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From:

"Dan Primack"

Name:

Dan Primack

Email Address:

Dan_Primack@fortune.chtah.com

Subject:

Term Sheet -- Tuesday, October 12

Date:

12-10-2010 14:37:57
Message

Fortune Finance Street Sweep Term Sheet Economics Tech Wall Street Washington

The Term Sheet by Dan Primack

Tuesday -- October 12, 2010
Email Dan | Follow Dan on Twitter | Subscribe

Fool me once...
Last week I got word that CalPERS had effectively given an ultimatum to Pacific Corporate Group, the La
Jolla-based private equity consultant with more than $1.5 billion in CalPERS mandates: Either significantly
reduce the ownership and managerial control held by CEO Chris Bower, or we'll trigger a no-fault divorce.
At issue was Bower's longstanding relationships with Al Villalobos and Fred Buenrostro, a pair of former
CalPERS officials who have been charged with fraud by state authorities. Bower himself has not been
charged with any wrongdoing, but CalPERS chief Joe Dear seems determined to wipe away all vestiges of
his system's scandal-plagued past.
So I did the journalist thing, and rang PCG. They sent me to a spokesman, who denied the aforementioned
scenario. "This is not true," he wrote. "Are you actually going to publish that?"
Now PR folks lie all the time on background, but almost never on-the-record. So I sat on it.
Fast forward to early yesterday afternoon, when word came that CalPERS was "severing its ties" with
PCG. Moreover, a second source confirmed that CalPERS made its decision after Bower refused to
relinquish adequate control.
We got the story up before anyone else - thirty minutes before a CalPERS press release hit the wires - but I

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was pissed. My first impulse was to lash out at the spokesman, even though he surely had been misled by
his client. And I did so (even though the guy is a consummate pro who I've worked with before).
But the proper thing to do would have been to blame myself. As the saying goes: Fool me once, shame on
you. Fool me twice, shame on me.
In February 2007, I was reporting on CalPERS' decision to award two $400 million mandates to PCG.
Multiple sources told me that CalPERS actually had agreed to award the mandates five months earlier, but
that it had balked after some senior PCG execs quit after losing a game of compensation chicken with
Chris Bower. In short: CalPERS told Bower that he had to restructure in order to keep the contracts.
PCG strenuously denied my assertions. It said there was no quid pro quo, and that the only involvement by
CalPERS was one of consultation. The firm also accused me of being "out to get" them.
CalPERS also said that the two moves were independent of one another.
My solution was to briefly discuss my beliefs in a larger column, but to soft-sell it as unconfirmed
speculation. Again, on-the-record denials hold some sway.
But it turns out my info were correct, according to recent comments by a CalPERS spokesman to the
Sacramento Bee (not the same one who lied to me in 2007). PCG had indeed restructured in order to do
new business with CalPERS.
This is a very long way of apologizing to you, dear readers. I should have reported what I knew to be true
last week. When it comes to PCG and CalPERS, it won't happen again. Of course, considering that the two
are breaking up, I guess it can't.
*** Three other notes on the CalPERS/PCG situation:
1.

CalPERS said it its press release that a firm called "Aviva Capital" will assume management of over
$1 billion in emerging markets mandates. Aviva is being formed via a management buyout of the
team known as PCG International.

2.
3.

Also spinning out of PCG will be the team managing the Corporate Partners portfolio.
Capital Dynamics will assume management of a cleantech investment portfolio. There was no RFP
process, but a CalPERS spokesman says Cap Dyn was "selected from a pool of consultants after a
review of all for the best candidate."

*** Personnel scoop #1: Last month I reported that Steve Fludder had stepped down as head of GE
Ecomagination, in order to "seek new challenges outside the company." Seems those challenges are in
Seoul, where Fludder has turned up as an executive vice president of Samsung.
*** Personnel scoop #2: Venture capitalist Shirish Sathaye has joined Khosla Ventures, after having spent
the past nine years as a general partner with Matrix Partners. His first investment was in Aruba Networks, a
maker of wireless networking hardware that went public in 2007. Last month, he announced that he would
not seek reelection to the company's board of directors.
Other portfolio companies included Solidcore Systems, SpiderCloud Wireless, Rohati Systems and Tigo
Energy.

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Sathaye originally joined Matrix in 2001, after having served as chief technology officer at Alteon
WebSystems. That company was later acquired by Nortel Networks for $7.8 billion. According to a Midas
List bio (he placed $94 in 2009), Sathaye originally came to the U.S. with just $43 to his name.
*** Gymboree this morning filed an 8-K related to the $1.8 billion buyout agreement with Bain Capital. It
shows that the kids play-space operator has a 40-day "go shop" period, and that it would be on the hook for
$50 million were it to terminate the Bain transaction.
Interestingly, that fee is reduced to just $30 million if it accepts a "superior offer." There is no definition for
what constitutes a "superior offer." I'd assume that it means price, but what if there was a lower price plus
some strategic value-add?
*** Reminder for PR folk: I'll be heading out on a couple weeks of paternity leave at the end of October, so
please be sure to add Katie Benner to your distribution lists. Her email address is
bennerfortune@gmail.com. Thanks.

