Wednesday, June 20, 2007

Nuveen Agrees to $5.7 Billion Sale to LBO Firm Madison Dearborn

By Jason Kelly and Sree Vidya Bhaktavatsalam (Bloomberg)

June 20 (Bloomberg) -- Nuveen Investments Inc., the largest U.S. closed-end fund company, agreed to be acquired by Madison Dearborn Partners LLC for $5.75 billion in the biggest leveraged buyout in the asset-management industry.

Madison Dearborn will pay $65 a share in cash for Nuveen, 20 percent more than the stock's closing price yesterday. The Chicago-based money management firm said its board hired Goldman Sachs Group Inc. to solicit higher bids for the next month.

Nuveen, which dates back to 1898, oversees $166 billion for clients, including $53 billion in funds with publicly traded shares. LBO firms bought Commerzbank AG's Jupiter fund unit and London-based Gartmore Investment Management Plc since the start of 2006 because the companies provide steady revenue to cover the debt used to finance the buyouts.

``What really attracts private-equity firms is that asset- management firms throw out so much cash,'' said Ben Phillips, managing director of New York-based investment bank Putnam Lovell NBF Securities. ``Nuveen has very high asset margins.''

TA Associates, a Boston-based buyout firm, agreed in March to acquire London-based Jupiter from Commerzbank for 740 million pounds ($1.48 billion). Last year, San Francisco-based Hellman & Friedman LLC purchased Gartmore.

Public-market investors prize fund managers, too, because they produce more consistent profits than brokerage and securities firms. Before today's buyout agreement, Nuveen shares traded at about 22 times earnings. That compared with less than 11 for New York-based Goldman, though it lagged behind the average of about 30 times for the five-member Standard and Poor's Midcap Asset Management & Custody Banks Index.

Offer Too Low?

James Ellman, whose investment firm Seacliff Capital owns Nuveen shares, said the offer from Madison Dearborn is too low.

``We think that the deal could have easily been worth 40 percent more,'' Ellman said in a telephone interview from his office in San Francisco.

The buyout would create ``an opportunity to accelerate our current strategic initiatives,'' said John Amboian, 46, who will become chief executive officer of Nuveen next month, on a conference call with analysts. Timothy Schwertfeger, 58, who has been CEO since 1996, will remain chairman of Nuveen's fund board.

Unlike typical mutual funds, closed-end funds raise a fixed amount of money in public offerings and are traded throughout the day on stock exchanges.

``Closed-end funds would be one of the pillars for a buyer,'' said Jeffrey Ptak, an analyst at Morningstar Inc. in Chicago. ``They are not subject to the gyrations of the market, and assets aren't going to run away at the first sign of trouble.''

Shares Gain

Nuveen reported April 30 that first-quarter net income rose 17 percent and sales gained 23 percent, as institutions doubled their deposits with the company. The company has expanded by offering mutual funds and separately managed accounts for wealthy individuals and institutions. Closed-end funds made up 32 percent of Nuveen's assets, down from 36 percent a year earlier.

Shares of Nuveen rose $9.04 to $63.20 at 12:50 p.m. in composite trading on the New York Stock Exchange. They had gained 4.4 percent so far this year, beating the 3 percent advance in the 61-member Standard and Poor's Midcap Financials Index.

Madison Dearborn's current $6.5 billion fund is the fifth it has raised since the Chicago-based firm was founded in 1992 by ex-First Chicago Corp. executives. Last month, Madison Dearborn offered to buy computer reseller CDW Corp. for about $7.3 billion, the biggest acquisition it has attempted on its own.

PeopleFirst, PayPal

The firm, which oversees more than $14 billion in private- equity funds, also participated in the $11.3 billion buyout of Univision Communications Inc. in March.

Madison Dearborn's current financial-services investments include Pax Holding Corp., a securities clearing firm based in Chicago. Previously, it owned PayPal Inc., the online payments network; CapitalSource Inc., a commercial-finance company that now trades on the New York Stock Exchange; and PeopleFirst Inc., an auto lender sold to Capital One Financial Corp. in 2001, according to the firm's Web site.

In the Nuveen deal, Madison Dearborn will assume $550 million of debt, bringing the total transaction value to $6.3 billion.

The special committee of Nuveen's board that considered the buyout was advised by Goldman and Katten Muchin Rosenman LLP. Goldman and Sandler O'Neill & Partners LP provided fairness opinions. Nuveen got legal advice from Cravath, Swaine & Moore LLP and Winston & Strawn LLP.

Madison Dearborn hired Merrill Lynch & Co. and Kirkland & Ellis LLP.

