Filed under: Deals, Silver Lake Partners, Private equity

This post was written by DailyFinance contributor Sam Gustin.

Memo to would-be Silicon Valley moguls: do not double-cross a pair of highly litigious billionaires.

After weeks of back-and-forth legal jousting, the tech heavyweights fighting over Skype are set to announce a deal in which the founders of the popular Web-calling service would regain a stake in the company they sold to eBay (NASDAQ: EBAY) in 2005 for $2.6 billion, according to Bloomberg. Nice trick.

The pact ends an at-times vicious soap opera replete with accusations of back-stabbing, dishonesty, and outright theft against Mike Volpi, the pair’s one-time Golden Boy, who they believe double-crossed them. The legal circus held up eBay’s proposed $2 billion sale of Skype to a consortium of private investors led by Silver Lake Partners and Andreessen Horowitz, the investment firm of Marc Andreessen, the billionaire co-founder of Netscape.

The pact ends an at-times vicious soap opera replete with accusations of back-stabbing, dishonesty, and outright theft against Mike Volpi, the pair’s one-time Golden Boy, who they believe double-crossed them. The legal circus held up eBay’s proposed $2 billion sale of Skype to a consortium of private investors led by Silver Lake Partners and Andreessen Horowitz, the investment firm of Marc Andreessen, the billionaire co-founder of Netscape.

Niklas Zennstrom and Janus Friis, who founded Skype before selling it to eBay three years ago, will assume an ownership stake in the company, alongside the consortium, according to the settlement.

The duo, who had asserted an intellectual property claim on Skype’s technology, also will drop suits they filed against Skype, the consortium and a former top executive of theirs, as part of the deal.

For the past several months, the pair has sought to hold up eBay’s sale of Skype to the consortium for $2 billion in cash. eBay would keep a 35% equity investment in Skype, and has maintained that it wants the deal, which values the company at $2.75 billion, to shut before the end of the year.

When eBay bought the company, it hoped buyers and sellers would use the service to negotiate auctions on the site. But while Skype has become popular, it never integrated into eBay the way then-CEO Meg Whitman had hoped, and in 2007, the company wrote down Skype’s value to $1.2 billion.

Zennstrom and Friis had sought an injunction against the sale, as well as statutory damages at an eye-popping rate of “more than $75 million daily.” Additionally, in a barrage of lawsuits, they accused Volpi, the former chief executive officer of World wide web TV service Joost — which Zennstrom and Friis also founded — of breaching his fiduciary duty by stealing confidential information in an effort to seal the eBay deal for the consortium.

The suits accused Volpi of lying, stealing and bad faith by gaffling confidential information for the consortium. Last summer, Volpi became a partner at Index Ventures — a member of the consortium — after leaving Joost as the chief executive. He remained as chairman of the startup, but Friis and Zennstrom kicked him to the curb after they found out about his alleged double dealing.

In one e-mail Zennstrom and Friis produced for the court, Volpi plotted the Skype bid with Danny Rimer, a partner at Index. Volpi’s e-mail refers to various players involved with Skype, and Volpi’s hope to remain chairman of the company.

“Could be cool,” Volpi writes, according to the document. “J/N/Dyne will be very unhappy, but … oh well.”

J/N are Janus Friis and Niklas Zennstrom, and Mark Dyne is a Los Angeles banker and former Skype board member.

Yeah, oh well. Although the deal might now go through, Volpi, a 42-year-old former Silicon Valley golden boy once rumored to be a possible successor to Cisco’s John Chambers, has suffered serious damage to his reputation.

“Even if we give Volpi the benefit of the doubt and assume he prevails on the legal issues, his actions and behavior are apt to put a considerable dent in his reputation,” wrote San Jose Mercury News columnist Chris O’Brien. “Volpi seems to have grotesquely underestimated how upset the Joost founders would be. In case you’re wondering, the answer appears to be: VERY ANGRY.”

Too bad for him, Zennstrom and Friis may be thinking. After all, they felt burned by Volpi and sought to strike back against him. It’s a cautionary tale for would-be Valley machers: don’t mess with this pair.

