Carlyle Group Slams Brakes On Bid For TRW –

The Carlyle Group recently announced its sudden and complete withdrawal as co-leader in a bid to acquire the auto parts division of TRW, in tandem with The Blackstone Group. A source close to the deal said Carlyle decided to back out of its signed agreement with Blackstone during the week of Nov. 3.

Representatives at both firms declined to offer any additional information as to why Carlyle pulled out of the $4.5 billion-plus transaction. The equity portion was pegged at $1 billion, and expected to be split equally between Blackstone and Carlyle. Since September, the total bid has bounced from $5 billion to $4.5 billion and now sits somewhere between $4.6 billion and $4.75 billion, according to a source familiar with the deal.

Blackstone has remained steadfast in its confidence, believing the only question in regard to Blackstone closing this deal “begins with when,’ not if,” according to a source close to the firm.

At press time, it was still unclear how Blackstone would respond. Finding another partner is one possibility, while the firm could follow Carlyle’s lead and drop out altogether. Funding the acquisition by itself seems to be an unlikely scenario, since it would require Blackstone contributing $1 billion of its own cash.

Not that Blackstone couldn’t come up with the money. In July Blackstone closed its BCP IV fund at $6.45 billion, representing the largest private equity fund raised to date. All told, Blackstone has raised $14 billion through four funds.

Joining the party late, Apollo Management recently teamed up with auto parts maker ArvinMeritor Inc. to make a $4.5 billion offer for TRW’s auto parts unit.

An Apollo representative refused to comment on Carlyle’s dropout and the possibility of Apollo making a stronger bid for TRW’s auto parts division.

Apollo Management was formed in 1990, and since its inception has closed five funds totaling more than $13 billion. Apollo recently closed its fifth fund at $3.8 billion. Historically, Apollo has often specialized in buyouts through distressed markets. “We are prepared to own good companies that happen to have bad balance sheets,” said a source at Apollo.

In 1997, Blackstone acquired American Axle & Manufacturing, another auto parts maker, through its BCP II fund. From 1997 through 2001, AAM revenue increased from $2.1 billion to $3.1 billion. EBITDA also increased, from $152.8 million to $367 million during the same period. AAM went public in 1999, and has recently traded at or near $23 per share.

Meanwhile, Northrop Grumman still has a bid on the table to purchase TRW as a whole, minus the auto parts division in question, for $7.2 billion. In a note to clients, JP Morgan stated “the deal looks attractive…providing Northrop acquires TRW at current levels.” The note also indicated the deal may be on hold until the Department of Justice gives full anti-trust clearance.

Northrop Grumman officials declined to comment.

DOJ antitrust hearings are currently in session, fully one month after the 30-day waiting period. The pending acquisition has already been approved by European antitrust officials.