The Gulf just went on a one-day spending spree.

Borse Dubai kicked off the day by simultaneously purchasing a third of the London Stock Exchange and a fifth of Nasdaq. With Stockholm-based OMX in the mix, the month-old Dubai bourse suddenly catapulted into a position to challenge NYSE Euronext with its own global reach.

Not to be outdone, regional rival Qatar said in response that it bought about a fifth of the LSE as well as just under a tenth of OMX.

Separately the investment arm of Abu Dhabi bought a 7.5 percent stake in private equity firm Carlyle for $1.35 billion.

There’s more here than petro dollars burning a hole in the Gulf’s pocket: These states are keenly aware that their oil dependent economies need to diversify into something more sustainable — hence their forays into tourism and finance.

As oil hits record prices, they’ve got the buying power to realign the global economic balance — after all, two Gulf states suddenly stand to own nearly half of the LSE and analysts say Dubai may eventually control Nasdaq.

With the public markets cooling on asset managers and pressure on exchanges to expand their footprint, we can expect similar deals. But there are only so many worthwhile targets — meaning there may be a few bidding wars as the clock ticks on fossil fuels.

With bankers and private equity investors closely watching the loan market, a ray of hope appeared on Tuesday from the Allison Transmission deal.

A source told Reuters Loan Pricing Corp that Citigroup, Lehman Brothers, Merrill Lynch and Sumitomo Banking Corp. sold a $1 billion block of their previously unsold $3.5 billion bank loan for Allison Transmission at 96 cents on the dollar — which could help jumpstart the syndication of other deals. Banks know that they’re going to take a hit with the more than $300 billion of LBO debt they’ve got stuck on their balance sheet.

The question is, how big of a hit. Most banks would cringe at 90 cents on the dollar or lower, but suddenly, 96 cents doesn’t look so bad. Maybe there is hope for the pig in the python after all.

The Allison news comes as merger arbitrage spreads are tightening – meaning investors are continuing to bet that a number of high-profile LBOs will get done. Last month the spreads had widened when the credit crunch set in.

News that TXU cleared another hurdle and that KKR was willing to compromise on First Data terms likely brought in the spreads, which measure the difference between the current and offered price of an acquisition target. What may be driving the spreads on Tuesday is Allison hitting the “most significant pricing point for the loan market since mid-July,” according to Reuters LPC. 

A huge pile of LBO debt is still being held by banks and waiting for syndication. Allison’s loan sale could bode well for other syndications, but the market will dictate demand.

Having upset everyone from labor unions to high-priced crustaceans, the private equity industry has courted controversy with yet another group: the National Womens Law Center.

The group, a non-profit based in D.C. that works to protect womens rights, has released a study claiming that private equity firms are short-changing the Medicare system by avoiding payroll taxes — depriving the government health insurance plan for seniors of $900 million to $1.8 billion per year, according to the study, or enough to pay the hospital costs of 204,000 to 408,000 Americans.

By dodging payment of Medicare taxes, these fund managers are hurting one of the nations most vulnerable groups 43 million elderly and disabled Americans, the majority of whom are women, said Nancy Duff Campbell, Co-President of the National Womens Law Center. 

Private equity firms pay less in payroll taxes by accounting for their compensation as “carried interest” from capital gains, a structure currently under scrutiny on Capitol Hill. The Medicare argument brings a new twist to this debate — which is the last thing private equity needed.

(Image credit. John Sommers II, Reuters)

Arbitrage spreads, which measure the difference between the current and offered price of an acquisition target, have tightened on some closely watched leveraged buyouts — meaning investors are betting Wall St. will get to work closing the deals. 

Earlier this month the spreads had widened as tightening credit markets and fears of a global liquidity crunch turned a normal summer slowdown in mergers and acquisitions into a deep freeze. 

But arbs are growing confident again. Alliance Data, being acquired by Blackstone, has allowed the private equity firm to purchase shares before closing and said Blackstone had committed capital to complete the deal — positive signs that an arbitrage trader said were being reflected across LBOs. 

Also tightening spreads was news on TXU clearing hurdles and the Bush bounce, the trader said. 

Below are the current arbitrage spreads and those from August 10 for some closely watched LBOs.
    
