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.

Can the market swallow $135 billion of leveraged buyout financing for technology, media and telecom (TMT) deals?

In a research note, entitled “Is TMT facing the perfect storm?”, investment bank Goldman Sachs says it expects LBO financing needs of that amount from the TMT sectors over the next six to nine months.

With investors spooked by mounting defaults and the stock market plunging, there are worries about LBOs on the table getting completed across the board. Postponements of $22 billion in debt offerings to finance buyouts of U.S. automaker Chrysler and British pharmacy chain Alliance Boots haven’t helped concerns.

This is the breakdown Goldman Sachs gives of the pending calendar of LBOs and the total funding (below). ”As a result of the sheer magnitude of these deals, we believe spreads for most TMT companies could be pressured for the remainder of the year - especially those with higher leverage,” the GS note read. 
   
    Company– Total funding
    Alliance Data– $6.6 billion
    First Data Corp– $24 billion
    Avaya– $8.2 billion
    Tribune– $4.2  billion
    Alltel– $23.2 billion
    Clear Channel– $22.1 billion
    Intelsat– $5.1  billion
    BCE– $25   billion
    Cablevision– $15.5 billion

If a CEO promises to quit once a combination is completed, but checks out months before the t’s are crossed, does that suggest the deal is a lock — or perhaps on the rocks?

In the case of XM Satellite’s Hugh Panero,  who this week said he’d exit next month rather than later this year, many initially said it was a good sign. But Wedbush’s William Kidd on Thursday said its a sign XM wants to groom a new CEO fast, and not be caught flat-footed with a lame duck should the deal flop.

“If there is any subtle message to be inferred, it is that the early departure was possibly preparation for the company in the event that the merger was denied.”

In a candid moment on XM’s quarterly conference call, Panero, 51, renewed his belief that the deal will go through, but, refreshingly declined to toss out a cliche and blame the decision on say, his family.

“It was pretty obvious that the CEO slot would be taken by (Sirius CEO) Mel (Karmazin). I worked on the merger, meeting with regulators … and I felt that the merger had hit a number of milestones. Understanding there was going to be one CEO at the end of it, it was time to move on. That’s my short answer rather than to say I was going to ’spend more time with my kids’ or ‘explore other options.’”

Other highlights from XM’s conference call with analysts:

Nate Davis, XM’s COO (and Interim CEO when Panero leaves), answered a question about whether XM has a plan should the merger not go through. He said they have “some specific thoughts”: for one, control spending — like merger related legal costs.

“That won’t continue in the long run. (Also) We know that we want to find a way to continue to either be flat-or-marginally-down on programming expenses.”

If the merger goes through, it is possible that the pick-your-favorite channels options promised this week by Karmazin, might find their way into radios made for cars also, Gary said.

“As we become more (automobile centric) you can guarantee that we will be looking after our (car) partners in any of these types of products. I think that we will able to work effectively with them to make them competitive on all of those fronts.

I blogged on Wednesday about columnists who use Harry Potter references to spice up pieces they write about Rupert Murdoch’s $5 billion bid for Wall Street Journal publisher Dow Jones & Co. Inc.

It was later that I realized that you could take just about any movie made in the last century and adjust it to fit a certain media perception of the Dow Jones-News Corp. saga. Think it’s impossible? Try this on for size:

JAWS:

Rupert Murdoch assumes the guise of a giant shark and swims to Amity Island, home of the Bancrofts and tourists who show up to read their paper on the beach. He starts eating readers, a few at a time, and will only go away if the Bancrofts sell him the island at a price far higher than what property values normally dictate. But Sheriff Chris Bancroft decides he must defend journalistic integrity.

He enlists the aid of sea captain Jim Ottaway and marine biologist/Internet entrepreneur Brad Greenspan to fend off the deep-water media predator. The three manage to drive off Murdoch, but not before he takes a bite out of Ottaway, leading to impassioned op-ed columns urging the increased use of shark repellent. Even though Murdoch returns to the deep, sons Lachlan and James will return to seek their prize in several sequels that yield diminishing box office returns.

