Buyout Bingo In Reverse

Flashback May 18 2007: U.S. Stocks Advance on Rising Consumer Confidence, Acquisitions.

Takeovers helped push the Dow Jones Industrial Average to its ninth record this month and its best start to May since 2001. Announced mergers and acquisitions involving U.S. companies this year total $993 billion, 62 percent more than at the same time last year.

"It's buyout bingo," said James W. Gaul, who helps oversee $2.4 billion at Boston Advisors LLC in Boston. "Every morning you open the paper hoping it's one of your companies in your portfolio that's getting bought out that day."

Dateline September 17 2007 PHH Sale to GE, Blackstone May Collapse as Banks Balk.

PHH Corp., the mortgage lender and vehicle-fleet manager that agreed to be bought by General Electric Co. and Blackstone Group LP, said the sale may unravel after Blackstone failed to get $750 million in loans.

While Blackstone is looking for new loans, "it is not optimistic at this time that its efforts will be successful," according to PHH's statement.

"We continue to hope that Blackstone will succeed in arranging its financing so the merger can be completed," GE spokesman Stephen White said in an interview today. "But if Blackstone is unable to complete its purchase, GE will not be obligated to complete the merger."

Is Blackstone (BX) really looking for loans to finance the deal or are they thanking their lucky stars at the chance to escape. Does GE really want PHH's fleet management business at the agreed upon price? We know what they are saying. We don't know what they are really thinking.

The Wall Street Journal is reporting Blackstone's PHH Buyout Hits Snags

A vote on the takeover is set for Sept. 26, and PHH intends for it to proceed as scheduled. The company said it expects GE to complete the takeover.

The deal calls for GE to acquire Mount Laurel, N.J.-based PHH for $31.50 a share and then sell PHH's mortgage operation to Blackstone. GE will retain PHH's fleet-management business.

PHH intends to proceed "as scheduled". The market seems to disagree as do Lehman (LEH) and J.P. Morgan (JPM). Expect more deals to collapse especially if funding for small deals are falling apart. That idea was expressed in the WSJ article J.P. Morgan, Lehman Foreclose on PHH

It is the latest in a series of debt commitments for M&A deals that banks are trying to back out of. Mortgage lender PHH said today that J.P. Morgan Chase and Lehman Brothers Holdings signaled they will back out of their commitment to fund Blackstone Group and General Electric’s purchase of PHH. The move may leave the buyers $750 million short of debt financing they need to complete the $1.8 billion deal.

Banks are pulling any levers they can to get out of lending commitments that have suddenly become unprofitable as credit markets sour. As we discussed Friday, a similar dynamic is playing out with Morgan Stanley’s financing of GSO’s $1.1 billion purchase of Reddy Ice. Finish Line’s leveraged purchase of athletic-shoe retailer Genesco, financed by UBS, smells the same.

All these deals are relatively small ones. Things will get really interesting if and when the banks try to back out of their commitments on the really big deals, the ones like TXU (at $32 billion) and Alltel ($27.5 billion). Then the fireworks would really begin.

Daily chart of PHH Corp.
(click on chart for a sharper image)



With Buyout Bingo now in reverse, expect to see more charts like the above, especially as funding for LBOs collapses. But it's important to note that this is really just another Economic Ripple in the continuing saga of Shattered Confidence that we talked about just yesterday.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/