Exclusive: Carlyle risks lower profit on TCW deal

Mon Dec 17, 2012 2:28am EST
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By Jessica Toonkel and Greg Roumeliotis

NEW YORK (Reuters) - Carlyle Group LP's (CG.O: Quote) planned $780 million takeover of TCW Group Inc could prove less lucrative than envisioned due to the investment manager's financial ties to buyout firm EIG Global Energy Partners LLC, a TCW document to its lenders shows.

At least a sixth of TCW's profit stems from payments made by former unit EIG, which spun out of TCW in 2011, according to data in the document which was seen by Reuters.

TCW is a unit of French bank Societe Generale (SOGN.PA: Quote).

EIG is separately seeking to block Carlyle's acquisition of TCW in court. EIG's fund that makes these payments has been put into a special trust by a judge pending an arbitration hearing. This hearing is expected on January 30, according to a person familiar with the situation.

While it was known that EIG contributed profit to TCW, a highly rated Los Angeles, California-based fixed income fund manager with $135 billion assets under management, the extent of these payments had not been previously made public.

This revelation and the outcome of EIG's arbitration could upset the math that Carlyle, which is one of the world's most powerful private equity firms, carried out in agreeing to buy TCW in August.

The stakes are high for TCW too. The deal with Carlyle was expected to end uncertainty about its future as it strives to become a more formidable competitor against some of the largest bond managers.

"We are fully committed to seeing the transaction through to completion," a Carlyle spokesman said, declining to comment on the document, the financing arrangements, Carlyle's profitability on the deal, or provide any other detail.   Continued...

A general view of the lobby outside of the Carlyle Group offices in Washington, May 3, 2012. REUTERS/Jonathan Ernst