSE: FIG) Raised to Outperform at Credit Suisse.
FuelCell Energy Inc. (NASDAQ: FCEL) Maintained Buy with $3 target at Canaccord Genuity.
Herbalife Ltd. (NYSE: HLF) Reiterated Buy and raised target to $63 at Argus.
Kraft Foods Inc. (NYSE: KFT) Started as Buy at Jefferies.
Myriad Genetics Inc. (NASDAQ: MYGN) Raised to Buy at Auriga.
NetApp Inc. (NASDAQ: NTAP) Raised to Outperform at Credit Suisse.
Oil States International, Inc. (NYSE: OIS) Reiterated Strong Buy as Value at Zacks.
Parametric Technology Corporation (NASDAQ: PMTC) Reiterated Buy with $28 target at Canaccord Genuity.
PetroChina Co. Ltd. (NYSE: PTR) Raised to Buy at BofA/ML.
Petroleum Development Corporation (NASDAQ: PETD) Raised to Overweight at JPMorgan.
Swift Transportation Co., LLC (NYSE: SWFT) Raised to Overweight at JPMorgan.

You are invited to join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Apollo shares debuted on Wednesday after a $19.00 price for more than 29.7 million shares as the private equity group sold more shares at a higher price than expected.  The IPO for Apollo was 21.5 million shares being sold by the company and more than 8.2 million shares being sold by holders.  We were originally expecting that Apollo would price between $17.00 and $19.00 per share after the price range had been cut from $18.00 to $20.00.  Due to the recent stock market rallies, the reports were out that the deal became oversubscribed with strong demand from retail and institutional investors.

Kohlberg Kravis Roberts & Co. (NYSE: KKR) is now public in the U.S. and its market cap is more than $11 billion.  The Blackstone Group LP (NYSE: BX) is worth some $20 billion in market cap, and Fortress Investment Group LLC (NYSE: FIG) has a market cap of about $2.7 billion.  After the drop seen yesterday and today so far, Apollo’s market cap is about $6.5 billion.

New investors may want to blame the private equity firm itself or  the underwriters.  The shares being sold by the company were about 20% more than what we were expecting.  While the net proceeds of the company’s portion were to fund growth and for general corporate purposes, it is easy to play Monday-morning Quarterback here and say that both the private equity firm and that the underwriters should have known better.  They should have.

How many days of the last two weeks have been up in the markets?  Almost all of them.  Stocks were up more in this first quarter than they have been in years.  That alone doesn’t signal any major top without having a crystal ball.  Still, the markets feel complacent now and stocks are starting to look at least near-term overbought.

Investors need to understand that this IPO had been cut off by market conditions since all the way back to 2008 and maybe even before that.  The market kept telling the company that another public private equity firm was not necessary at the time, and the higher share count eliminated what would have otherwise likely been a better post-IPO debut.  Imagine what happens now if investors decide to start taking broader stock market profits or if the market finally gets spooked near-term by one or more of the myriad of geopolitical news events.

Apollo’s 360.9 million shares outstanding gives the company an ‘at-IPO valuation’ of about $6.85 billion and we know today that this is lower now to about $6.5 billion.  The most recent figure seen is that Apollo’s assets under management were about $67.6 billion.  We would expect that Apollo and its other private equity peers will show higher valuations for the quarter ending today due to the stronger stock market.

What Apollo gets here from this IPO is liquidity for its partners and founders.  It also gets a cheaper currency to use to attract talent as well.  We do not fault the company for coming public.  It was in the best interests of the holders and it allows investors to decide whether they want a piece of the partnership.  We do not even really question the valuation today as it is in-line with or even at a discount to some peer group financial metrics.  Where we have an issue is over the bumped up share count in the initial sale.

Investors have to assume that more shares will be sold in six-months or at some point afterwards as lock-up expirations come into play.  This higher share count was either greed or an extreme miscalculation.  Regardless of which case it is, professionals of this caliber should know better.

Apollo shares were down close to 1% at $18.05 in early afternoon trading and it seems that shares have barely breached the $18.00 level on the downside earlier today.  Had it not been for the higher share count it is our opinion that investors and critics would be talking up the success of this IPO rather than pointing out the problems of this IPO.

JON C. OGG

Goldman Sachs, JPMorgan, and Bank of America Merrill Lynch were expected to lead the underwriting.  Apollo has wanted to join the ranks of The Blackstone Group (NYSE: BX), Kohlberg Kravis Roberts & Co. (NYSE: KKR), and Fortress Investment Group LLC (NYSE: FIG) in the realm of public private equity.

