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Secretive Carlyle plans

by Tina-Marie O'Neill, Business Post, Dublin, Ireland, 2 June 2002


The Carlyle Group, termed "one of the most powerful, well-connected and secretive companies in the world", plans to seek up to acquisitions.

The group also suspended a planned initial public offering of its United States Marine Repair subsidiary last week, deciding to sell the ship-repair company to United Defense Industries instead. The Carlyle Group owns a 49 per cent stake in United Defense.

Not much is known about the Carlyle Group, but its list of members and associates includes former British prime minister John Major, former US president George Bush Snr, former US secretary of defence Frank Carlucci and former US secretary of state James Baker III.

A number of its high profile clients include George Soros, Prince Alwalled bin Talal bin Abdul Aziz Alsaud of Saudi Arabia and, ironically, estranged members of Osama bin Laden's family. The bin Laden family liquidated their holdings in the company last October.

The Washington based private investment firm was founded in 1987 by David Rubenstein, a former aide in the Carter administration, and William Conway Junior, former chief financial officer of MCI Communications. They met in New York's Carlyle Hotel to form the company.

The company took off in 1989 when Carlucci was brought on board. Less than three years later, Carlyle bought up ailing defence contractors Harsco, BDM International and LTV, turned them around and sold them on to TRW, Boeing and Lockheed Martin, for large profits.

According to the Red Herring Magazine: "Carlyle has established itself as the gatekeeper between private business interests and US defence spending," and operates within "the so-called iron triangle of industry, government and the military".

Within that spectrum, the company has managed to amass $12 billion in funds under management. Carlyle recently delved into the venture capital market but so far the move has not been very successful.

United Defense makes the Crusader, a controversial 42-tonne, self-propelled howitzer that moves like a tank and is able to fire ten 155-millimetre shells per minute to a distance of 40 kilometres.

During the Clinton administration, Pentagon financial staff argued that the Crusader was too heavy and slow for today's warfare and recommended that the programme be discontinued. It is believed that, at the time, the Carlyle Group lobbied Washington to keep the $11 billion contract alive.

The Pentagon cancelled the programme last month and will pay United Defense a termination fee of up to $520 million.

For its part, United Defense has agreed to pay $316 million to acquire United States Marine Repair, a company that performs upgrades and overhauls on ships for the US navy. The deal is expected to balance United Defense's books after the loss of the lucrative government contract.

According to information released by Dow Jones & Company, United Defense's 2001 revenue totalled $1.32 billion and about 55 per cent of that came from army programmes.

For the 12 months ended March 31, United States Marine Repair had $12.3 million in net income on $431.7 million in revenue.

United Defense shares rose 34 US cents to $23.59 within hours of the news.

The European arm of the Carlyle Group is chaired by John Major and has invested more than four-fifths of its existing in companies such as Vivendi Universal's trade magazines and Le Figaro, France's second biggest daily newspaper. Seven managing directors based in London, Paris, Munich, Barcelona and Milan oversee the European operations.

Carlyle will be competing for investors against companies including British rivals Doughty Hanson & Co, Candover Investments, Charterhouse Capital Partners and Terra Firma Capital Partners.

According to PricewaterhouseCoopers, European buyout funds already have about the volume of takeovers declining this year. That means the price of businesses is falling, which looks good for private equity firms.

Carlyle is bidding with Apax Partners & Co for Energis, a British carrier of internet traffic.

It is also teaming with WS Atkins to try to buy Qinetiq, the former British Ministry of Defense laboratories.

Additional reporting by Bloomberg

© 2002 Business Post
Reprinted for Fair Use Only.

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