David Bonderman knows a thing or two about airline investments. Back in 1992, together with Bill Price and James Coulter, he launched an entity called Air Partners to acquire Continental Airlines in a $450 million deal alongside Air Canada. Havind gone bankrupt twice in six years, Continental seemed a hopeless case. The following year, the trio formed Texas Pacific Group (TPG) and, in 1998, Continental delivered a breathtaking 11-fold return.
Fast forward to the present and Bonderman and TPG have Australian airline Qantas in their sights. A sprawling bid consortium also includes a bunch a Australian pension funds, Macquarie Bank, local private equity firms Allco Finance and Pacific Equity Partners and Canadian investment group Onex Corp.
But it's TPG's involvement that seems to have drawn the most attention – and by no means all of it positive. Responding to news of the consortium's proposed A$11 billion ($8.7 billion) takeover, airline industry union spokesperson Linda White was reported in Australia's Daily Telegraph as saying: “People fly Qantas because of the standard of service and the safety that they get, and the public are not stupid. American equity people might think we are stupid but we are not.”
But dodging union bullets is not the only, nor the most pressing, challenge. Of greater priority is piloting the bid beneath the sight of regulators. Australia's tough ownership laws bar foreign investors from owning more than 49 percent of Qantas and single shareholders from holding more than 25 percent. In addition, an equity stake of as little as 15 percent will trigger a probe by the country's Foreign Investment Review Board, which can block foreign takeovers on grounds of national interest.
But those hoping for the kine of showdown that the airline union appears psyched up for may be disappointed. While are Australian pension funds are thought to be targeting a 30 percent stake, all other consortium members are aiming for 14.9 percent each (with the exception of Pacific Equity's five percent target). The strategy of TPG and its fellow passengers appears to involve avoiding unnecessary turbulence.
LONE STAR PULLS KOREA EXCHANGE BANK SALE
Lone Star has terminated a $7.3 billion (€5.5 billion) agreement to sell its controlling stake in Korea Exchange bank of Kookmin Bank because of continuing prosecutors' investigations into the private equity firm's original investment in the business in 2003. Lone Star would have made more than $4 billion in profit if the sale had gone through. The planned tax-free exit had aroused nationalistic sentiment in certain quarters. Probes are taking place into the 2003 sale of the bank to Lone Star, and the subsequent rescue of Korea Exchange Bank's troubled credit card unit.
TAIWAN REVIES RULES GOVERNING PRIVATE EQUITY DEALS
The Carlyle Group's pending acquisition of Taiwan's Advanced Semiconductor Engineering, the world largest microchip packaging and testing firm, has reportedly prompted Taiwanese regulators to review the rules that govern foreign investments. Under existing law, Carlyle's profits from selling shares in the chip company on exit would be treated as a capital gain and as such tax-free. Taiwan's Ministry of Finance is planning to treat profits from the sale of redeemable preferred shares as stock dividends and liable to a tax, or 10 percent if the host country of the foreign investor has a tax agreement with Taiwan.
BRAIN CAPITAL APPOINTS JAPAN OPERATING PARTNER
Bostn-based investment firm Bain Capital has appointed technology Veteran Nobuysohi Yamanaka as an operating partner to help oversee the firm's Japanese portfolio companies. Yamanak will also become chairman of the board of Conlux, the Japanese subsidiary of MEI Conlux, a producer of unattened payment systems. Alongside Tokyo-based private equity firm Advantage partners, Bain Capital bought MEI Counlux in June. Yamanaka joins Bain from Emerson Electric Japan and GE Hitachi Lighting, where he served as president and chief executive officer.
KKR RECRUITS LEGEND FOUNDER
New York-based buyout giant Kohlberg Kravis Roberts (KKR) has hired Liu Chuanzhi, president of Legend Holdings and former chairman and president of Lenovo Group, and Edward Tian Suning, founder and chairman of China Broadband capital Partners, as senior advisors in China. KKR told its limited partners that it was considering a separate Asia-focused private equity fund to be raised in 2007, sources said in June
JADE LAUNCHES $150M FUND OF FUNDS
Jade Alternative Investment Advisors, an independent investment consultant with offices in Beijing and Shanghai, has begun marketing Jade China Value Partners, a commingled private equity fund of funds with a $150 million (€114 million) target. The fund will invest in private equity funds operating in mainland China. The fund is aimed primarily at institutions and corporate investors based in the Middle East, although it will be open to European clients. The vehicle is sponsored by the Kuwait China Investment Company, a subsidiary of the Kuwait Investment Authority and the National Investment Authority.