Skype soap opera ends as founders set to regain stake ahead of $2B sale originally appeared on BloggingBuyouts on Fri, 06 Nov 2009 09:50:00 EST . Please see our terms for use of feeds.

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Filed under: Deals, The Blackstone Group, Private equity

Private-equity firms don’t have a good track record for improving the properties they purchase. They’re better known for buying firms, improving efficiencies (sometimes to the company’s detriment), milking them for cash, and then flipping them when they have the ability to profit. Recently I wrote the sad but familiar tale of Simmons, an iconic mattress company forced into bankruptcy from the debt load left by frequent private-equity flipping.

Will Blackstone Group (NYSE: BX) do the same to Busch Entertainment? On Wednesday, Anheuser-Busch InBev (NYSE: BUD) finalized a deal to sell the group to Blackstone for $2.7 billion, and the early signs advocate that this deal might go superior than others.

The country’s second-most popular parks-entertainment group, second only to Walt Disney’s (NYSE: DIS) parks, Busch operates SeaWorlds in Florida, California, and Texas; Busch Gardens parks in Florida and Virginia; and Aquatica and Discovery Cove in Orlando.

In the deal, Blackstone will provide $1 billion in equity, and the company currently called Busch Entertainment will take on $1.3 billion in new debt. (Anheuser-Busch InBev had originally priced Busch Entertainment at $3.5 billion to $4 billion, but the price was reduced in the downturn.) The seller is also entitled to $400 million in Blackstone’s initial profits from the deal. ABI is using the cash from the deal to pay down part of the $52 billion in debt that InBev incurred from buying Anheuser Busch last year.

“They couldn’t have found a better company to take over the parks than Blackstone,” Dennis Speigel, president of International Theme Park Services, says. “Blackstone is clearly comfortable with the business.” Blackstone’s Merlin Entertainments has shown with its ownership of Legoland theme parks and Madame Tussands wax museums, and its 50% share in Universal Orlando, that it’s in the theme-park business for the long haul. And Blackstone’s Merlin Entertainments has undertaken significant improvements in its other holdings, such as a 36,000-square-foot aquarium that it opened at a Legoland this year, and a Legoland water park it’s planning.

Another good sign, Speigel says, was that Busch Entertainment president Jim Atchison, with his years of experience in the field, and his management team would stay on in the deal. Speigel does not anticipate major changes in the executive management team. “The new leadership will be much more entrepreneurial than Anheuser Busch.” Spiegel predicts that more properties will be developed nationally and internationally, and that Busch will become a stronger competitor to Disney.

Another large question in the Orlando area, where I’m based, is whether Universal Orlando will become part of the Busch Entertainment group. That’s not in the cards now — Blackstone and NBC Universal each own 50% — but Speigel thinks the deal gives the parks an chance to work together through Disney-style homogenization. Disney picks customers up at the airports, handles their bags, and provides transportation among its parks — visitors don’t even need to rent vehicles — and Busch Entertainment and Merlin could create similar experiences to keep customers at Blackstone-owned parks. So far, the deal is looking like a win-win for both sides.

Lita Epstein has written more than 25 books, including Trading for Dummies and Reading Financial Reports for Dummies.

Will Blackstone help Busch parks or take them for a ride? originally appeared on BloggingBuyouts on Thu, 08 Oct 2009 16:10:00 EST . Please see our terms for use of feeds.

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Filed under: Deals, Rumors, Silver Lake Partners, Private equity

The question that I haven’t seen answered in any of the articles relating to the partial acquisition of Skype from eBay (NASDAQ: EBAY) by a team of private investors is, who will own the underlying IP that runs the Skype P2P communications network?

That question must somehow have been answered if savvy investors such as Silver Lake Partners and Netscape founder Marc Andreesen’s investment fund, felt comfortable forking over $1.9 billion to eBay.

And as TechCrunch’s Mike Arrington points out, eBay did okay on this deal, emerging with a paper gain and still some share of any potential upside.

