Xerox-ACS: the backstory

Xerox, which said early Monday morning it will buy Affiliated Computer Services for $6.4 billion, has had its eye on the IT services company for at least two years, but talks only began toward the end of the first quarter of 2009, several people familiar with the matter told Dealzone. Blackstone, which advised Xerox, worked with the company on this over the past 18 months, in addition to making the introductions earlier this year, according to one source.

Talks grew hot and heavy over the summer, especially as the credit market conditions improved, a second source said. Xerox has committed financing of $3 billion for this deal, which is being arranged by JPMorgan, so the deal only began to look like a real possibility once the financing side was sorted out.

ACS, which competes with other technology services providers such as Computer Sciences Corp and Accenture, is an attractive company because of its recurring revenue business model. It’s been an especially alluring target for private equity buyers, with Cerberus having offered to buy it for $62 a share in 2007. Cerberus withdrew its offer citing the credit crunch and ACS management’s refusal to engage with them. TPG was also interested in ACS about five years ago, the second source added.

Buyout firms didn’t lose the opportunity to sniff around at ACS this time around either, the sources said, although it’s not clear if the ACS management asked its bankers to run a formal sale auction.

Aozora-Shinsei merger back on track

Have two big Japanese lenders, backed by private equity, found a way to come up with a sensible merger plan? A merger between Shinsei Bank, nearly a third-owned by JC Flowers, and Aozora Bank, more than half-owned by Cerberus, is reported back on track after the Western firms cooled their jets on the deal last month, saying there was no strategic plan behind the tie-up.

Shares of both institutions have been on a tear since talk of a merger bubbled up last month, but are mere shadows of what they were earlier in the decade after their sale to private equity marked a fresh stab at rehabilitation in the Japanese banking industry. Just about the only thing going obviously well for the investments right now, aside from the merger bump, is the strength of the yen.

The banks plan to set up a holding firm in 2010 and merge a year or so later, the Nikkei Business Daily reported. JC Flowers and Cerberus will probably remain shareholders in the holding firm, according to the report, so this wouldn’t be a big cash-out for either.

Pooling their expertise make sense in Japan, where foreign ownership of local institutions has had a history of causing more friction than warmth. Analysts say the merged bank — which would be Japan’s sixth-biggest — would still need government money and face a huge challenge to win over depositors from the country’s megabanks.

from Hedge Hub:

Dog Days at Cerberus

Embattled Cerberus Capital Management, a private-equity firm named for the mythological three-headed dog that guards the gates of Hades, has been overwhelmed by clients seeking to withdraw money from its $2 billion hedge fund, Cerberus Partners.

Website FINAlternatives said that fund investors representing 17 percent of the assets wanted to withdraw their money in December, the most recent month for which statistics are available. Now, with Cerberus's investments in Chrysler and GMAC going bad and unemployed investors needing to tap more funds, that figure may be heading higher.

Now, according to this Bloomberg report, Cerberus sent a letter to clients warning them that it could take "years" to meet all the redemption requests, which have stacked up since the firm imposed gates in December.

“The fund’s withdrawal requests have increased substantially since the fund suspended withdrawals, partially because investors wanted to reserve their place in line and partially due to individual investors’ own liquidity needs,” according to the letter.

New Year’s resolutions for PE, Cerberus?

For M&A bankers, 2008 is perhaps best remembered using the catchphrase of Comic Book Guy from The Simpsons: “Worst. Year. Ever.”      Dealmaking reached record lows in 2008, dominated by cancelled deals. At the start of 2009, questions linger about several companies, executives and deals. Most notably, though, there is a big question mark over private equity.     

Last year was a bad year for PE firms as credit markets became too tight, stocks fell unpredictably low, and deals that were announced in better times began falling apart.  PE deals fell to a five-year low.

The ‘Golden Age’ of PE quickly faded as many of the biggest buyouts announced in 2007 collapsed in 2008, including the $41 billion deal for Canadian telecommunications operator BCE, the largest announced buyout in history.    

And many of the deals that did close are lining up to file for bankruptcy. Leverage – the backbone of PE deals — should be hard to come by for some time. And with the IPO market still frozen, firms will likely be holding on to their purchases much longer.    

Santa for automakers, Grinch for taxpayers?

A company in the U.S. auto industry fails — and the government steps in as savior. Yet again. That’s right. Santa visits the automakers this year while the Grinch steals taxpayers’ Christmas.

The Bush administration is buying $5 billion in equity in GMAC – the finance arm owned by GM and Cerberus Capital Management. The Treasury has also offered a new $1 billion loan to GM so the automaker could participate in a rights offering at GMAC.

Yes, this in addition to the recent $17.4 billion emergency loan to save GM and Chrysler from bankruptcy.  In fact, the government already helped GMAC last week, when the Federal Reserve approved the finance company’s application to become a bank-holding company.

But the Fed’s approval was conditional on GMAC raising new capital.

GMAC’s Christmas present

The Fed donned the red suit on Christmas eve for GMAC, giving the troubled auto finance company the nod to become a bank holding company.

The speedy approval should not come as a surprise, given that GMAC lends to consumers and GM depends on the finance company to sell cars — factors that could make its survival seen as key to fixing the economy.

The new status gives the company access to government lending programs and should allow it to continue financing loans for GM cars.

“In light of the unusual and exigent circumstances affecting the financial markets … the board has determined that emergency conditions exist that justify expeditious action on this proposal,” the Fed said in a statement.

GM comes up empty

GM went trick-or-treating early but it looks no one answered the door. Either that, or its trick wasn’t very good. Either way, it appears to have come up empty-handed in its bid for government goodies.

The much-talked about General Motors-Chrysler merger is off the table for now. Reuters is reporting that talks hit an impasse after the Bush administration said “no” to funding for the deal, citing three people with direct knowledge of the talks.

GM had approached the Treasury in recent days about support for the merger through some $10 billion in new funding that would have included taking an ownership stake in the merged company, people familiar with the talks have said.

A Bush administration official told Reuters the administration was not negotiating direct aid for the deal.

20 percent = zero

At the end of December 2007, Daimler’s 20-percent stake in Chrysler was valued at about $1.18 billion.

At the end of June, Daimler valued that investment at about $219.6 million.

Today, Daimler said the book value of that 20-percent stake is zero.

That’s right, zero.

Craigslist a runaway bride?

EBay’s lawsuit against Craigslist alleges that founder Craig Newmark and CEO Jim Buckmaster tried to dilute eBay’s 28.4 percent stake in the company after a marriage proposal. According to court papers unsealed Wednesday, Craigslist wanted out of the relationship since eBay had launched a competing product, Kijiji, but Meg Whitman countered with a bid to buy the entire company, leading to the allegedly “clandestine” meetings between Newmark and CEO Jim Buckmaster. At stake is the world’s third most valuable Web startup, as ranked by Silicon Alley Insider, valued at approximately $5 billion.

Microsoft’s board met on Wednesday to discuss its stand-off with Yahoo, but don’t get too excited: they failed to reach a decision on what to do next, according to a Wall Street Journal report. The board is still weighing whether to adopt a hostile approach and nominate a proxy slate of directors to replace Yahoo’s board, sweeten its cash-and-stock offer for Yahoo, or possibly walk away from the deal. A Microsoft-imposed “deadline” passed last Saturday.

Three-headed canine guardian of the gates of Hell, meet controversial private security contractor Blackwater. Cerberus Capital Management is in talks to invest $200 million for a stake in Blackwater USA, ABC News reported on Wednesday, citing sources. Or, not. The Wall Street Journal confirmed that Blackwater is seeking outside investment, but quotes a Cerberus spokesman as saying the private equity firm took a look but decided to pass. As the WSJ’s Deal Journal notes, the “secretive, billionaire, former paratrooper [Cerberus' Steve Feinberg] trains his largesse on a secretive, lucrative quasi-military operations company” story was just too good to be true.

** British software company Micro Focus International Plc said it was to buy U.S. peer NetManage Inc for an agreed $73.3 million, or $7.20 per share.