That’s my stab at it. Now, budding screenwriters, you give it a try. If you need a starter kit, try these famous flicks: Chinatown, Days of Heaven, The Exorcist, High Noon, Bringing Up Baby, Dude Where’s My Car, Dark Star, Harold and Kumar Go to White Castle, Tampopo and Caligula.

Credit Suisse, a leading issuer of junk bonds and the parent of private equity affiliate DLJ Merchant Banking, now is ready for mop up duty, too. The Swiss bank is taking a 33 percent stake in Great American Group, a liquidation company. Great American clients have included K-Mart, Collins & Aikman and Arthur Andersen.

Is Credit Suisse trying to tell us something? Sure, buyout firms and investment banks have beefed up their restructuring groups in the last year, in preparation for a downturn in the frothy debt and credit markets.  These divisions, which focus on distressed assets and work-outs of troubled companies, appear to be nearing a jump in demand, as the credit markets continue to decline, defaults increase, and borrowing power dries up.

But few firms have taken the step of purchasing an actual liquidator, which typically sell off assets of companies in major trouble, or in other cases, in the process of going belly up. So does Credit Suisse think the post-LBO credit crunch be worse than the market thinks? Well, at the very least, it’s betting on an uptick in demand for liquidators.

Over the past decade, Great American says it has become a leader in conducting liquidations for wholesale and industrial companies. Credit Suisse said the investment bolsters its leveraged finance business.

(Image credit: Reuters file)

Media slaves like yours truly hang on every twist of the Dow Jones/Rupert Murdoch tale, but many folks out there don’t have a clue who Murdoch is. Most have never heard of the Bancroft family that controls Dow Jones and is engaged in a long dark night of the soul as it tries to decide whether $60 a share is enough money to part with their company.

So what better way to explain the saga — and attract readers — than to make as many Harry Potter references as you can?

First, there are these excerpts from Washington Post columnist Eugene Robinson’s recent piece on Dow Jones:

- Rupert Murdoch tries to buy the Wall Street Journal, and the reaction is as if Lord Voldemort had made an above-market offer for Hogwarts.

- And it’s natural that they would be especially reluctant to sell to Voldemort, I mean Murdoch, who is a very different breed of newspaper owner.

And then there was Huffington Post contributor Trevor Butterworth, who headlined his column “The Wall Street Journal and the Deathly Hallows:”

- The endless worrying over whether Murdamort will kill the Wall Street Journal misses the salient point that will really determine the future of the paper: the Journal *is* being killed on Wall Street by the Financial Times.

All this leaves me wondering how they would have written these stories had the Dow Jones tale broken while Spice World ruled the box office.

The skittish debt markets may take some of the fizz out of Cadbury Schweppes Plc’s auction of its North American beverage unit, according to sources familiar with the situation.

Cadbury remains in active talks with two groups of private equity firms, but final bids may fall short of recently tempered expectations. Bids, which are due later this week, may hover around 7 billion pounds, sources said.

Reuters reported earlier this month that price tag had softened to around 7.5 billion pounds, down from 8.0 billion, as tighter credit conditions made it more costly for private equity firms to borrow money. Now, the price could fall even lower as the debt market continues to swoon. 

Bankers on Wednesday postponed a $12 billion syndicated loan to finance the sale of Chrysler Group, while Alliance Boots delayed syndication of $10.4 billion in debt backing its buyout.  

Despite the credit crunch, Cadbury’s North American beverage business, which includes Dr Pepper, 7UP, Snapple and Canada Dry ginger ale, is “still a coveted business and hard to duplicate,” said one source.

A team including Blackstone Group, Kohlberg Kravis Roberts & Co. and Lion Capital remains viewed as the front-runner with the most interest and financing in place, sources said. The Blackstone group bought Cadbury’s European beverage unit last year.

The second bidding group includes Bain Capital Partners, Thomas H. Lee Partners and TPG, sources said. Blackstone, Cadbury, KKR, Thomas H. Lee and TPG declined to comment. Bain, Lion Capital, could not be immediately reached for comment. 

So, the auction isn’t drying up. It just might have less fizz.

Tribune Co. spent months trying to find someone to buy it out and take it private. Now that it found someone, it is having trouble convincing Wall Street that it really will.