Under the covers, question still lurk. The two controversial Skype founders, Niklas Zennstrom and Janus Friis, are embroiled in a bitter legal dispute with eBay, which originally bought the company from the duo for $2.6 billion. Friis and Zennstrom, who once avoided U.S. soil to avoid litigation by the recording industry, claim that eBay does not own the software the powers the Skype network. Rather, they state that the software IP is merely licensed to eBay by Joltid, an entity the duo still controls. How the Skype guys pulled this off without raising massive red flags on eBay’s legal team is unclear. Somehow they did. eBay’s CEO John Donohoe stated that the new Skype deal does not resolve the legal dispute, according to Dow Jones.

And now it’s left to Silver Lake and company to unravel that legal Gordian knot, appease the two founders and somehow wrangle a perpetual license or something similar for Skype. Such an insurance policy would be a mandatory if Silver Lake and other investers are going to be able to sell Skype off, which certainly is their ultimate goal. Friis and Zennstrom have proven particularly adept at avoiding such commitments.

Analysts are bullish, saying the deal frees Skype to operate on its own outside the suffocating confines of eBay. They also cheered the return for eBay shareholders. The deal valued the Skype unit at $2.75 billion, significantly more than the $2 billion valuation pegged to Skype several months ago. Surging revenues at Skype surely had something to do with this — it was the fastest growing unit of eBay and on track to do $600 million in revenues this year.

The value of Skype is so big and growing so rapidly that the massive guns probably figure that dealing with the founders — and they will have to deal with them whether they want to or not — is worth the danger.

Questions linger about Skype deal originally appeared on BloggingBuyouts on Wed, 02 Sep 2009 14:40:00 EST . Please see our terms for use of feeds.

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Filed under: Deals, Silver Lake Partners

eBay Inc. (NASDAQ: EBAY) announced Tuesday that it has reached an agreement to sell most of its stake in Skype in a deal that values the online telecommunications service at $2.75 billion. eBay will get $1.9 billion in cash and a $125 million note from the buyer.

An investment group led by the private-equity firm Silver Lake, including Index Ventures, Andreessen Horowitz, and the Canada Pension Plan Investment Board, will buy the 65% stake in the company. eBay, which will retain a 35% stake, anticipates the deal to shut in the fourth quarter of this year.

Of course, eBay President and CEO John Donahoe stated the deal is “great.” It could certainly be seen this way as ever since eBay bought Skype for $3 billion in 2005, it has been considered as one of the worst tech deals in current years. eBay failed to integrate Skype fully into an echo-system of e-commerce (the marketplace auction business) and on the internet payment system (PayPal) that works to enhance the value of each.

So when Donahoe states “We’ve acted decisively on a deal that delivers a high valuation, gives us significant cash up-front, and lets us retain a meaningful minority stake with talented partners,” I’d venture a guess that many investors would agree with that statement.

Now the question is whether Skype can operate well as a separate company and manage to compete and grow better in that area. Obviously, the buyers would like to believe that it can. Egon Durban, managing director at Silver Lake, said: “Skype is an innovative, next-generation company that has changed how people and businesses communicate with each other.” I guess that when you pay over $2 billion for a stake in the company that generated revenues of $551 million in 2008, you’d like to believe that.

Indeed, while the 2008 revenue was a 44% increase compared to 2007, in 2009, revenues are expected to be more than $600 million — only a 10% growth. The problem is that unlike other growth stories, Skype hasn’t really delivered. Perhaps I should say “yet” and it might start showing some of that promise soon as an independent company. I’m not holding my breath.

eBay strikes $2.75 billion deal for Skype originally appeared on BloggingBuyouts on Tue, 01 Sep 2009 11:40:00 EST . Please see our terms for use of feeds.

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Filed under: Deals, Rumors

While eBay (NASDAQ: EBAY) stated earlier this year that it was planning to spin off Skype in an initial public offering in 2010, it is now being reported that eBay is looking for a buyer willing to pay $2 billion or more for the internet telephone service provider.