CNBC reported earlier today that the current IPO, which has been three years in the making,  is again being delayed though it’s unclear for how long.  Too bad, because Reuters even noted that a price range was already being discussed.  Is it fair to ask if Apollo’s market ambitions mark a top each time or if an unofficial hex is placed on the markets when it finally determines “now is the time” to come public?  Probably not, but it is hard to not wonder about it.

In all fairness, private equity firms may not be much more intelligent than the rest of us.  They may be just as prone to buying companies at the top of the market as Joe Retail.  Some of the logic may be as simple as the thought that these firms are ‘smooth buyers’ in normal times but they can’t really be vultures as easily when capital markets are tighter.  How many huge M&A deals were made by private equity buyers when share prices were in free-fall in 2008 and into 2009?  It was not really until after a significant market rally and after the return of the credit markets came back that private equity firms were able to start aggressively making acquisitions again.

We have not been able to confirm whether Apollo is a dead IPO again or not.  For now we’ll just take ‘market conditions’ at face value and assume that a private equity giant will remain private or that it will have to value itself a bit lower than it would have just a few days earlier.

JON C. OGG

AGF is a provider of consumer credit that has been in operation since 1920.  It offers loans, retail financing and other credit related products; and its claims more than a million families as customers.  Its products and services also include bill consolidation loans, home equity loans, personal loans, home improvement loans, and loans to help consumers manage unexpected expenses.

Under the deal, 80% will be bought by Fortress and AIG will retain a 20% interest in the AGF business.  Where this gets interesting, particularly if you know your tax money bailed out AIG, is that the financial terms of the transaction were not disclosed. That is typical in many deals, but AIG should have to have an open book right now.

The companies noted that the deal is expected to close by the end of the first quarter of 2011.

AIG’s CEO Robert Benmosche called this “another important step in our ongoing restructuring process as we seek to monetize non-core assets and pay back U.S. taxpayers.”  The problem is that there is no way to know yet what the “monetization” is because financial terms were not disclosed.

AIG noted that AGF has assets of about $20 billion and liabilities of about $18 billion including $17 billion of debt.  These figures will be de-consolidated from AIG’s financial statements.

Where’s the meat?  AIG gets to keep a 20% stake that will have an unknown and undisclosed value in the future.  Without seeing the deal terms, it is impossible to know just what AIG is getting.  Sure, it gets to move off some assets and liabilities from its balance sheet.  What does it get?  For all practical purposes, AIG may have sold this for as low as $1.00 to move assets and liabilities off its books.

AIG spells out what it still owes to the U.S. taxpayers on its site.  How this sale helps dwindle that figure of $101.2 billion was unfortunately hidden in today’s news release.

“Dear Mr. Benmoshce: Please offer full disclosure in the future.  You might be a savior for AIG and its woes were from before you came on, but you still work for one of the most hated companies in America.”

JON C. OGG

Mistra Group (NYSE: MG) priced its offering at $12.50 on October 7.  While it traded as low as $12.17, it has escaped the hangman’s file of ‘busted deals’ as it is now a $13.51 stock.  The one thing that may have helped was that it priced under an initial range of $14 to $16 per share.  Talecris Biotherapeutics Holdings Corp. (NASDAQ: TLCR) also went into the busted category temporarily after hitting a low of $18.01 after a $19.00 pricing.  Fortunately, it is up at $19.97 so is also now out of the hangman’s eyes.  Still, an 8% gain and a 5% gain in this market might leave some investors feeling lonely.  Banco Santander Brasil S.A. (NYSE: BSBR) was a very large IPO of over 500 million shares at an implied $13.40, and this one got out of the “busted IPO” dungeon on Thursday and closed at $13.51 on Friday.  Before Thursday it had spent its 6 prior trading sessions as a busted IPO.

Emdeon Inc. (NYSE: EM) had traded above $18.00 briefly after its IPO priced at $15.50 in August. But now the healthcare revenue and payment cycle management solutions provider, which is supposed to be a healthcare winner ahead, closed down at $15.35 on Friday  and had been slightly lower during the week.  This was effectively a re-IPO as Emdeon had been public before after General Atlantic Partners acquired it and it also received an investment from Hellman & Friedman. It also has ties to James Clark, the Netscape founder and was part of Healtheon.

Colony Financial Inc. (NASDAQ: CLNY) came public late in September at $20.00 per share, and it closed down at $19.69 Friday and has traded as low as $19.25.  Interestingly enough, Friday’s $19.68 close looks to be the highest price since the IPO date.   Colony is a newly formed real estate finance company (mortgage REIT) that will focus primarily on acquiring, originating and managing commercial mortgage loans, which may be performing, sub-performing or non-performing loans, other commercial real estate-related debt investments, CMBS, REO properties and other real estate-related assets.

