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From:

"Dan Primack"

Name:

Dan Primack

Email Address:

Dan_Primack@fortune.chtah.com

Subject:

Term Sheet -- Friday, December 10

Date:

10-12-2010 15:19:43
Message

Fortune Finance Street Sweep Term Sheet Economics Tech Wall Street Washington

The Term Sheet by Dan Primack

Thursday -- December 9, 2010
Email Dan | Follow Dan on Twitter | Subscribe

Friday Feedback
The sun is shining, corporations are hoarding record amounts of cash and Rondo-to-KG is playing in my
head on auto-loop. In other words, its time for some Friday feedback.
Most of this weeks emails were in response to Wednesdays item about reclassifying the taxation of
founder stock from capital gains to ordinary income. In general, you werent big fans of the idea:
Shamir: The key difference in my mind is that entrepreneurs put tremendous personal capital at risk,
which no VC or PE investor does. We may not have invested personal funds into our company, but all the
founders quit highly rewarding jobs, took huge pay-cuts and risked their careers to build this company. I
think a tax break on any returns from our highly risky investment is justified, and in no way compares to the
carried interest on VC investments. None of the VCs I know would argue otherwise.
Dhiraj: Founders do put up cash: When a company is formed, certain X number of shares are issued and
a founder buys the shares (at whatever insignificant price) in the belief that those shares will be worth
something. And if they end up being worth something, then it is capital gain.
Bill: I understand the fairness issue of taxing carried interest and even founders stock as ordinary income.
But isn't the purpose of our tax code to not only raise funds for the effective administration of government
but also to encourage economic growth. Think of the various deductions and tax credits that do this, e.g.

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energy tax credits. For our much needed entrepreneurs, founding a startup company is hard work and
often financially devastating. For those that provide the capital for startups and for their future sale, the path
is similarly fraught with risk. To provide a tax incentive for the some of the engines that help to drive our
economy seems justifiable since encouraging such growth benefits our entire society. So I'm confused
about this whole carried interest issue. Are we saying that fairness trumps growth?
*** Leonard chimes in on the broader carried interest taxation issue: It is not true that all people with
carried interest have no capital invested in their deals. The norm in real estate is that the general partner
put up all of the front-end costs. If the was successfully syndicated then the general partner received that
money back as a no interest rate loan. So at that point the general partner has no capital in the deal and no
return on the capital he did invest. He invested the
money in order to get the carried interest position. Please do not report that carried interest is created only
by labor and not by investing capital. It is not true and it makes you seem like you have no idea how deals
are put together in the real world.
Leonard: For clarification, I was specifically referring to private equity and VC partnerships. I wholly admit
my ignorance when it comes to real estate. Thanks for helping to expand the scope.
*** Someone from The Carlyle Group emails about the firms plans to go public: Thank you for injecting
some common sense into this sea of nonsense. Weve said for years that well go public someday, but the
idea that there is a specific day or month circled on a calendar in Conways office is just ridiculous. Well do
it when it makes sense, and not a moment sooner.
*** VC Eric emails in on VC vitality: The generalization that VC firms are the walking dead if they havent
raised a new fund from 2008-present is certainly misleading, since funds raised in 2006 and 2007 are still
in their five year investment periods. Those firms havent had to raise a new fund (yet) and can still be very
much alive.
*** Andrew: Do you not travel anymore? It used to seem like these emails came from a different hotel
room each day, but no longer. Is that because of the baby, or just because of the new job?
Mostly the little one Andrew, but I will hit NYC later this month and am hoping to be in the Bay Area
sometime next month Dont worry, I know that I get better intel when Im on the road
*** Have a great weekend...

5 things to read @Fortune.com

Pre-Marketing, including the United States of Autocomplete, what Schwarzman reads, BDCs
return, B-school alumni giving shrinks, the state of MACs and karma smacks the Winklevoss twins.

J.P. Mangalindan: Analysts react to Howard Stern's new Sirius deal

Colin Barr: Mortgage-backed securities are back, even though hosing isn't

Alex Taylor: GM may have made the Chevy Volt too different for its own good
Duff McDonald: Is John Kinnucan a hero or a schmuck?

The Big Deal

Roark Capital Group has acquired Atkins Nutritional Holdings Inc., a Denver-based provider of a
carbohydrate-optimization weight-management program, from North Castle Partners. No financial terms
were disclosed, although a source tells me that North Castle generated a 5x return on the original

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investment.
This is the big deal, in part, because of what I wrote when North Castle first acquired Atkins in 2007:
The original buyout of Atkins Nutritionals was one of the worst private equity deals ever transacted. Even
worse than Refco. And now its back in private equity hands, after having spent several post-bankruptcy
years controlled by first-and-second lien holders. Certainly a curious move by new owner North Castle
Partners. And brave. And possibly stupid.
That pevious deal nearly destroyed private equity firm Parthenon Capital, which overpaid, over-allocated
and violated a deal-sharing arrangement with Summit Partners (which really dodged a bullet, plus got paid
$20m in restitution).
It just felt like North Castle was tempting fate, although (to my credit), I did add: North Castle may be the
best possible firm to have bought Atkins. I'll be writing more over at the blog today about how North Castle
turned the brand around, and what Roark thinks it can do to make further improvements.