Those interested in a buyout may include Andreesen Horowitz and Index Ventures, which were early investors in Skype before its eBay acquisition in 2005. A group of well-known venture capital and large private equity firms are pooling resources to join the bid, according to a source close to the deal.

It’s expected that if the investor group is successful in acquiring Skype, it would run the company privately and prepare it for an eventual initial public offering. It isn’t clear if current Skype CEO Josh Silverman would continue to lead the company after any acquisition. Under Silverman, Skype grew revenue to $551 million last year, and eBay has said it expects the company to top $1 billion in revenue in 2011.

eBay bought Skype for an estimated $3.3 billion in 2005 in one of the biggest venture capital deals in Europe. Following the deal, Skype founders Niklas Zennstr

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Filed under: Deals

Vibe Media Group, publisher of hip-hop magazine Vibe, shut down in June, as the poor economy led to declining advertising revenue. Vibe has since been acquired for an undisclosed price by InterMedia Partners, a private equity firm.

InterMedia stated it plans to resume publication of Vibe in November as a quarterly magazine. The operations of Vibe are to be integrated with those of Uptown, another urban lifestyle magazine InterMedia owns. Publishing veteran Jermaine Hall has been named as the new editor-in-chief of Vibe, and the new business will be known as the Vibe Lifestyle Network.

Meanwhile, Creative Loafing, the Tampa-based substitute newspaper chain, will soon be in the hands of New York-based private equity firm Atalaya Capital Management. In an bankruptcy auction for the chain, Atalaya’s $5.0 million bid beat out that of the newspaper’s publisher, Ben Eason, the only other bidder.

Creative Loafing got into trouble in 2007 when it took on about $40 million in debt to buy the Washington City Paper and the Chicago Reader. When the economy plummeted, Creative Loafing’s advertising and other revenues were hit hard, leaving it saddled with debt.

Atalaya states it will continue operating the chain, which includes six alternative newspapers.

Even as signs recommend the economic slump could be coming to an end, newspapers and other print publishers continue to struggle. Is it a good time to be investing in the sector? Will we see more private equity interest in print publishers?

Vibe and Creative Loafing: Private equity moves in print publishing originally appeared on BloggingBuyouts on Wed, 26 Aug 2009 08:40:00 EST . Please see our terms for use of feeds.

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Filed under: Deals, KKR

Over the past few years, it’s been hard to find successes in private equity. But, in the case of KKR, there is no doubt that it made a good deal in the leveraged buyout of Dollar General in July 2007 (the company had been public since 1968). The price tag was $7.2 billion.

Now, the company has filed to go public. And, in light of KKR’s current success with the Avago (NASDAQ: AVGO) public offering — as well as the resurgence in the equities markets — there’s a good chance that Dollar General will also get a nice reception.

Founded in 1939, Dollar General has become a power in the retail industry, with 8,577 stores located across 35 says. The typical store, which is about 7,000 square feet (known as a “small box”), is packed with a broad selection of merchandise. What’s more, the low-price strategy has certainly been attractive for customers.

Keep in mind that the company has posted annual same-store sales growth for the past 20 years. In other words, Dollar General is more than just a play on the recession.

Under the ownership of KKR, there was been a continued focus on improving operations. For example, in early 2008, Dollar General hired Richard Dreiling as the CEO, who has 39 years of retail experience. There have also been other key hires.

Some of the improvements include optimized product assortment, better markdown strategies, higher inventory turns, customized store hours to enhance demand, improved real estate vetting, aggressive store remodeling and relocations, and superior analytics.

So far, things are working out. Sales increased by 10.1% last year, with same-store sales growth of 9%. In fact, in Q1 of this year, sales growth was 15.7% and same-store sales growth was 13.3%.

At the same time, there has been a strong improvement in margins, which have gone from 27.3% in 2007 to 29.3% in 2008. Last year, net income was $108.2 million. As for Q1 of this year, net income came to $83 million.

True, Dollar General has a heavy debt load because of the leveraged buyout. Yet, the company has been able to reduce long-term obligations by $540.9 million to $4.1 billion.