Murdoch Dangles MySpace in Yahoo's Face

By Keith Regan
E-Commerce Times
Part of the ECT News Network

Rupert Murdoch wants to exchange MySpace for a stake in Yahoo. The News Corp. head has been searching for ways to expand the company's online exposure; meanwhile, the search giant has been looking for an opportunity to become a player in the social networking universe. Murdoch purchased MySpace for $580 million in 2005.

News Corp. honcho Rupert Murdoch has offered to swap the wildly popular social networking site MySpace in exchange for a stake in portal-in-flux Yahoo. Murdoch reportedly approached Yahoo with the offer of giving the portal ownership of MySpace in exchange for a 30 percent ownership stake of the combined Yahoo-MySpace.

On the surface, the deal seems to address needs of both parties: Murdoch has been looking for ways to expand his media company's online exposure, which in turn will create more opportunities for extending the reach of his traditional media brands; meanwhile, Yahoo has been eager to find the right social networking play, kicking the tires at length on Facebook last year, but reportedly was unable to close a US$1 billion purchase of that site.

Growth in Value
Murdoch bought MySpace in 2005 for $580 million, but since then the value of the site has grown significantly, as it has racked up more users and as marketers have invested in finding ways to leverage social networking to gain exposure for their products.

In fact, the founder of MySpace has said the site was worth as much as 100 times the purchase price. At current stock prices, Yahoo is worth around $37 billion.

The Times of London first reported the proposed swap in its Wednesday editions. Although talks could falter, they are ongoing between the two media companies, the paper noted.

The Google Effect
The gambit comes as Murdoch is in the midst of another takeover drama of his own: His $5 billion bid for Wall Street Journal parent company Dow Jones is still being mulled by the family that controls the majority of the company's stock and other suitors are mulling offers.

Murdoch's News Corp. owns newspapers on three continents, including his native Australia, as well as the Fox channels, movie studios and cable interests.

Meanwhile, it's no secret that Murdoch has designs on being a major online player as well. In 2005, he bought the online gaming network IGN for $650 million and his MySpace buy was seen as a watershed move that underscored the importance of social networking.

Murdoch tried to buy YouTube before Google (Nasdaq: GOOG) purchased the online video site. Afterward, the mogul continued to roll up Internet companies, buying online photo sharing site Photobucket in May for a reported $250 million.

Impact of the Shakeup
It's not clear what impact the recent shakeup at Yahoo may have on the proposed deal.

Yahoo CEO Terry Semel resigned on Monday, with cofounder Jerry Yang taking the CEO role. On Wednesday, Yahoo announced partnerships with a number of Asia-based mobile carriers to offer the portal's mobile search tool, but Yang may need to be aggressive and innovative to satisfy shareholders restless about the company's No. 2 position in the search advertising market behind Google.

Yahoo shares were up 1.6 percent in late morning trading Wednesday to $28.08. News Corp. stock was up just under 1 percent to $23.90.

Dressing Up for a Sale?
The changes at Yahoo this week were aimed at both appeasing restless shareholders tired of seeing Google rack up market share, stock price gains and key acquisitions, Enderle Group Principal Analyst Rob Enderle told the E-Commerce Times. Some of those shareholders are likely interested in a more dramatic move, however, including a sale or the spinning off of some noncore assets.

In recent months, Yahoo has been linked to Microsoft (Nasdaq: MSFT) repeatedly, with the two sides said to have discussed everything from a partnership to an outright sale of Yahoo to Microsoft. Such a move would create a far more formidable competitor for Google, Enderle noted.

While the arrival of News Corp. on the scene may prompt Microsoft to take another run at the portal, the cultural fit between those two companies may make for rocky times, he added. "Microsoft has a very unique and specific culture that would make an integration as large as Yahoo difficult," Enderle said. "Yahoo's culture is unique as well, but more in the way of Internet companies, which have been acquired successfully in the past."

Constant Flux
Yahoo, meanwhile, would likely be tempted by the dangling of MySpace. Its efforts to acquire Facebook were widely seen as recognition that its own networking gambits -- such as photo-sharing site Flickr and Web site tagging tool -- did not represent a large enough footprint in the social networking arena.

Murdoch, meanwhile, may have done as much to cement the idea that social networking had business applications -- and therefore could be profitable -- as anyone in the Internet space, said Outsell Vice President Chuck Richard.

"Murdoch doesn't buy companies because they're cool, he buys them to make money, so when he put a flag in the ground with the MySpace purchase, it really changed the tone of the conversation around these sites," Richard told the E-Commerce Times.

Still, the social networking space has been seen as one in constant flux, with Facebook and other rivals posing a risk and corporate ownership of MySpace seen threatening its status as a cool place to hang out online, he added.