VC Deals
8D World, a Woburn, Mass.-based developer of a virtual world for global English-as-a-foreign-language
learners, has raised $5.25 million in Series B funding. Mizuho Capital was joined by return backers Spark
Capital and Gobi Partners. www.8dworld.com
ZirMed, a Louisville, Ky.-based provider of online revenue cycle management solutions for healthcare
providers, has raised an undisclosed amount of VC funding from Sequoia Capital. The deal was first
reported by VentureWire, based on notation on Sequoias website. www.zirmed.com

Private Equity Deals

Advantage Partners is shopping Japanese supermarket chain Seijo Ishii Ltd., according to Reuters.
Suitors include Bain Capital, CVC Capital Partners and Orix Corp. The company is valued at nearly $360
million.
Beckman Coulter Inc. (NYSE: BEC), a maker of scientific lab equipment with a market cap of nearly $4
billion, has been approached by private equity firms about being taken private, according to Bloomberg. It
has retained Goldman Sachs to explore strategic options. www.beckmancoulter.com
Charles River Laboratories (NYSE: CLR) is under pressure from minority shareholders CalSTRS and
Relational Investors to put itself up for sale, according to The Wall Street Journal. The company currently
has a market cap of just over $2.1 billion. www.criver.com
Sunny Delight Beverages Co., a portfolio company of J.W. Childs Associates, has agreed to acquire a
manufacturing plant in Sherman, Texas from the J.M. Smucker Co. (NYSE: SJM). No financial terms were
disclosed, except that the acquisition is part of a $70 million expansion and upgrade initiative. In other
Sunny D news, the company has agreed to sell its Western European juice drink business to Orangina
Schweppes for an undisclosed amount. www.sunnyd.com
Wingate Partners has acquired Preferred Compounding Corp., a Barberton, Ohio-based maker of
mixed rubber compounds, from Watermill Group. No financial terms were disclosed, except that Watermill
reports a 6x return on its original 2002 investment. www.preferredperforms.com

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PE-backed IPOs
One97 Communications Ltd., an Indian maker of mobile phone software, has postponed its $26.7 million
IPO for the second time. It had been looking to price on the Bombay Stock Exchange. Shareholders
include Intel Capital and SAIF Partners. www.one97world.com
Redbaby, a Chinese maker of baby products, and Uni-Power Guaranty, a Chinese provider of financial
services, are planning IPOs next year, according to an AltAssets interview with New Enterprise Associates
managing director Jiang Xiaodong. NEA is an investor in both companies. Redbaby would list in the U.S.,
while no decisions have been made yet on the Uni-Power float. www.nea.com
Sky-Mobi Ltd., a Chinese mobile apps store, raised around $58 million in its IPO. The company priced
7.25 million American depository shares at $8 per share ($8-$10 offering range). It will trade on the Nasdaq
under ticker symbol MOB, while Citi served as lead underwriter. The company reports nearly $90 million in
revenue for the fiscal year ending March 31, 2010. Sequoia Capital held more than a 28% pre-IPO
ownership position.

Exits
AXA Private Equity has sold French specialty chemicals manufacturer Eliokem International to Omnova
Solutions (NYSE: OMN). The deal was valued at 227.5 million. www.omnova.com
PAI Partners is looking to sell French insurance broker Compagnie Europeenne de Prevoyance,
according to Bloomberg, The deal reportedly could garner upwards of 1 billion. www.paipartners.com
TPG Capital is in early talks to sell Turkish spirits company Mey Icki to Diageo PLC for up to $2.5 billion,
according to The Wall Street Journal. TPG also has been exploring an IPO for the company.
www.tpgcapital.com
Xing AG has acquired Amiando, a Munich-based provider of online event management and ticketing
services. The deal includes a 5.1 million up-front payment, plus up to 5.25 million in earnouts. Amiando
has raised VC funding from Wellington Partners and Adinvest. www.xing.com

Other Deals
Community Health Systems (NYSE: CHS) has offered to acquire smaller rival Tenet
Healthcare (NYSE: THC) for $7.3 billion (including $4 billion of assume debt). The $6 per share
offer including $5 in cash and $1 in stock would represent around a 40% premium to
yesterdays closing price for Tenet common stock.
Occidental Petroleum Corp. (NYSE: OXY) has agreed to sell its Argentine oil and gas
business to Sinopec for $2.45 billion. It also plans to acquire $3.2 billion in oil and natural gas
assets in Texas and North Dakota including a $1.8 billion purchase from Royal Dutch Shell
for fields in South Texas. www.oxy.com
PPR, a French luxury goods retailer, is expected to sell furniture unit Conforama to Steinhoff
International Holdings of South Africa, for approximately $2.1 billion. It previously had held
talks about selling Conforama to private equity firms.
Sumitomo Corp. has agreed to invest $130 million into Molycorp Inc. (NYSE: MCP), a

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Greenwood Village, Colo.-based rare earth mining company. The deal includes $100 million in
equity, $30 million in debt financing and a 7-year guaranteed mineral supply contract. Molycorp
went public earlier this year, and was originally formed by Pegasus Partners, Goldman Sachs,
Traxys North America and Carint Group. www.molycorp.com

Firms & Funds

Cambridge Associates said that it will open an office in Beijing. It will be led by existing managing director
Christopher Hunter, who will relocate from London. In additional Cambridge Associates chief executive
Sandra Urie will spend the first four months of 2011 working out of the firms Singapore office, in order to
help expand its Asia business. www.cambridgeassociates.com
Catalyst Principal Partners next year plans to raise $100 million for a new private equity fund focused on
opportunities in Africa, according to Reuters. It will have a particular emphasis on the consumer, services
and industrial markets. www.catalystprincipal.com

Nexus Venture Partners, an early-stage VC firm in India, has launched a new seed program
that will invest between $50,000 and $500,000 in up to 50 companies over the next five years.
www.nexusvp.com

Moving In, Up and On

HSBC has named Samir Assaf as head of global investment banking and markets. He succeeds Stuart
Gulliver, who next month will take over as the firms CEO. www.hsbc.com

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