Big Money Deals: Is Private Equity Back?

Just when the giant private equity megadeals of yesteryear seem to have gone for good, two multi-billion dollar deals have appeared on the horizon. Two private equity players, along with strategic buyer NBC Universal, have agreed to acquire The Weather Channel. Meanwhile, a consortium of equity buyers may have saved their long-troubled buyout of Bell Canada. The Weather Channel deal is the second-largest leveraged buyout of the year, according to Dealogic, and the BCE deal, if it closes, will be the largest LBO ever. It's worth taking a moment to examine these deals to see if they foreshadow a revival in the private equity deal market.

The Weather Channel

NBC Universal, a unit of General Electric, has joined with private equity firms Bain Capital and the Blackstone Group to acquire The Weather Channel. After the deal closes, each partner will own roughly a third of the company. Credit funds at Bain and Blackstone will both lend debt to the deal. Although the terms of the deal have not been disclosed, the buyers will reportedly pay about $3.5 billion, which is less than the $5 billion sought by Weather Channel parent Landmark Communications when it put the cable network up for sale in January 2008. The purchase also includes related assets including Weather.com, which attracts nearly 40 million unique users per month, and Weather Services International, a forecasting service with more than 5,500 clients.

The purchase of the Weather Channel clearly benefits NBC Universal. It's more successful than NBC Weather Plus, a digital weather and news service launched by NBC Universal in 2004. In addition to its weather information services, the Weather Channel is also valuable as a cable network. The Weather Channel is the leading brand of weather information on television and cable operations currently account for about half of NEC's earnings.

But the fact that the Weather Channel is a good strategic purchase for NBC raises an interesting question - why is NBC sharing it with Bain and Blackstone? NEC's parent, GE, has deep pockets. GE had more than $15 billion in cash at the end of the first quarter and is in the process of selling off assets such as its appliance arm. And despite the difficult credit market, GE could likely have arranged debt financing.

GE is divesting assets to refocus the company on its stronger operations. Investors and analysts have criticized the conglomerate for holding on to NBC, instead of selling the media unit and using the proceeds to fund higher-growth operations. GE has argued that NBC is good for the company because it helps promote company brands and builds business relationships. By purchasing the Weather Channel with the support of private equity buyers, GE is reaffirming its interest in NBC while still investing cautiously.

It's a good deal for Bain and Blackstone, too. In addition to getting a significant stake in a successful cable venture, they are also getting an established national television network to operate it.

Bell Canada

The private equity players purchasing BCE Inc., also known as Bell Canada Enterprises, are having a harder time. A consortium of buyers including the Ontario Teachers' Pension Plan, Providence Equity Partners Inc., Madison Dearborn Partners, and Merrill Lynch Global Private Equity have agreed to acquire BCE for about $52 billion, the largest leveraged buyout on record. The deal has been in jeopardy for several months as the banks financing the transaction became concerned over the purchase price. The deal was also sidetracked by the Quebec Court of Appeal, which ruled that the transaction was unfair to bondholders.

But now the deal appears to be back on track. The Supreme Court of Canada overturned the Quebec Court ruling, and the buyers have reached an accommodation with their investment banks. The deal will be financed by Citigroup, Deutsche Bank, the Royal Bank of Scotland, and TorontoDominion Bank.

The four banks, which originally agreed to provide about $34 billion in financing for the deal when it was first announced in 2007, have been demanding changes in the transaction terms due to the recent downturn in the credit market. But the deal is structured under a Canadian court procedure that would make it difficult to change the agreedupon share price. Instead, the buyers renegotiated other terms of the transaction, including canceling dividend payments on BCE stock and postponing the closing of the deal to December. In agreeing to the postponement, the banks are hoping that the credit markets will have improved somewhat by the end of the year.

Big Deals for Private Equity?

Together, these two deals are the largest equity buyouts of 2008. Despite their impressive size, however, these deals do not necessarily signal a return to the happy days of giant private equity dealmaking. The Weather Channel is selling below its original asking price and is a small deal compared to some of the private equity buyouts in the first half of 2007. The BCE deal actually is one of those giant deals from last year, postponed in order salvage the transaction after extended legal and financial challenges.