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From:

"Dan Primack"

Name:

Dan Primack

Email Address:

Dan_Primack@fortune.chtah.com

Subject:

Term Sheet -- Thursday, October 14

Date:

14-10-2010 13:42:46
Message

Fortune Finance Street Sweep Term Sheet Economics Tech Wall Street Washington

The Term Sheet by Dan Primack

Thursday -- October 14, 2010
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Mr. Rattner, the bell tolls for thee

Back in June, Mike Bloomberg was asked about securities fraud allegations against friend and financial
advisor Steven Rattner.
"I don't think he did anything wrong," Bloomberg told the Washington Examiner. "I happen to think the
charge against him is ridiculous."
Quite the display of (blind) loyalty. You've got to wonder if Rattner pulled Mr. Mayor aside on Tuesday
night, during the release party for Rattner's new book on his time as car czar. Perhaps just to say: "I'm real
sorry Mike, but I'm about to admit to playing you for a fool."
How come? Because the SEC soon is expected to announce a settlement with Rattner, who it believes
participated in a kickback scheme to secure public pension money for his private equity firm. That firm, The
Quadrangle Group, settled earlier this year and fingered its former partner as the bad actor.
The SEC has not yet released details of the settlement -- nor even confirmed that there is one -- but the NY
Times reports that it will include more than $5 million in restitution and a multi-year ban from the securities
industry. If the agency follows its Quadrangle script, then we could see formal charges against Rattner just
after 10am, followed by a settlement announcement.

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It does not appear that Rattner has yet struck a similar deal with Andrew Cuomo, who originally gave
Rattner immunity for his testimony against "placement agent" Hank Morris and pension fund crooks like
Alan Hevesi and David Loglisci (this reportedly was before Cuomo found emails that made Rattner's
involvement much more explicit).
For the uninitiated, here is a quick rundown of the allegations against Rattner (based on prior SEC and NY
AG filings).

Rattner secured a video distribution deal for the brothers of New York pension fund CIO David
Loglisci, via a (now defunct) Quadrangle portfolio company. The deal was done over the initial
objections of portfolio company management.
Presumably at Loglisci's suggestion, Rattner secretly hired Hank Morris as a "placement agent," in
order to secure a $100 million fund commitment for Quadrangle from the New York State Common
Retirement Fund. This came after Quadrangle's legitimate placement agents had only been able to
secure between $25 million and $50 million. Morris got Quadrangle the money without ever setting
up or attending any meetings with CRF on Quadrangle's behalf.

Morris also helped get Quadrangle $75 million from New York City pension systems, via a thirdparty who since has pled guilty to securities fraud.

One of Loglisci's brothers put Rattner in touch with potential investors on the West Coast. These
included Elliott Broidy, who sat on the board of the Los Angeles Fire & Police Pension Fund.
LAFPPF committed $10 million to Quadrangle, and Broidy has since pled guilty to felony charges of
rewarding official misconduct.

In 2006, Morris allegedly asked Rattner for a contribution to the reelection campaign of State
Comptroller Alan Hevesi (Loglisci's boss, who last week pled guity to fraud). Rattner demurred,
saying that he had a policy against making contributions to public officials with oversight over
investments, Morris suggested that Rattner contribute the money via a third party. Soon after,
Rattner tapped a Democratic donor who subsequently contributed approximately $25k to Hevesi
(plus another $25k from the donor's wife).

Rattner refused to participate in the original Quadrangle settlement, and his intransigence nearly destroyed
his former firm (the jury is still out on its ultimate survival). He also has steadfastly refused to comment on
the matter in interviews, citing the impropriety of speaking about an ongoing investigation.
So as we wait for official word from the SEC, I'm left with several questions:

1. What, if anything, will Mike Bloomberg say in response to the settlement? I've already asked his
spokesman, who said he'd get back to me.

2. Will the securities ban preclude Rattner from helping to manage Bloomberg's fortune via Willet
Advisors, the asset management formed earlier this year via a spinout from Quadrangle? My
assumption is yes, but it's unclear without details.
3. Will Rattner finally comment on the matter? Outside of a possible statement within the settlement
release, my guess is no. After all, Cuomo may still be after him.

4. Aside from my questions, I'm also left with a sense of anticipatory satisfaction: Rattner did wrong, in
the name of back-scratching "business as usual." He thought he was above both the letter and spirit
of the law, or perhaps didn't think about it at all. Now he will be punished.
I certainly understand those who will say that a $5 million payout is just a drop in Rattner's vast bucket. And
I also realize that some will see the securities industry ban as little more than an forced vacation for
someone who doesn't need to work. There cert is validity to such sentiments.

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But it's important to remember that Rattner values his reputation to an extraordinary extent. Trust me when
I say I know. This settlement, if and when it comes to pass, will tarnish that reputation indelibly.

6 things you should read @Fortune.com

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The Big Deal

Silver Lake Partners is among several firms that have held (very) preliminary talks about acquiring all or
part of Yahoo, as first reported by The Wall Street Journal. Yahoo itself has not been approached by
prospective buyers about the deal, which likely would need to include a sale of Yahoo's 40% stake in
China's Alibaba.com.
AOL also could be involved, as the new parent company via a reverse merger. Such a scenario really is
where the Alibaba stake sale comes in, since AOL's market cap is less than one-fifth of Yahoo's
market cap.
Bloomberg this morning reports that Yahoo has hired Goldman Sachs to field/defends against takeover
approaches.

