PE Week Wire: Wednesday, June 4, 2008

The Supreme Court of Canada on Monday said that it would hear BCE’s appeal of a lower court ruling that threatens to derail its C$34.8 billion buyout. Oral arguments will be made the morning of June 17, at which point the three-judge panel can issue a ruling or push for a fuller process. Conventional wisdom is that BCE will ultimately prevail, as evidenced by BCE shares rising more than 2% on news that the Supremes would take a listen.

I’m comfortable accepting that premise, but it leads us to a much thornier question: What next?

All of this court talk seems to have obscured the fact that Wall Street has no intention of funding this deal under the agreed-upon terms. As a partner at one of the participating private equity firms told me last week: “There is still a very real possibility that this will all blow up.”

The buyers and lenders were in the midst of negotiations when the Quebec-based lower court made its surprise ruling – holding that the proposed buyout treated BCE bondholders unfairly – but things have since ground to a virtual standstill. The banks expect to lose money on this deal even if they get more favorable terms, so are keeping their fingers crossed that the deal blood will land on judicial robes instead of on Brooks Bros. blazers. If that fails, then they’ll fight.

What could prove interesting, however, is that their fight may be more with the BCE board than with the buyers. Specifically, BCE’s directors need to recognize and internalize that they’re not getting C$42.75 per share. It may only take a short dip to C$41, but it’s going down or the deal isn’t getting done. That’s the word I hear from both the buyers and lenders, who also have some concerns about how BCE shareholders will react when they hear the final news.

It’s worth noting that Clear Channel conceded the price point quickly, but there are a few significant differences between the BCE and Clear Channel situations (leaving aside the current legal contretemps):

1. Clear Channel could pursue a jury remedy against its lenders in Texas, which is known for highly-punitive awards. BCE doesn’t have that option (Quebec is a wild-card, but not that wild).

2. The Clear Channel settlement was facilitated by third-party hedge funds that had agreed to purchase the deal’s prominent “stub equity.” That won’t apply for BCE, so it lacks the corresponding facilitators.

3. The Clear Channel buyers – particularly THL Capital – put themselves out on a plank, by loudly proclaiming how much they wanted to get the deal done. We’ve heard a bit of that from lead sponsor Ontario Teachers’ Pension Plan, but not via regular appearances on CNBC (maybe on CBN, but I don’t get that here in Boston). The rest of the consortium — Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity – has been mostly silent. In other words, they’d have less egg on their face if they walked away.

For the record, I still think BCE gets done. But a Supreme Court ruling in the company’s favor is more a pit stop than a destination.

*** Yesterday I was offered an opportunity to buy Grizzly Adams. Not sure if I need to grow a beard first.

*** Comedian Lewis Black vs. Henry Kravis.

*** Connie looks at CRV QuickStart, one year later.

*** 8 Questions for Bob Long, CEO of publicly-traded fund-of-funds Conversus Capital.

*** peHUB First Read, including MC Hammer’s advice to Intel Capital CEOs. Yes, you read that correctly.

*** The huge ACG Boston Growth Conference is tomorrow at the Seaport World Trade Center. I’ll be there, as will an extraordinary number of PE pros. Get more info here.

Top Three

Residential Capital LLC (ResCap) said that it will receive a cash infusion of more than $1.4 billion from parent company GMAC and private equity firm Cerberus Capital Management. The money will be used to help the troubled mortgage lender remain solvent.

Motricity Inc., a Durham, N.C.-based provider of mobile marketplace management solutions, has sold its smartphone and direct-to-consumer businesses to PocketGear, a new company formed by Motricity co-founder and former CTO Jud Bowman. No financial terms were disclosed, except that PocketGear has raised an undisclosed amount of VC funding from Motricity shareholders Noro-Moseley Partners and Wakefield Group. Motricity has raised over $365 million in total VC funding.

Veoh Networks Inc., a San Diego-based online video sharing company, has raised $30 million in Series D funding. New backers include Intel Corp, Adobe Systems and Gordon Crawford of Capital Research Global Investors. Returnees include Shelter Capital, Spark Capital, Goldman Sachs, Michael Eisner’s Tornante Company and Time Warner Investments. The company has now raised nearly $70 million.

VC Deals

IRX Therapeutics, a New York-based drug developer focused on cancer andviral diseases, has raised $25 million in Series A funding. It has now raised a total of $65 million. No investor information was disclosed, although regulatory filing list Kelso & Co. as a significant shareholder.

Inimex Pharmaceuticals Inc., a Vancouver-based developer of medicines that use selective modulation of the innate immune response, has raised US$22 million in Series B funding. Morningside Venture Investments led the round, and was joined by Astellas Venture Management, Advantage Life Science Fund and return backers BC Advantage Funds, BDC Capital, British Columbia Discovery Fund, Canadian Medical Discovery Fund and the Working Opportunity Fund.

Rally Software Development Corp., a Boulder, Colo.-based provider of on-demand application life cycle management solutions, has raised $16.75 million in Series C funding. Mohr Davidow Ventures led the round, and was joined by return backers Boulder Ventures, Mobius Venture Capital and Vista Ventures.

oDesk, a Menlo Park, Calif.-based marketplace and management platform for technical work, has raised $15 million in Series C funding. DAG Ventures led the round, and was joined by return backers Benchmark Capital, Globespan Capital Partners and Sigma Partners. It has now raised $30 million since late 2004.

China Medicine On-Line Ltd., a Chinese provider of telemedicine services, has raised $8 million from the Infinity I-China Fund, a venture vehicle managed by Israel-based Infinity Equity.

