Monday, June 23, 2008

Getting religion

I am getting ideas from the recent TPG–WaMu private equity deal where even the NYSE requirement – need to seek shareholder nod for any fresh stock issuance to an outsider in excess of 20% of existing capital base – has been reduced to a joke. This is besides its chairman Kerry Killinger getting the boot and TPG’s David Bonderman coming on board. Some of the features in that deal can be used in PE deals involving companies in India’s badly mauled Realty / financial services sector that are desperate for capital like WaMu. Seems like it’s already happening here. Look how Blackstone is raking up Gokaldas management. Samples from WaMu deal –

WaMu sold TPG 176 million shares at $8.75 each — 26 percent below the stock’s price the day of the deal; it also sold nearly 20,000 preferred shares that can be converted into WaMu common stock at $8.75 each. WaMu issued five-year warrants to the investors, allowing them to acquire 68.2 million shares of WaMu stock at $10.06 each, adding up in excess of 50% of WaMu shares outstanding with TPG including warrants and preferred stock.

Take a look at the terms -

a) if the transaction is not approved by June 30, WaMu will have to pay a special dividend with an annual interest rate of 14 percent to the TPG investors. If shareholders have not approved the deal by next March, more dividends will be paid at a rate of 15.5 percent. By September 2009 the penalty rises to 17 percent.

b) And if shareholders reject the deal, the price at which the warrants can be converted into common stock will decline every six months by 50 cents each, with a maximum drop of $2 a warrant. That makes the warrants far more valuable to TPG and its friends, and a lot costlier to WaMu shareholders.
Did someone say PE is fading because of liqudity crunch…? Walk them thro some of the deals that Mr.Bonderman struck for TPG. Soon they'll get religion.


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