 
    Target             Buyer                  Arb spread  
                                                      Current       Aug. 10
    ALLTEL           TPG; GS            4.7%           8.5%
 
    Cablevision       Mgmt                8.4%           9.9%
 
    Clear Channel   Bain                  5.7%         12.2%
                              
    First Data          KKR                 2.4%           9.5%
 
    Harrah’s            Apollo; TPG      4.9%           8.4%
 
    Hilton Hotels     Blackstone        3.7%          8.2%
 
    SLM Corp         JC Flowers      20.2%         24.5%
                              
    TXU                  KKR                 2.4%           8.8%

(Image credit. “1937 Labor Day Parade.” http://www.ufcw81.org/PublisherFiles/mid dle_years.htm)

If executives at Orbitz are feeling down about their dismal performance since floating shares last month, they may find comfort in the private equity firm that took them public: while Orbitz is down 20 percent from its offering price, Blackstone has dropped nearly 25 percent since its June debut. Together they’re two of the worst performing offerings this summer.

On the surface, Blackstone, the private equity giant, and Orbitz, the online travel  
Website, have little in common. But there is one key element linking the two: debt.

Blackstone acquired Orbitz when it bought Travelport, electing to spin-off Orbitz after the deal. Like most private equity deals in the last two years, the leveraged buyout of Travelport had Blackstone borrowing a hefty amount. Analysts believe that among the factors hurting Orbitz’s stock is the amount of debt on its balance sheet.

Its easy to blame a poorly performing IPO on uneasy markets, but offerings this summer have actually been a relative bright spot with the likes of VMware or E-House.

Obviously the debt factor for Blackstone is that the firm, like other private equity players, can’t get banks to loan them heaps of money for deals due to the credit crunch.

So the credit freeze has taken its toll on Blackstone and other publicly traded private equity firms while high debt loads have spooked investors looking at private equity-backed companies brought to market — like Orbitz, for example.      

The 10 largest private equity-backed IPOs last year had an average debt-to-equity ratio of 1.6, according to PricewaterhouseCoopers — dwarfing a ratio of 0.1 for offerings that weren’t backed by private equity.

E-House, up about 20 percent since its debut earlier this month, had a debt-to-equity ratio of 0.1, according to IPO Desktop. VMware, which has more than doubled since its August debut, had a ratio of 0.5.
 
By contrast, Orbitz and Dice Holdings have dropped about a fifth of their value since their debuts — with debt-to-equity ratios of 0.8 and 1.5, according to IPO Desktop.

Blackstone was trading at $23.68 on Monday, having debuted at $31 per share in June. Orbitz was trading at $11.96 after going public at $15 per share last month. The apple doesn’t fall too far from the tree.

(Image credit. “The Cleaver Family.” www.geocities.com/alcus2)

A bidding war over Nordic exchange OMX has much more riding on it than the future of the Stockholm-based company– it could go as far as determining the fate of Nasdaq’s chief executive Bob Greifeld.

When Greifeld, who presided over two failed efforts to buy the London Stock Exchange,  said in May that Nasdaq had agreed to buy OMX, it looked like the top U.S. electronic stock exchange would finally find a willing partner overseas, as rival NYSE had with Euronext.

But then Borse Dubai — a state-owned holding company that didn’t exist last month — trumped Nasdaq’s bid with its own offer for OMX. 

If Nasdaq fails this time around, shareholders could get impatient with the exchange’s sagging share price. They may push for the company to sell itself, or at least to shake things up in the executive suite, analysts said.

“If this doesn’t go through, I can’t imagine the level of frustration there,” said Celent consultant David Easthope. “When people are frustrated stocks suffer. And when stocks suffer, changes are made.”

The oldest U.S. securities exchange is now officially on the market. But what’s new here isn’t that the Philadelphia Stock Exchange is for sale — which CEO Sandy Frucher has been discussing for months — but that it hired Greenhill & Co., and not former advisor Keefe, Bruyette & Woods, to handle the process.

KBW advised PHLX’s board on a 2005 transaction that would have put about 90 percent of the exchange’s common stock in the hands of UBS, Citi, Credit Suisse, Morgan Stanley, Merrill Lynch and Citadel.

But that deal resulted in a 2006 class-action suit against PHLX and the Wall St. firms that the exchange only settled this June.

Filed by a former seatholder, the suit alleged that PHLX’s board “deprived” shareholders of their vote and the opportunity to sell their shares.

Terms of the settlement were kept confidential — but however it was resolved, PHLX seems to want some fresh advice before taking its next steps. 

Poor Nasdaq: just out of one international mess, the electronic exchange gets thrust into another. And this time its in Stockholm. By way of Dubai.

Nasdaq’s bid for Scandanavian exchange OMX - which looked like a done deal - is in question after Borse Dubai said it intends to buy at least a quarter of Stockholm-based exchange…at a price that trumps Nasdaq’s offer.

Dubai has been diversifying beyond sail-shaped hotels. Its bourse - which consolidates government holdings in the Dubai Financial Market and Dubai International Financial Exchange - was formed earlier this month and is seen as a vehicle for acquisitions. And the state-owned holding company, headed by a former OMX chief, has a shot at owning OMX.