The underwriters on the IPO include Citigroup (NYSE: C), Goldman Sachs (NYSE: GS) and yes, KKR.

Tom Taulli is the author of various books, including The IPO Primer and The Complete M&A Handbook.

KKR presses the IPO button on Dollar General originally appeared on BloggingBuyouts on Fri, 21 Aug 2009 10:10:00 EST . Please see our terms for use of feeds.

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Filed under: Deals, Raising money

Who thought there was huge money to be made in investing in commercial mortgage-backed securities, especially those being sold by the U.S. government under its public-private investment partnership (PPIP)? There has not been much interest in the federal program from established financial firms. It is hard to say why. They might be concerned about the increase in mortgage defaults or the scrutiny that comes from doing business with Uncle Sam.

Starwood Property Trust, however, thinks that there will be huge profits in the federal program and has raised money through an IPO. As Reuters reports, “Starwood Property, a unit of private equity firm Starwood Capital Group, sold 40.5 million shares, raising $810 million, one of the deal’s underwriters said.” The demand for the share was apparently tremendous. The stock began trading today under the symbol STWD.

The Starwood gamble is clearly a bet that property values, particularly those of commercial assets, won’t keep falling beyond next year. The $810 million is has raised is a lot of dry powder. But timing is everything. If the property market goes through its own double-dip recession, Starwood might not do very well.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Starwood IPO might be largest of the year originally appeared on BloggingBuyouts on Wed, 12 Aug 2009 11:40:00 EST . Please see our terms for use of feeds.

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Filed under: Deals, Apax Partners

About ten years ago, Bankrate (NASDAQ: RATE) became a public company, as the IPO market was in full-steam (a traditional financial information provider, the company went to the Web in the mid 1990s). Well, now the company has decided to go private.

The private equity sponsor, Apax Partners LLP, has agreed to purchase Bankrate for about $571 million. The share price comes to $28.50.

The deal has some interesting twists. First, it’s one of the largest transactions of 2009. Next, there’s no debt in the deal.

No doubt, the private-equity playbook has changed significantly over the past few years. However, it is encouraging that there’s some more interest in dealmaking.

At the same time, Apax realizes that there are nice opportunities to snag. While Bankrate has a strong on the web platform, the fact remains that the company is experiencing some temporary weaknesses. Yesterday, the company announced preliminary results of Q2 revenues of $31 million (down from $40.2 million a year ago) and net income of $1.9 million (down from $4.1million).

However, Bankrate should be a large beneficiary of the move of advertising dollars to the on the internet world. And, Apax is willing to take the long-view on the investment.

Tom Taulli is the author of various books, including The Complete M&A Handbook and the founder of BizEquity, a free on the web business valuation tool for small businesses. You can reach him at his personal blog.

Apax Partners to buy Bankrate in one of the largest deals of the year originally appeared on BloggingBuyouts on Thu, 23 Jul 2009 11:40:00 EST . Please see our terms for use of feeds.

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Filed under: Deals, KKR

Although the web continues to erode the music business, there is still investor interest in the sector. Just look at private equity powerhouse KKR. The firm has agreed to form a joint venture with Bertelsmann that’ll focus on music rights management. KKR will get 51% of the entity.

Even though Bertelsmann has been shedding its music business over the past few years, there are still remaining assets. So, why not lower the danger of these assets by bringing in a financial partner?

Bertelsmann currently owns an extensive music catalog, which has memorable acts such as the Scorpions. The fact remains that vintage music can be a nice source of consistent cash flows, which is certainly attractive to the private equity crowd.

Besides, as seen with the death of Michael Jackson, there can be a spike in interest when a legendary singer dies. Yes, it’s kind of gruesome, but still be a consideration for an investor.

Tom Taulli is the author of various books, including The Complete M&A Handbook and the founder of BizEquity, a free on the web business valuation tool for small businesses. You can reach him at his personal blog.

KKR joins Bertelsmann in music rights venture originally appeared on BloggingBuyouts on Wed, 08 Jul 2009 11:40:00 EST . Please see our terms for use of feeds.

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