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Abu Dhabi Buys Stake in Carlyle Group

Date: Friday, September 21, 2007
Author: Christopher Faille, Senior Financial Correspondent, Hedgeworld.com

WASHINGTON (HedgeWorld.com)—Mubadala Development Co. will purchase a 7.5% stake in the Carlyle Group for $1.35 billion in cash, according to a joint statement issued by the two firms.

The parties also agreed upon a valuation of The Carlyle Group as a whole at $20 billion, which means mathematically that Mubadala—an arm of the government of Abu Dhabi, United Arab Emirates—is receiving a 10% liquidity discount on the value of its share.

The minority investment includes no associated voting rights and is subject to value-related protective rights, according to the statement.

Abu Dhabi is the capital of the UAE and its development company, Mubadala, describes its own mission as that of maximizing long-term returns. Along with the investment in Carlyle itself, Mubadala also committed to investing $500 million in one of the finds Carlyle manages.

The deal in some respects recalls one struck between The Blackstone Group LP and the People's Republic of China in May of this year, when China's state investment company made a $3 billion investment in Blackstone Previous HedgeWorld Story. The "liquidity discount" (Blackstone didn't use the phrase) was smaller then. China received a price just 4.5% below the public offering price in the float Blackstone was then planning.

A Carlyle Group spokesperson didn't return a call Friday asking for an explanation of the valuation or of the 10% discount.

The Carlyle Group also may be contemplating an IPO, though it hasn't committed itself to such a course. In April, the Washington Post quoted Carlyle's managing director David M. Rubenstein as saying, "Today we are not working on an IPO. But … if our competitors all go public and all of them seem to be stronger than they were before, obviously we would have to take a look at the situation."

A lot has happened in the world of private equity since April, both in the marketplace and in politics, as "carried interest" has come under attack in Washington as the latest alleged tax loophole Previous HedgeWorld Story. Enough has happened to make it unsurprising if the liquidity discount necessary to lure immediate cash has more than doubled.

In a separate announcement this week, Carlyle said that David M. Marchick has come on board as a managing director and global head of regulatory affairs, a newly created position. He will begin his duties on Oct. 22.