Crossroads

At the intersection of technology, finance and the Pacific Rim.

Friday, July 31, 2009

Big Short Term Profit for Long Term Investor

Bloomberg reports:

Warren Buffett’s Berkshire Hathaway Inc. earned a $1 billion paper profit from an investment it agreed to make in Chinese carmaker BYD Co. less than a year ago.

The automaker has jumped fivefold in Hong Kong trading since the deal was announced on Sept. 27, helped by Buffett’s investment and rising demand for fuel-efficient vehicles. Three days earlier Berkshire agreed to an investment in Goldman Sachs Group Inc. that has since generated a paper profit of about $2 billion.

“When Warren Buffett says the sun shines out of somebody’s backside, it’s worth paying attention,” said Guy Spier, principal at New York-based hedge fund Aquamarine Funds LLC, who owns Berkshire shares and has researched BYD. Buffett is “betting on the jockey in this case,” Spier said, referring to BYD’s Chief Executive Officer Wang Chuanfu.

Berkshire’s MidAmerican Energy Holdings Co. unit agreed to buy 225 million new shares of BYD for HK$8 apiece. That stock now has a market value of HK$9.66 billion ($1.25 billion), based on today’s closing price. Buffett will pay HK$1.8 billion.


For the Full Story, Go Here:

Thursday, July 30, 2009

Temasek has been to the "spin doctor" for treatment. Commenting on their losses in portfolio, including USD 27.5BN in the last year alone, the NY Times reports:

Temasek Holdings said its portfolio slid by at least $27 billion, or more than a fifth, in the year ending in March, but it will stick with banks and sees opportunities in food and energy, Reuters reported.

In a speech at the Institute of Policy Studies in Singapore, Temasek’s chief executive, Ho Ching, said on Wednesday, “We are certainly not happy with the negative wealth added in March last year as well as March this year.

My questions:

1. what is negative wealth?

2. How do you add Negtive Wealth?



PE Japan style

This was published in the NY Times. Will speak more about it on saturday.

Japan’s Biggest Talent Agency to Go Private

July 30, 2009, 5:01 AM

Talent agency Yoshimoto Kogyo is planning to go private in a deal worth between $420 million and $525 million, Variety reported. Japan’s 97-year-old agency is said to be negotiating with a media consortium headed by former Sony chairman Nobuyuki Idei.

The group of buyers includes Nippon Television Network, TBS Holdings and Fuji Media Holdings.

As is the case with many production and talent agencies, Yoshimoto has come under pressure to cut costs and form alliances in the recession.

Yoshimoto manages nearly 800 artists as well as managing theaters and producing TV shows and films. Its sales totaled $514 million while operating profit plunged 26.4 percent year-on-year to $45.8 million
for the fiscal year ending in March.

Wednesday, July 29, 2009

KKR

The following was posted in FT Alphaville today:

"KKR is in advanced preparations for an IPO of stock in houseware and food retailer Dollar General, as the US buyout firm tries to solidify its reputation ahead of its own trip to the public markets, reports the WSJ. But in a twist, KKR will also be one of the lead underwriters on the deal, via a recent alliance with Fidelity Investments. It would be the first time KKR underwrote one of its own IPOs, a task it plans to share with Goldman Sachs and Citigroup, among others. Dollar General’s board will finalise the underwriter selection in coming days."

In addition, I received the following question from one of the class participants and my answer is posted below in capital letters:

Question: For PE investor 's perspective, To reduce the period when they can retrieve the investment is main interest. However, if they hurry to reduce this term, can there be any side effects? what sort of evil influences can be for the company?

ON FIRST STATEMENT, NOT ALWAYS. THEY ARE CONCERNED WITH ROI EACH YEAR. IF THE PROSPECT IS THAT IT WILL CONTINUE TO GO UP (AND THIS IS NOT RECOGNIZED BY POTENTIAL BUYERS) THEN THE TENDENCY WILL BE TO HOLD. THERE HAVE BEEN EXCESSES IN THE PE INDUSTRY (JUST LIKE ANY INDUSTRY) AND SOMETIMES COMPANIES ARE LEFT WITH ALL KINDS OF DEBT AND NO REAL PROSPECT GOING FORWARD. BUT IT IS AS I TRIED TO CONVEY IN THE CLASS--NOT JUST THE FAULT OF THE INVESTOR FOR OVER-LEVERAGING THE COMPANY, BUT ALSO THE FAULT OF THE COMPANY'S OPERATIONS--I.E. THEY HAVE NO COMPETITIVE STRENGTH TO GENERATE CASH FLOW. IF THEY DID, THEY COULD STILL GO INTO BANKRUPTCY, MELT THE DEBT DOWN AND RE-EMERGE STRONGER. THIS HAPPENS TIME AND TIME AGAIN. SOMETIMES, IT IS THE FAULT OF THE INVESTOR, SOMETIMES IT IS THE FAULT OF MANAGEMENT OR LABOR WHO DO NOT REALIZE THAT THEY NEED TO GENERATE A RETURN OR "BE GONE'.