NanoHorizons Inc., a State College, Penn.-based developer of advanced nanoparticles, has raised around $6.7 million in second-round funding commitments. Backers include Penn Venture Partners, Life Sciences Greenhouse of Central Pennsylvania and individual angels.

CrownPeak, a Los Angeles-based provider of online content management software, has raised $6 million in Series B funding. SunAmerica Ventures led the round, and was joined by return backers Sigma Partners and Altos Ventures.

Yield Software Inc., a San Mateo, Calif.-based provider of Internet marketing software, has raised $6 million in Series B funding. Draper Fisher Jurvetson led the round, and was joined by WPP and seed backer WashingtonVC.

Syntensia AB, a Stockholm, Sweden-based provider of on-demand network security solutions, has raised $3.5 million in new VC funding led by InnovationsKapital. The deal also includes a $4 million option.

FTL Solar, a New York-based developer of thin-film solar cells, is raising $50 million in first-round funding. It said that it has already held a first close on an undisclosed amount, from Terra Firma Capital Group, the Josh Mailman Foundation and individual angels.

TelaDoc Medical Services has raised an undisclosed amount of private equity funding from Trident Capital. The Dallas-based company provides around-the-clock access to telephone consults with trained primary care doctors who diagnose medical problems and, when necessary, prescribe medication.

Turbine Inc., a Westwood, Mass.–based MMO game publisher, today confirmed that it has raised $40 million in Series C funding. peHUB first reported the news in April. Granite Global Ventures and Time Warner co-led the round, and were joined by return backers Highland Capital Partners, Polaris Venture Partners, Tudor Ventures and Columbia Capital. The company has now raised more than $90 million, including a $30 million infusion in February 2005.

Buyout Deals

Aureos Capital has sponsored a management buyout of Horizontes, a Costa Rican sustainable tourism company. No financial terms were disclosed for the deal, which was done via Aureos’ Emerge Central America Growth Fund. Aureos now holds a 49% stake in Horizontes.

Flow Traders, an Amsterdam-based electronic trading firm, has received a minority investment from Summit Partners. No financial terms were disclosed.

MH Equity Investors has acquired Entertainment Publications Inc., a provider of discounts and promotions, from IAC (Nasdaq: IACI). The deal is valued at approximately $135 million. Evercore Group advised IAC on the sale.

The Riverside Co. has acquired ITEL Laboratories Inc., a Jacksonville, Fla.-based tester for determining fair-market replacement value of damaged products. No financial terms were disclosed for the deal, which included a one-loan debt facility and equity co-investment from Golub Capital.

PE Exits

Syntellect Ltd., a unit of Enghouse Systems Ltd. (TSX: ESL), has Fluency Voice Technology Ltd., a UK-based provider of on-premise and hosted packaged speech recognition solutions for call centers. No financial terms were disclosed. Fluency Voice had raised over $16 million in VC funding from Favonius Ventures and Kennet Venture Partners.

IntercontinentalExchange (NYSE: ICE) has agreed to buy electronic credit derivatives broker Creditex, for $625 million in cash and stock. Creditex shareholders include TA Associates and Internet Capital Group – both of whom will receive ICE shares in the deal.

PE-Backed M&A

Winebow, a wine importer backed by Freeman Spogli & Co., has agreed to acquire Click Wine Group, a wine marketing and branding company whose products include Fat Bastard from France, Root:1 from Chile, and Clean Slate from Germany. No financial terms were disclosed.

Zayo Bandwidth, a Louisville, Colo.-based regional provider of fiber-based network services, has acquired Northwest Telephone Inc., a CLEC and IXC currently operating in Washington, Oregon and Idaho. No financial terms were disclosed. Zayo last year secured access to $225 million in private equity funding, from firms like Columbia Capital, M/C Venture Partners, Oak Investment Partners, Battery Ventures and Centennial Ventures. It also received an $85 million credit facility from CIT Group, CoBank and Hercules Technology Growth Capital.

Firms & Funds

AXA Private Equity has raised €1.6 billion for its fourth mid-cap buyout fund, which will mostly focus on opportunities in France, Germany and Italy.

Alterna Capital Partners is raising $1 billion for its debut fund, according to LBO Wire. The Wilton, Conn.-based firm is managed by the Citi’s former core capital asset equity investment team, and is using CP Eaton as a placement agent.

Armur Capital Management is looking to raise $500 million for its inaugural fund, according to LBO Wire. The firm will focus on transportation and tangible commercial assets, and is run by former UBS executives Mostafiz ShahMohammed (head of credit asset-backed securities) and Cecilia Park (head of transportation structured finance).

The Carlyle Group has closed its third European real estate fund with $3.4 billion in capital commitments.

The Pennsylvania State Employees’ Retirement Board today will receive recommendations that it approve commitments to Great Hill Equity Partners IV and HIG Bayside Debt & LBO Fund II. It also will receive interview recommendations for Clessidra Capital Partners II, Avenue Europe Special Situations Fund, Dover Street VII, Guggenheim Technology Ventures I and Vista Equity Partners Fund III.

Human Resources

Jeffrey Lerner has joined Hudson Capital Partners as an executive vice president, with responsibility for business development and client services. He has spent the past nine years with Great American Group, where he was president and founding partner of its Advisory and Valuation Services division.

Björn Savén has been named executive chairman of Industri Kapital. He has been chairman and CEO of Industri Kapital since 1989, and will continue to manage the firm with managing partners Detlef Dinsel, Christopher Masek, Michael Rosenlew and Gustav Öhman.

Heidrick & Struggles International, an executive search firm, has named S. John Kim and Daniel Edwards as co-heads of the firm’s global financial services practice. Kim is based in New York, and recently joined the firm. Edwards is based in Tokyo, and joined in 2001.