CARLYLE INVESTS IN BILLBOARDS
The Carlyle Group has invested $20 million (€15.2 million) in Time Share Advertising & Communications, an outdoor media company in China that provides low-cost advertising via idle outdoor billboard space across the country. Time Share Advertising does not own any of the billboards or screens, but acts as an intermediary between advertisers and billboard owners, according to a company official. The firm, founded in June 2005, has signed exclusive contracts with nearly 10,000 billboard owners.
ADVANTAGE PARTNERS BUYS LIVEDOOR BUSINESS
Advantage Partners, a Tokyo-based private equity firm founded by former Bain consultants, is buying the financial services business of Livedoor Co, the internet firm founded by takafumi Horie. The deal, which is worth ¥17.5 billion ($151 million;)€115 million), involves the acquisition of six subsidiaries spanning activities in securities, consumer loans and credit cards, according toa spokesman from Livedoor. Former executives of Livedoor Co have been indicted on a charge of falsifying earnings to inflate the company's share price.
ABRAAJ CAPITAL BUYS STEEL FORGING HOUSE
Abraaj Capital, a Dubai-based private equity firm, has bought an 80 percent stake in MS Forgings, Pakistan's largest steel forging house, which supplies steel components for the automotive industry domestically and internationally. The consideration for the deal was undisclosed. It is the firm's first investment from its $300 million (€227 million) Abraaj BMA Pakistan Buyout Fund, launched by Abraaj and Pakistani manager BMA Capital, which is a portfolio company of Abraaj. MS Forgings is considering strategic acquisitions within Pakistan as well as in established markets such as Europe and the US.
MATRIX'S FAST FOOD APPETITE
Matrix Partners India, a venture capital firm, has invested Rs250 million) to fund the expansion fo Yo! China a chinese fast food company, in Omdoa. Avnish Bajaj, founding managing director of Matrix Partners India, said: “Yo! China is addressing a significant opportunity since Chinese food is the second most popular cuisine in India and so far has not had anyone catering to the vas fast food opportunity .” Bajaj has joined Yo! China's board of directors. Bajaj and Rishi Navani cofounded Matrix India with Matrix Partners of the US. The India-focused venture capital firm, which raised a $150 million fund earlier this year has a multi stage, multi-sector investment focus.
GCC IN OMAN POWER DEAL
Dhofar Power Company, a utility based in Oman, has a new controlling shareholder. A consortium led by GCC Energy Fund in Dubai and also including Darbat Power of Oman and Malakoff Berhad, a Malaysian power company, have agreed to acquire a 46 percent stake in the business, PSEG Global, a US-based group, decided to sell the shares. Dhofar is one of a small number of private energy providers in Oman and operates in the South of the emirate. The GCC Energy Fund, which was established in 2005 to invest in energy assets in the Middle East, is run by Adil Toubia.
3I AND KHAZANAH INVEST IN REINSURANCE PLACEMENT
3i and Khazanah Nasional Berhad, the investment arm of the Government of Malaysia, have participated in a $620 million capital raising by Asia Capital Holding to create Asia Capital Reinsurance Group. The transaction marks the creation of the first exclusively pan-Asia focused independent reinsurer. 3i and Khazanah have each committed $200 million to ACR. The remaining investment comes from a syndicate of funds including Morgan Stanley Private Equity Asia and Credit Sussie Private Equity Asia.
SECOND FOF FOR TOKIO MARINE
Tokio Marine Asset Management, the investment advisory arm of Japan's Tokio Marine & Nichido Fire Insurance Co., is looking to raise $200 million from local institutional investors for a private equity fund of funds. The new fund will be the second global fund of funds co-managed by Tokio Marine and Pathway Capital, its US partner. The two fund investment advisors are currently managing a $125 million fund of funds established in September 2003, according to an official from Tokio Marine.
Soichi Takata, a senior fund manager at the private equity group of Tokio Marine Asset Management, said the first TMA/Pathway Private Equity Fund held a final close in February this year, after a relatively long marketing period, with commitments from six institutional investors from Japan. Takata expects the investors from the first fund to increase their exposure to the new fund-of-funds. The TMA/Pathway Private Equity Fund II is targeting 10 to 20 institutional investors, he said.