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Private-Equity players such as Cerberus Capital Management and Kohlberg Kravis Roberts have scored some of the biggest buyouts ever in recent months, including TXU, First Data Corp. and Chrysler. But are these cash-heavy private-equity (PE) firms racing against time? They need to win and ink future deals before the leveraged-buyout (LBO) window slams shut--a scenario Wall Street experts are betting will happen sooner rather than later...
...rare in the private-equity club. Historically, going-private transactions were bumped only when a strategic buyer jumped in, such as Whirlpool Corp. against Ripplewood in the Maytag contest, or Building Materials Corp. of America's attempt to bust up the Carlyle Group's buyout of ElkCorp. For PE investors deal jumping was considered a faux pas. "It has long been suspected that there is an unwritten gentleman's agreement among private-equity firms to refrain from jumping each other's deals," said Chris Young, director of M&A research at Institutional Shareholder Services, a highly regarded independent proxy-advisory...
...PE firms are starting to defy this unspoken rule. A team of PE players joined forces with publicly held Vornado Realty earlier this year to try to derail Blackstone's agreement to buy office giant Equity Office Properties Trust. Although the PE contingent, which included Starwood and Walton Street Capital, eventually dropped out, the ensuing bidding war wound up costing Blackstone significantly more to buy Equity Office in what became the largest leveraged buyout in Street history. Blackstone was forced to boost its bid to $55.50 a share, or $39 billion, from the original $48.50 a share. Another deal jumper...
Fueling the competition further are disgruntled mainstream investment funds, which have been egging on PE firms to deal jump. Some have become quite vocal and even threatened to vote their shares against a deal unless a bidder kicked in more money. One such firm is Cohen & Steers Inc., a nonactivist real estate investor, which publicly criticized Blackstone's original takeover offer for Equity Office as being ridiculously low. The firm's comments helped trigger the bidding war that ensued...
...fair. "Oh, absolutely," he said. "Our fiduciary obligation is to maximize the returns and the valuation for our investors." Carl Icahn more recently suffered a similar predicament when shareholders rebelled against his offer for auto-parts maker Lear Corp., forcing him to cough up more cash. And several PE financings have flopped because investors balked at the lenient loan terms...