As the old saying goes, every deal has a price. And, for firms such as Cerberus Capital Management -- a $14 billion private equity fund -- the price is usually at rock-bottom levels.
The firm has had little difficulty finding such deals: There was the $810 million purchase of the building products distribution division of Georgia-Pacific (NYSE:GP); the $310 million purchase of the glassware business of Newell Rubbermaid (NYSE:NWL); the $147 million purchase of the GDX Automotive business from GenCorp (NYSE:GY); and on and on.
The latest deal for Cerberus is the going-private transaction of LNR Property Corporation (NYSE:LNR), which was a spinoff of Lennar (NYSE:LEN) in 1997. LNR is a leading real estate investment firm that acquires, develops, manages, and sells commercial properties. The company also invests in high-yield loans backed by real estate.
LNR has been growing briskly. Last quarter, the company increased earnings per share by 87% to $1.57. Management indicated it was experiencing "unprecedented demand."
Yet LNR's stock increased a mere 6% to $62.81 on the announcement of the going-private transaction, valuing the deal at about $3.8 billion (which includes $1.76 billion in assumption of debt).
Given the growth potential, is the company selling out too low? Perhaps. Then again, this is not a decision for the public shareholders. After all, Stuart A. Miller, who is the chairman of the board, controls about 77% of the voting power.
In the deal, he not only gets a slug of cash but also will retain a 20.4% stake in the company. Also, by aligning with Cerberus Capital Management, LNR will have the resources to bolster its business through acquisitions.
By all appearances, it looks like a case where the insiders get the upside -- and the minority shareholders are cashed out at a lower price.
Fool contributor Tom Taulli is the author of The EDGAR Online Guide to Decoding Financial Statements . He does not own shares in the companies mentioned in the article.
