Report: Forstmann Little may entertain a bid for IMG

The buyout firm, which began winding down its portfolio in 2004, may sell one of its last remaining portfolio companies for more than double its initial investment.

Terry Semel, former chief executive of Yahoo! And Warner Brothers plans to make a bid for Forstmann Little portfolio company IMG marketing and talent agency, according to a report in The New York Post.

IMG is one of three companies remaining in the portfolio of buyout firm Fortmann Little, which began to wind down in October 2004. The firm still holds stakes in gym chain 24 Hour Fitness and radio broadcaster Citadel Broadcasting Corp as well.

Forstmann Little acquired IMG for $750 million four years ago. The firm would accept an offer of $3 billion, The Post said referencing people close to IMG. A more “realistic” price for IMG would be $2 billion, sources added.

Semel has met with private equity firms as well as the sovereign wealth funds of the United Arab Emirates and has raised enough capital for a significant bid, according to the report.

Ted Forstmann founded Forstmann Little & Co. in 1978. He became one of Wall Street's most prominent figures: his 1988 bidding war for RJR Nabisco was the subject of the book Barbarians at the Gate. His firm has invested in Gulfstream Aerospace, the jet plane maker, Revlon, the cosmetics business, and Dr Pepper, soft drinks manufacturer, among others.

In 1999, Forstmann backed two telecom companies, XO Communications and McLeodUSA, which both subsequently collapsed, costing Forstmann Little more than $2 billion. In 2004 on behalf of Forstmann Little's investors, the Connecticut Pension Fund sued the firm for losing $125 million of the pension fund's money in these investments. The court convicted the firm of acting “with gross negligence, in bad faith or with willful misconduct” and ordered the firm to pay the pension fund $15 million, although Connecticut had asked for far more.

A successful sale of IMG for more than double Forstmann’s initial investment would be a significant victory for the firm which took part in two disastrous telecom investments.