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News from Reuters

Friday, February 03, 2006

By Dane Hamilton

NEW YORK (Reuters) - Cerberus Capital Management LP's thwarted effort to acquire Canadian retailer Hudson's Bay Co. hasn't dampened the firm's deal-making ambitions in Canada, people close to the firm say.

The New York-based multi-strategy investment fund, which has some $16 billion under management, is pressing forward with an ambitious Canadian agenda even as it executes huge deals in the United States.

Cerberus, which is a lead bidder for General Motors Corp.'s GMAC financing division in partnership with Citigroup , is also aggressively pursuing the purchase of assets of Canada's building products maker Royal Group in competition with Canada's investment giant Onex Corp. , said people with direct knowledge of Cerberus plans this week.

"It's an underpoached market," said Harvey Tepner, a Canadian who is a partner in Compass Advisers, a New York investment firm that advises firms like Cerberus. "If I want to be a seller in Canada, the private equity route is probably as good as any for maximizing shareholder value."

Royal last August put itself up for sale and is also selling assets. Cerberus previously said it was looking closely at bidding. Royal could announce a successful bidder by the end of February in a deal likely to be worth well over $1 billion, sources said.

Royal couldn't be reached for comment.

And next week, Cerberus is expected to close on the previously announced sale of Teleglobe, a telecommunications business it bought from Canada's BCE in 2003, to India's Tata Group. Other deals are also in the works in Canada, where other private equity firms, including Kohlberg Kravis Roberts & Co., are also active.

Cerberus declined to comment on its activities.

The Canadian deal-making, led by senior managing directors Brett Ingersoll and Michael Green, reflects the aggressive focus on operational turnarounds spearheaded by Cerberus founder Stephen Feinberg. The financier has shunned all publicity for the firm and never flaunts wealth, unlike others in the big-money world of hedge funds and private equity.

"They move very quickly, they are extremely smart and they can write checks," said Marc Weingarten, a lawyer for Schulte, Roth & Zabel who has worked on many Cerberus deals. "And they will do transactions that are riskier than most other people will do."

Other buyout firms stress their operational abilities to potential investors and asset sellers, but Cerberus has one of the largest group of 50-odd professionals and advisors devoted to turnarounds, sources said.

They include industry luminaries such as Howard Cohen, ex-CEO of Gtech Holdings , James Lenehan, former vice chairman and president of Johnson & Johnson and Carl Donaway, former CEO of Airborne Express Inc. (now DHL Worldwide Express ), sources said.

MULTI-HEADED

Cerberus, named for the three-headed watchdog in Greek mythology that guards the gates of hell, made its name as a distressed asset buyer but has since grown to become one of the largest hedge fund traders and buyout firms in the world. It also has a substantial lending division called Abelco Finance LLC.

In the United States, the firm has been operating at breakneck speed in recent years, scooping up retail assets including grocery chain Albertsons Inc. last month and Mervyn's in 2004 with other financial partners. It looks at virtually all major deals.

In Canada, Cerberus owns a large stake in Air Canada and helped the airline emerge from a relatively brief, 18-month period in bankruptcy that ended in September 2004.

But Cerberus was outmaneuvered in buying Hudson's Bay by U.S. financier Jerry Zucker, whose Maple Lead Heritage Investments fund agreed to buy the 336-year-old company last month for $1.3 billion.

Hudson's Bay, a renowned Canadian retailer, started as a trading post on Canada's Hudson Bay and is the country's oldest company. In recent years, the company, which is considered something of a national treasure, has suffered from intense competition from Wal-Mart Stores Inc. , the world's biggest retailer, and other discounters.

Zucker took a page from the Cerberus playbook in buying a large stake in Hudson's Bay last year, putting him at an advantage in bidding for the company. Cerberus has employed similar strategies, having recently bought a large stake in Royal Group, sources said.

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