Tribune, which owns (and plans to sell) the Chicago Cubs, as well as big-city newspapers like the Chicago Tribune and the Los Angeles Times, took pains to say in its quarterly earnings report on Wednesday that it is still on track to borrow billions of dollars to do the buyout. It was in response to weeks of depressed share prices as investors grew more concerned that the deal would go through because the company’s newspaper business hasn’t been doing so hot lately.

Not everyone was convinced. Jim Goss of Barrington Research had these choice thoughts on the deal in light of second-quarter results:

- Importantly, publishing sector operating profits of $102 million were well below our $145 million figure and less than half of the $209 million reported in Q2/06. This is a clear cause for concern. Publishing revenues fell 10.5 percent in the quarter as ad revenues declined 12.4 percent.

- Interest expense levels rose as debt levels increased with phase one of the proposed going-private transaction. Shares outstanding declined as a corollary to the same event.

- We maintain our UNDERPERFORM rating on TRB. Initially, this opinion reflected our view that investors should take the phase one offer, then sell the balance in the open market. Investors still holding shares must now assess the opportunity to obtain $34 at year-end, a large annualized return, versus the risk that phase two might conceivably not happen as neatly as planned.

That’s how much General Electric Chief Financial Officer Keith Sherin thinks NBC Universal is worth. Sherin told management consultant Peter Cohan it could be worth $40 billion to $45 billion, over a recent lunch meeting.

Looks expensive compared to other publicly traded TV networks Viacom, Disney and CBS, Cohan says after doing some “crude” back of the envelope math. Price to sales ratios for the three are 2.4, 2.0 and 1.8 respectively. NBCU generated $14.2 $7.1 billion in sales in the first half. Assuming a similar run rate for the year Cohan says NBCU’s value should be about $26 billion to $34 billion.

Cohan muses: “While I didn’t get the impression that GE is eager to sell NBC Universal I wondered whether Sherin’s mentioning a value could have been a subtle suggestion that GE would sell it for the right price.”

Let’s put this in context. The merger of GE’s NBC and Vivendi’s Universal assets were valued at $43 billion back in 2004.

A GE spokesman confirmed the lunch took place and added:
“NBC Universal is a great business that creates tremendous value for our portfolio and shareholders. It just posted its third straight quarter of operating profit growth, so we feel good about the turnaround that is taking place. We are investing in NBC Universal for growth. As long as we feel like we can run it better than others and it is creating value, it will be a part of our portfolio.”

(Updated with more GE comments)
(Corrects estimated revenue figure)

Advanced Medical Optics Inc. is in a tough spot.

Bausch & Lomb Inc. asked the company to  provide “concrete, credible evidence” that Advanced Medical shareholders would support the unsolicited bid for Bausch & Lomb. Yet, Advanced Medical is hamstrung by a non-disclosure agreement that prevents it from discussing details of its talks or its bid for Bausch & Lomb.

Bausch & Lomb’s demand comes after Advanced Medical’s third-largest shareholder, ValueAct Capital, said it opposed Advanced Medical’s $4.23 billion bid.  

Advanced Medical,  which makes laser-vision correction tools, contact-lens cleaning solutions and other products wants to buy Bausch & Lomb and wrest it away from its existing deal to be acquired by private equity firm Warburg Pincus for $3.67 billion.

Without assurances that Advanced Medical’s shareholders would support a deal, Bausch & Lomb said it would likely reject the $75 per share bid in favor of its existing pact with Warburg Pincus for $65 per share.

Based on the non-disclosure pact, all Advanced Medical can do is ask shareholders to support the deal based on publicly available information.

“Given that a large shareholder is against the deal, I cannot blame Bausch & Lomb,” said an arbitrageur who declined to  be named.

Another arbitrageur viewed Bausch & Lomb’s demand as merely a tactic to stave off shareholder lawsuits and assure its investors that it tried to work with Advanced Medical, yet found the bid too risky.

“They have to show that they are trying in good faith to explore all their options so, in the end, they can justify taking an offer that’s $10 (per share) lower,” said the second arbitrageur.

(Photo: Reuters file)