Wednesday, April 18, 2007

Paperstand (LAUR, BRP, AMX, KEY)

The WSJ’s ”Heard on the Street” column out saying that even as the coffers of private-equity firms have bulged in recent years, Wall St. has always assumed that buyout specialists would be wary of certain industries, such as financial services. These co’s usually have heavy capital requirements and already are loaded with borrowed money. Adding more debt as part of a LBO, could cripple their credit ratings and make it too expensive to raise money to run their businesses. These kinds of co’s also are often heavily regulated, and buyout specialists usually are wary of any tussles with govt bodies. But the slated purchase of SLM (SLM) has investors searching for other financial stocks that might be tgts. In fact, investment bankers say other buyout shops are discussing acquisitions of undervalued financial co’s, even including some banks. Among those that could be takeover bait are Countrywide Financial (CFC), CIT Group (CIT) and iStar (SFI). The fact that Blackstone also vied for Sallie Mae suggests that other private-equity firms could be eager for these kinds of deals. Another tgt is KeyCorp (KEY). One investment banker said KeyCorp might see some improvement with a buyout partner. Private-equity firms are getting so big and diversified that regulators might be more comfortable with those firms owning a bank, he added. "It's more challenging to do a deal for a mortgage player or a credit-card or auto lender than with Sallie Mae," says Richard Hofmann, of CreditSights. "But they're increasingly likely to be LBO tgts now that Sallie Mae has received such a large premium."

Barron’s Onlin saying that the best way to catch the growth of exploding broadband may be in emerging mkt stocks such as Brasil Telecom (BRP), one of the three largest fixed-line phone operators in Brazil, and America Movil (AMX), which provides cellphone service in Colombia, Ecuador and other parts of Latin America and which has double-digit operating profit growth. Both stocks are up smartly this year, with America Movil rising 13% and Brasil Telecom up 23%. But both could also see upside of 20% from their current value, to share prices in the neighborhood of $60 each. Neither co is exposed to the kind of rapid erosion of traditional phone lines that threatens AT&T, and, more important, both are seeing rapid expansion of wireless calling and broadband Internet access, the kinds of high-growth mkts telecom investors are betting on. Finding outperformance in foreign mkts means getting in early before explosive growth in communications is generally apparent. "There is a tipping point that happens in mkts, beyond which growth just takes off beyond what anyone could have expected," says Bill Hughes, of In-Stat. "If you have investments in a lot of different countries, when that tipping point comes, it's going to be a great investment."

“Inside Scoop” section highlights Laureate (LAUR), which in Jan agreed to be acquired. Since then, however, 3 of the co's top shareholders, Select Equity, T. Rowe Price and BlackRock, have voiced their opposition to the buyout. Combined, the 3 firms own 21% of Laureate's outstanding. Now, Select has increased its stake in the co, disclosing that it has raised its stake to 9.8% up from the 8.7% stake it had in Feb. Select spent $33.1m for the additional shares. Joshua Hong, of, points out that investors still do not know what Laureate's second largest shareholder, William Blair, which owns a 9.6% stake, thinks of the deal. But b/c only 15 institutional investors hold about half of Laureate's shares, "it would probably not be that hard to gather opposition to the deal," says Hong.

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