RailAmerica Inc. (NYSE: RA) has been a busted deal after this was brought public in a re-IPO by Fortress Investment Group LLC (NYSE: FIG) after going private in February 2007.  This short line and regional freight railroad operator came public at $15.00 per share on October 12, so it hardly has much trading behind it.  But its absolute highest print this last week was $14.78 and it closed on Friday at $14.26 for a 5% loser.

Apollo Commercial Real Estate Finance, Inc. (NYSE: ARI) came public at $20.00 on September 24.  This comes out of Apollo Global Management, LLC and it intends to originate and acquire senior performing commercial real estate mortgage loans, commercial real estate corporate debt and loans and to purchase legacy and newly originated investment grade CMBS, and other performing real estate debt investments.  The highest price this one has seen since the IPO was $19.20, and it closed down at $18.57 on Friday to make the tally come to a 7% loser.

Then comes Vitacost.com Inc. (NASDAQ: VITC), which operates as an online retailer of various nutritional supplements, and health and wellness products.  Its September 24 IPO priced at $12.00 yet has been very volatile in not so much of a good way.  It has traded above the $12.00 mark at $12.25 during the first week, but then shares went as low as $9.34 and closed on Friday at $10.75 for still more than a 10% discount to its IPO price.

There are other 10% and higher losers as well.  Echo Global Logistics, Inc. (NASDAQ: ECHO), which provides business process outsourcing serving the transportation and logistics needs, came public at $14.00 on October 2, and while it did briefly hit $14.23 it closed down at $12.50 on Friday for a loss of 10.7%.

Chemspec International Limited (NYSE: CPC) was brought public in June at $9.00.  This Chinese chemical compounds company has traded as high as $10.50 and as low as $6.63.  Its closing price of $7.79 on Friday gives it a loss of over 13%.

Shanda Games Limited (NASDAQ: GAME) has all the earmarks of a forced copy-cat IPO.  Since it is out of China and a copy-cat strategy, we’ll even call it a knock-off IPO.  This was a Shanda Interactive Entertainment Ltd. (NASDAQ: SNDA) ‘spin-off’ that is technically still under control of the parent and by the IPO prospectus will remain that way.  The inspiration for this was this the successful Changyou.com  (NASDAQ: CYOU) spin-off IPO from Sohu.com (NASDAQ: SOHU), which had effectively doubled when Shanda decided a knock-off strategy.  Shanda Games came public at $12.50 on September 25 and briefly hit $13.00.  Yet it also went under $10.00 and closed Friday at $10.32 to come to a 17.4% loser.

Cumberland Pharmaceuticals, Inc. (NASDAQ: CPIX) came public at $17.00 per share and its $75.2 million was to be used for potential acquisitions, the pending launch of the Company’s Caldolor(®) product for pain and fever, expansion of the Company’s hospital sales force, product development, debt repayment and general corporate purposes.  It also markets Acetadote(®) for the treatment of acetaminophen poisoning and Kristalose(®), a prescription strength laxative.  It turns out that IPO investors felt like they got too much of that powerful laxative.  This did go as high as $17.75, but then the blow-holes opened up despite 3 broker as issuing buy ratings.  Shares have gone under $13 and closed Friday at $13.40 for a loser by over 21%.  This one has some revenues and has been profitable.

Lastly, there is Omeros Corporation (NASDAQ: OMER).  This is a biotech play as a clinical-stage company committed to discovering, developing and commercializing products focused on inflammation and disorders of the central nervous system.  It came public at $10.00, already at the bottom of the $10 to $12 per share range, and its shares closed at $6.88 Friday to account for a whopping 31.2% loss for IPO buyers.  No one who bought this has made money as its highest post-IPO price looks to be $9.49.

The Blackstone Group (NYSE: BX) is weighing as many as eight IPOs or target-acquisition exits in the coming months according to multiple reports.  If it wants a smooth exit, it better consider making the deals as good for new IPO buyers as it is for Blackstone.  KKR wants to bring back the giant Dollar General as a public company despite the thought that the dollar-store investment play may have already seen its best days during the recession.

As Gordon Gecko would say, there are many dogs with fleas.  Some will do well in the future, but investors were just too shell-shocked from late 2008 into the first quarter of 2009 to buy up other peoples’ mess.  Investors feel little need to support a private equity-backed IPO where all the proceeds are going straight back to the private equity firms.  Companies that are unprofitable also have less appeal to investors.  And complicated structures also offer conservative investors much comfort.

You can join our open email distribution list to get daily updates on top analyst upgrades and downgrades, top day trader alerts, IPO’s, secondary offerings, Warren Buffett and other guru activity, M&A and more.

JON C. OGG
OCTOBER 17, 2009