VC Deals

Ninepoint Medical Inc., a Cambridge, Mass.-based developer of in vivo pathology devices, has raised $33
million in Series A funding co-led by Third Rock Ventures and Prospect Venture Partners.
www.ninepointmedical.com
ChaCha, a Carmel, Ind.-based provider of realtime search solutions, has raised $20 million in VC funding
from VantagePoint Venture Partners and Rho Ventures. It previously raised over $32 million from Morton
Meyerson, Bezos Expeditions, Rod Canion (founding CEO of Compaq) and Jack Gill (partner at Maven
Ventures). www.chacha.com
Redwood Systems, a Fremont, Calif.-based provider of network-based lighting power and control
systems, has raised $15 million in Series B funding. Index Ventures led the round, and was joined by return
backers Battery Ventures and U.S. Venture Partners. www.redwoodsystems.com
Involver, a San Francisco-based provider of a social media management platform, has raised $8 million in
Series C funding. TechCrunch reports that Bessemer Venture Partners led the deal, and was joined by
Western Technology Investment and Cervin Ventures. www.involver.com
Predixion Software, an Aliso Viejo, Calif.-based provider of a predictive analytics solution in the cloud, has
raised $5 million in Series A funding. DFJ Frontier led the round, and was joined by Miramar Venture
Partners and Palomar Ventures. The company also secured a growth capital facility from Silicon Valley
Bank. www.predixionsoftware.com

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Servicios Caseteros, a provider of public telephony and related services to low income populations in
Mexico, has raised around $3.1 million in VC funding from Ignia Fund. www.ignia.com.mx

Private Equity Deals

Bain Capital is nearing an agreement to acquire British mental healthcare facilities operator Priory Group
for 1 billion, according to The Financial Times. The private equity firm has entered exclusive negotiations
with Priory's owners, led by Royal Bank of Scotland. www.baincapital.com
Alfa Laval (ST: ALFA) said it would not raise its bid for Swedish air treatment company Munters (ST:
MTRS), thus paving the way for Nordic Capital to win the auction. The most recent Nordic Capital offer
valued Munters at approximately $859 million. www.nordiccapital.com
Dubai International Capital expects bids this week for British medical imaging company Alliance Medical
Ltd., which is expected to be valued at upwards of 340 million. Bloomberg reports that possible suitors
could include BC Partners, CVC Capital Partners and Euromedic International.
Hellman & Friedman has completed its acquisition of Associated Materials a Cuyahoga Falls, Ohiobased maker and distributor of exterior residential building products, from Harvest Partners and
Investcorp. The deal reportedly was valued at approximately $1.3 billion. www.associatedmaterials.com
KKR and TPG Capital are among those interested in buying Turkish media group Doan Yayin Holding,
according to the FT. European broadcaster RTL also is circling Doan Yayin, which is being advised by
Goldman Sachs.
TA Associates has acquired half of Sequoia Capital's stake in Dr Lal PathLabs, an Indian provider of
diagnostic testing services. No financial terms were disclosed. www.ta.com
Torrent Technologies Inc. has raised an undisclosed amount of private equity funding from Century
Capital Management. Torrent is a Seattle-based provider of back office policy and claims processing
services to private insurance carriers that participate in National Flood Insurance Program.
www.torrentcorp.com
TPG Capital has agreed to acquire long-life oil and gas properties located in Mississippi from Comstock
Resources Inc. (NYSE: CRK). No financial terms were disclosed. This would be the first acquisition for
Petro Harvester Oil & Gas LLC, an oil and gas acquisition platform recently formed by TPG.
www.tpgcapital.com

PE-backed IPOs
ExamWorks Group Inc., an Atlanta-based provider of medical legal services, has set its IPO terms to 10.3
million common shares being offered at between $16 and $18 per share. It would have an initial market cap
of approximately $541 million, were it to price at the high end of its range. Goldman Sachs and Credit
Suisse are serving as co-lead underwriters. Shareholders include Compass Partners.
www.examworks.com

Exits
Apollo Management has hired Deutsche Bank to find a buyer for Affinion Group Holdings Inc., a
Norwalk, Conn.-based provider of integrated marketing and loyalty solutions, according to the NY Post. A

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deal could be worth upwards of $3 billion. Affinion filed earlier this year for a $400 million IPO - its second
attempt at the public markets since being acquired by Apollo in 2005 for approximately $1.83 billion.
www.affiniongroup.com
Court Square Capital has completed its sale of Arizant Inc. to 3M for $810 million in cash. Arizant is an
Eden Prairie, Minn.-based maker of patient-warming solutions designed to prevent hypothermia in surgical
settings. www.3m.com
Highstar Capital is looking to sell its 25% stake in London City Airport for up to 200 million, according
to Reuters. The firm bought its position in 2008 from Global Infrastructure Partners, which still holds
the remaining 75% interest.

Other Deals
BMB Group, a Brunei-based investment firm, has offered to buy luxury resort operator Kerzner
International Holdings for $3.4 billion. Back in June, Kerzner hired Blackstone Group to advise on ways to
reduce a $3.2 billion debt-load.
Burger King says that its 40-day "go-shop" period has ended without any superior offers to the $24 per
share bid from 3G Capital. www.bk.com

Firms & Funds

Covington Capital has agreed to acquire five retail venture capital funds from VenGrowth Asset
Management. No financial terms were disclosed. www.covingtoncap.com

Moving In, Up and On

Peter Fry has joined Burrill & Co. as managing director and head of a new alternative equities group. He
previously was senior investment officer for Kingsbridge Capital, and before that ran private placements for
Investec Inc. Joining Fry in the new group will be director Jack Suggs, who previously was with Merrill
Lynch. The new group will be based in Philadelphia. www.burrillandco.com

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