Thats bad news for Nasdaq, which has been long under pressure to do something in the consolidating exchanges space: Frankfurt-based Deutsche Borse is buying New York-based options giant ISE while the top U.S. commodities exchanges, CME and CBOT, just combined. And arch-rival New York Stock Exchange merged with Paris-based Euronext.

While the NYSE was out charming the French, Dutch, Portuguese and Belgians into selling Euronext, Nasdaqs attempts at a partner fell flat. A hostile run at the London Stock Exchange met with derision - and under 1 percent of acceptances. That left a rebuffed Nasdaq owning about a third of the unwilling LSE - and in the awkward position of blessing the LSEs subsequent bid for Borsa Italiana.

If the Gulf bourse wins out on OMX, an unrequited Nasdaq could think about sticking closer to home and focusing on regionals. They seem willing and Nasdaq’s domestic business remains strong.

Plus shareholders - having lost a tenth of their value since the failed LSE run - might like to hear CEO Bob Greifeld is putting his passport down.

Rewind the conflict of interest clock. New York Gov. Eliot Spitzer has his own ethics headaches lately. But the man who crusaded against tainted Wall Street research as New York’s attorney general may still have bristled at the news that several sell-side analysts launched glowing coverage on private equity giant Blackstone Group. Wall Street banks insist that they have erected impenetrable ”Chinese walls” between analysts and investment bankers, but the fact is that a host of banks who underwrote Blackstone’s recent high-profile $4 billion IPO today put “buy” ratings on the sagging stock.

Beyond the banks’ vested interest as underwriters, industry experts found Wall Street coverage worrisome because of the banks’ craving for lucrative private equity-related fees — paid by buyout shops like Blackstone — which accounted for one-fifth of total global investment banking revenue last year.

“The greatest challenge one faces as an equity analyst looking at Blackstone is the fact that they are one of the largest investment banking clients,” Sanford Bernstein analyst Brad Hintz recently told Reuters. “It isn’t going to make you very popular if you put an ‘underperform’ on them.”

So how did analysts rate the flagging stock — so far one of the year’s worst performing IPOs? Despite credit markets and tax concerns no one seems to think it’s a “sell.”

Analysts from Citi, Morgan Stanley, Merrill Lynch, Lehman, Credit Suisse, Deutsche and Banc of America all had “buy”, “outperform” or “overweight” ratings on Blackstone.

These banks, with the exception of BofA, also held coveted top positions in Blackstones IPO — which had no less than 17 underwriters after the dust settled. Of course Blackstone’s new IR head  used to run BofA’s equity research.

Wachovia was otherwise the only bank without a top underwriting position to launch coverage today. It was also the only to give a “market perform.”

But Spitzer may be happy to know that the market appears to have learned some lessons. After the string of “buy” ratings, Blackstone’s stock fell 1 percent on Wednesday. Its shares are down 23 percent since their June debut.

The following is a list of Blackstone’s IPO underwriters and their analysts’ ratings:

Morgan Stanley (”overweight”) 

Citi (”buy”)

Merrill Lynch & Co.  (”buy”)

Credit Suisse (”outperform”)  

Lehman Brothers (”overweight”)

Deutsche Bank Securities (”buy”)

ABN AMRO Rothschild

Goldman, Sachs & Co.

UBS Investment Bank

Banc of America Securities LLC   (”buy”)

JPMorgan  

Wachovia Securities (”market perform”)

Bear, Stearns & Co. Inc.

Lazard Capital Markets

Nikko

Citigroup

SEB Enskilda

Wells Fargo Securities

The Chinese government is getting a lesson on market timing. Just weeks ago, China’s new State Investment Company acquired just under 10 percent of the Blackstone Group at a discount of nearly 10 percent to its $31 initial public offering price. 

Arguably China’s most ambitious venture yet into American capitalism, the deal looked like a win-win — diversifying China’s massive foreign reserves while garnering Blackstone access to isolated Chinese markets. 

Not anymore. By midday today, Blackstones’s shares had lost 23 percent of their value since the IPO, sinking over 7 in the first hours of today’s trading alone, to reach $23.87. That makes Blackstone’s celebrated IPO one of this year’s worst performing U.S. stock flotations.

It also leaves that 10 percent discount looking less impressive – all-told Beijing is now 13 percent under water after only 5 weeks. The notion of Blackstone currying favor — or creating guanxi — for its Chinese ambitions may also have to be revisited: Do friends lose friends that much money that quickly?

Of course stakes gained by Blackstone insiders through the IPO arent looking much better, based on figures from a filing before the June debut and the $31.00 per unit offering price.

If they are looking at something similar, it’s no surprise that KKR may rethink its own IPO.