Saturday, July 25, 2009

Some Interesting News in the past few days in the PE World:

David Bonderman, head of TPG, joined General Motors' Board of Directors. For details, go here.

Also, MacQuarrie, the Australian investment bank, will raise USD 500 for Indian infrastructure development.

Tuesday, July 21, 2009

Questions

I got the following emails from members asking the questions below. My answers are in cap letters. Thanks to those who sent the questions. It is much appreciated.

I had several questions after studying PE.

1. Do private equity firms (KKR, BLACKSTONE .etc) inform investors of the target company before the firm start to invest ? In my thinking, this situation happens frequently. investors can get another opportunity. However, Is it insider trading? illegal. Is it correct?

IF A PE FIRM INVESTS IN A PUBLIC COMPANY IT IS A MATERIAL EVENT (IF LISTED IN USA AND MOST OTHER EXCHANGES) AND THEREFORE SHOULD BE DISCLOSED. SO AS SOON AS AN AGREEMENT IS SIGNED, THEY ARE OBLIGED TO DISCLOSE.

2. Whenever I read newspaper and journal, I heard just USA's private equity firm, Carlyle,KKR, BLACKSTONE. Is the reason their size is great? Are their any big and famous private equity fund in other country except sovereign fund?

WELL PE IS MAINLY US BASED BECAUSE US INVESTORS (LPS) HAVE BEEN THE MOST AGGRESSIVE IN INVESTING IN THIS ASSET CLASS. THERE ARE A FEW LARGER EUROPEAN FUNDS, BUT NOT OF THE SCALE OF KKR OR CARLYLE OR OR BLACKSTONE.

3. It is vague between PE and IB, nowadays. Maybe those have compatitive relationship or cooperative each other. Which one is more powerful and efficient? As far as I concerned, If I am investor, I will put my money into IB sectors because of more stable and secure....bank...

NOT AN EASY QUESTION--LIKE ASKING WHO IS THE BETTER ATHLETE--KOBE BRYANT OR RONALDO? BUT SUSPECT THAT GOLDMAN REMAINS AT THE TOP IN TERMS OF INFLUENCE--AFTER THAT IT IS HARD TO SAY. POWER DEPENDS ON WHERE YOU SIT--IF PE IS THE OWNER AND AN IB APPROACHES IT, THERE IS NO QUESTION ABOUT WHERE THE POWER AND INFLUENCE LIES.

One other person made the following comment:

After your recommendation on google reader, I found it very convenient!!

I registered investopedia, Financial Times, Private equity news and Reuters.

Some of them require fee-charging subscription.

If any, would you please recommend other internet news papers from which I can have more reliable private equity news?

TRY THE DEAL BLOG OF THE NY TIMES, FTALPHAVILLE, AND PE EQUITY HUB. EASIEST IS JUST TO TYPE "PRIVATE EQUITY" INTO GOOGLE READER AND LET IT SEARCH FOR THE MOST POPULAR SITES/BLOGS. KNOWLEDGE IS GETTING AWFULLY ACCESSABLE--THE INTERNET IS LIKE KNOWLEDGE VITAMINS--HIGHLY CONCENTRATED IF YOU KNOW HOW TO USE IT.



Monday, July 20, 2009

KKR

KKR has moved closer to going public on the NYSE as it is merging with its Amsterdam affiliate. The Deal Blog of the NY Times explains:

Kohlberg Kravis Roberts, the private equity firm, announced early Monday that it had reached a deal to merge with a European affiliate, giving it an Amsterdam listing and the option to later pursue a public listing in New York, The New York Times’s Michael J. de la Merced reported.

The independent directors of the affiliate, KKR Private Equity Investors, also known as K.P.E., approved the proposal, Kohlberg Kravis said in a statement. It ends a two-year effort by Kohlberg Kravis to go public, a move stymied by the turmoil in the credit markets that erupted last autumn.

Kohlberg Kravis also said that it expected to have earned $345 million to $370 million for the three months ended June 30, on $50.8 billion in assets. That represents a 16 percent drop in assets under management from the same time a year ago. For the six months ended June 30, 2008, Kohlberg Kravis lost nearly $12 million, under a measure it calls economic net loss, which excludes certain accounting charges.

Saturday, July 18, 2009

Warburg Pincus and Hospitals

Warburg Pincus has committed up to $300 million to the formation of RegionalCare Hospital Partners, a hospital acquisition platform focused on non-urban markets. It will be led by CEO Martin Rash, former CEO of Province Healthcare. For further details go here: http://www.pehub.com/44958/warburg-pincus-forms-hospital-platform/

Various China related PE News:

KKR buying into a Leasing Co


Sequoia invests in a movie maker:


Carlyle IPO for its China Insurance Investment

Sunday, July 12, 2009

Jobless Koreans

This is the link to the article that I referred to about jobless Koreans going back to "hard" (real) labor. Keep up your awareness.

Thursday, July 09, 2009

OB Brewery

FT wrote about the sale of half of OB to Affinity Partners by KKR. The capital structure appears to be as follows:

Saturday, July 04, 2009

Private Equity News

Deal Book of NY Times reports the following:


While on the fund-raising front: