Buffett triumphs

How a KKR and TPG consortium lost a bidding war withWarren Buffett for a US utility – despite offering $1.5bn more

In the continuing rivalry between billionaire Warren Buffett and private equity, the so-called “oracle from Omaha”has won the latest showdown.

An energy company controlled by Buffett, who has been a vocal critic of private equity's reliance on leverage and was once quoted comparing private equity firms with porn shops, won a bidding war for struggling US utility Constellation Energy despite offering $1.5 billion less than a consortium including private equity firms Kohlberg Kravis Roberts and TPG.

In September, MidAmerican Energy Holdings, company owned by Buffett-led investment firm Berkshire Hathaway, offered $26.50 per share for Constellation as the Maryland-based company's stock price plummeted amid fears that its energy trading practice was vulnerable to wild fluctuations in the financial markets.

Shortly after news of the potential deal broke, Constellation announced it had accepted Iowa-based MidAmerican's acquisition offer, along with a $1 billion preferred stock investment intended to immediately shore up the utility's rapidly shrinking capital base.

But less than a week after the deal was announced, French utility Electricité de France (EDF) said in a Securities and Exchange Commission filing that itself, KKR and TPG had offered $35 per share for Constellation, $1.5 billion more than the $4.7 billion price tag MidAmerican had offered.

“The other terms and conditions of the [EDF, KKR and TPG] proposal request were either the same as or in the aggregate more favourable to Constellation than the terms and conditions of the preferred stock investment proposed by MidAmerican, “EDF, a major public shareholder of Constellation, said in the filings.

In order to head off any accusation of denying maximum value to its shareholders, Constellation's board of directors said it was unsure at the time whether the EDF consortium could procure financing for the agreement, or that Paris-based EDF could clear regulatory hurdles limiting foreign ownership of US nuclear energy assets.

Given a rapidly dwindling market capitalisation, Constellation said, it went with the safest offer tendered.

Although EDF and KKR continued to push the alternative deal to shareholders for several weeks, the consortium ultimately dropped its bid.

An investor consortium including Citi Infrastructure Investors has won a $2.5 billion, 99-year concession to further develop and operate what could become the first major privatised airport in the US, Chicago Midway Airport. Citi's consortium beat out three other investor groups, including a consortium of Macquarie Group-affiliated funds.

On the same day that it won Midway, Citi opted to let its consortium's $12.8 billion bid for the Pennsylvania Turnpike expire. Had it been approved, the deal would have been the largest highway privatisation in US history. The final acceptance of the bid was subject to approval by the Pennsylvania state legislature, where it faced stiff opposition from key legislators.

A consortium of investors led by Babcock & Brown Public Partnerships, a London Stock Exchange-listed social infrastructure fund, has closed on a 32-year concession to design, build, finance and maintain 18 schools in the province of Alberta, Canada for C$634 million ($594 million, €413 million). The project marks Babcock's second public private partnership project in Canada.

Accel-KKR, a technology-focussed private equity firm founded by Kohlberg Kravis Roberts and Accel Partners, has acquired a “significant equity stake”in court reporting and litigation services comp an Alexander Gallo Holdings by backing the company's acquisition of The Hobart West Group. Alexander Gallo-backer VSS Structured Capital has realised a “substantial majority” of its investment.

Solar Power Partners has raised approximately $100 million in financing in 2008 and is close to securing an additional $60 million from investors including Globespan Capital Partners and power-focussed private equity firm Energy Investors Funds. Solar Power Partners develops, owns and operates distributed solar energy facilities in the continental US and Hawaii.

Connecticut-based private equity firm Olympus Partners has acquired plastic tank manufacturer Norwesco from Allied Capital in a deal involving $110 million of equity as well as an undisclosed amount of debt. Norwesco, he adquartered in Minnesota, produces moulded plastic tanks for agricultural, water, energy and septic uses.

Bayside Capital, a distressed debt and turnaround affiliate of mid-market private equity firm HIG Capital, has purchased Akrion Systems, a provider of surface preparation equipment for semiconductors and solar panels, for an undisclosed sum. Miami-based Bayside closed its second fund in June on $3 billion.

Boston-based private equity firm TA Associates has invested C$98 million ($95 million; €65 million) in software company Radialpoint, which provides security services to broadband service providers such as anti-virus software and pop-up blockers. Radialpoint is currently focussed on North America and Europe but is looking to emerging markets.

Kohlberg Kravis Roberts has committed additional funding to Silicon Valley communications software firm Aricent alongside Bahrain investor The Family Office in a transaction valued at $60 million. In 2006, KKR acquired a 76 percent stake in Aricent along with Sequoia Capital in a transaction that valued the entire business at $900 million. Green gasoline developer Sapphire Energies has raised more than $50 million in Series B financing as the San Diego-based company seeks to scale up its production of algae-based crude oil to 10,000 barrels per day. Sapphire investors include Arch Venture Partners, Venrock and Cascade Investments, Bill Gates' investment firm.

Language education software maker Rosetta Stone, majority owned by private equity firms ABS Capital Partners and Norwest Equity Partners, has filed for a $115 million public float. The two firms co-led a management buyout of the software maker in January 2006 that was reportedly worth $62 million.

New York-based leisure, lifestyle and media private equity firm Falconhead Capital has acquired a controlling stake in Not Your Daughter's Jeans. Founded in 2003, the family-owned business makes jeans targeting an older demographic and are sold in US department stores including Nordstrom, Bloomingdale's and Macy's.

ICV Capital Partners has acquired retailerMarshall Retail Group for the second time in five years. The New York-based private investment firm bought the retail company, which operates 70 stores in 25 casinos across the US, only three years after selling it to private equity firm Bruckmann, Rosser, Sherill & Co.

According to a report from investment bank Freeman & Company, private equity investment in US banks in the first half of the year totaled nearly $5.5 billion, a figure that already tops annual totals for the past three years. Freeman's figures exclude investment activity by sovereign wealth funds and private equity firms incorporated as bank holding companies.

Cerberus Capital Management will invest $1 billion in the Canadian Imperial Bank of Commerce's US real estate portfolio, from which the bank has been bleeding money in the global housing crisis. Canada's fifth-largest bank has written down its debt investments by about C$7.6 billion (€5.1 billion; $7.1 billion) since last year.

New York-based real estate lender Ciena Capital, a portfolio company of Allied Capital, has filed for voluntary bankruptcy protection blaming the credit crisis for a “significant” deterioration in the value of its assets. Allied said it expected to record a “substantial”write down on its investment in Ciena.

Christopher Flowers, chairman and founder of financial services-focussed private equity firm JC Flowers, has received approval from US regulators to acquire 100 percent of Missouribased bank First National Bank of Cainesville. The bank has roughly $14 million in total assets.

A court judge has struck down Apollo Global Management por t fol io company Hexion Specialty Chemical's attempt to walk away from its $10.6 billion agreed acquisition of chemical manufacturer Huntsman. Huntsman is continuing to pursue damages of more than $3 billion in a Texas lawsuit against Apollo and the firm's founders Leon Black and Joshua Harris.

An investment group led by the family office of Texas oil magnate Ed Bass has made a $20 million investment in pharmaceutical company MonoSol Rx. The consortium consists of the Ed Bass Group and private equity firms The Halifax Group and CNF Investments, a subsidiary of Clark Enterprises.


Rank Private Equity Firm Portfolio Company Date ($m)
1 TPG Washington Mutual 8 Apr 2,000
2 JC Flowers ShinseiBank 17 Jan 1,386
3 Corsair Capital consortium National City 2 May 985
4 JC Flowers Sinsei Bank 4 Feb 455
5 Cerberus Aozora Bank 3 Mar 415
6 FPK, JC Flowers InvesTorgBank 26 Jun 212