5 things you should read @Fortune.com

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big payday, the differences between male and female entrepreneurs and the best Old Spice parody
so far.
Steven Gray: Where entrepreneurs need nerves of steel

Colin Barr: Is Carol Bartz the most overpaid CEO?

Sequoia Capital bets on broccoli

Facebook Groups redesign: You saw it here first

The Big Deal

Mail.ru Group (fk.a. DST), a Russian Internet conglomerate with investments in such companies as
Facebook and Zynga, yesterday announced plans to go public later this year in London. Reports suggest
that the float would be designed to raise up to $825 million, and would value Mail.ru at more than $5 billion.

VC Deals

Nanoink Inc., a Skokie, Ill.-based company focused on nanometer-scale manufacturing and applications
development, has raised $65 million in new funding led by Lurie Investments. www.nanoink.com
Ozura World Ltd., a Hong Kong-based social network game developer, has raised $30 million from
telecom infrastructure company Inovisi Infracom. www.inovisi.com
Synosia Therapeutics, a Swiss biotherapeutics company focused on neurology and psychiatry, has raised
$30 million in Series C funding. UCB led the round with a $20 million investment, and was joined by return
backers Versant Ventures, 5AM Ventures, Novo AS, Aravis Venture, Investor Growth Capital and Swiss
Helvetia Fund. www.synosia.com
Accent, a Milan, Italy-based provider of semiconductor integration solutions for the smart grid market, has
raised 5 million in Series B funding from Tallwood Venture Capital. www.accent-soc.com
Fashion Playtes Inc., a Salem, Mass.-based operator of a design-it-yourself fashion site for young girls,
has raised $4 million in Series A funding. Fairhaven Capital Partners led the round, and was joined by

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seed backers New Atlantic Ventures, Launch Capital and Golden Seeds. www.fashionplaytes.com
NOXXON Pharma AG, a German drug developer focused on inflammatory diseases and hematological
indications, has raised 5 million in new Series D funding led by CD Ventures. This brings the round total to
35 million, including a prior close from NGN Capital, TVM Capital, Sofinnova Partners, Edmond de
Rothschild Investment Partners, DEWB, Seventure Partners, Dow Chemical Co., Dieckell Group,
Oppenheim Asset Management Services, IBG Risikokapitalfonds and VC Fonds Berlin. www.noxxon.com
Cyber-Rain, a maker of Internet-based smart sprinkler controller systems, has raised $1.8 million in Series
B funding. DeWaay Investment Partners led the round, and was joined by Athenian Venture Partners and
return backers Momentum Venture Management and Funk Ventures. www.cyber-rain.com

Private Equity Deals

Alumni Capital Network has acquired a control stake in SNI Group, a Bensalem, Penn.-based fashion
accessories wholesaler and retailer ("Everything's $10"). No financial terms were disclosed.
www.alumnicapitalnetwork.com
Barclays Ventures has sponsored a management buyout of British health-club chain Total Fitness. The
deal is structured as a debt-for-equity swap. www.totalfitness.co.uk
Battery Ventures has acquired Data Innovations, a global provider of clinical laboratory middleware
software. No financial terms were disclosed. In related news, Mike Epplen, former VP of product
management with Lawson, has been named DI's new CEO. www.datainnovations.com
Carl Icahn has acquired a 9.95% stake in Dynegy Inc. (NYSE: DYN), and said that a $4.7 billion buyout
bid from The Blackstone Group is inadequate. www.dynegy.com
Cortec Group has acquired Franklin Energy Services LLC, a Port Washington, Wisc.-based energy
efficiency program management company, from Brass Ring Capital. No financial terms were disclosed.
Harris Williams advised Franklin Energy on the deal. www.franklinenergy.com
Hantec Markets, a UK-based operator of online Forex trading services, has raised an undisclosed amount
of private equity funding from Black Pearl Capital Partners. www.blackpearlcap.com
IK Investment Partners has agreed to acquire Hansa Metallwerke AG, a maker of sanitary fittings for
bathrooms and kitchens in Germany, Switzerland and Austria. No financial terms were disclosed, except
that Hansa had 2009 revenue of 194 million. www.ikinvest.com
KKR and National Pension Service of Korea have acquired a 24.44% stake in Colonial Pipeline Co. from
Chevron Corp. (NYSE: CVX). No financial terms were disclosed, although some press reports put the deal
value just south of $900 million. Colonial is the largest refined products pipeline in North America.
www.kkr.com
LLR Partners has formed Vivere Health LLC, a Franklin, Tenn.-based platform for developing in vitro
fertility centers. The company will be run by Drs. Jimmy Gill and Gus Haddad of The Houston Fertility
Institute. No financial terms were disclosed. www.llrpartners.com
Lone Star Funds has proposed that MBK Partners acquire a 25% stake in Korea Exchange Bank, to help

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build investor interest for another 57% stake in the South Korean bank, according to a local press report.
ANZ is the only interested investor in the majority of KEB, and Lone Star has been holding separate talks
with MBK in case the ANZ negotiations fall through.

PE-backed IPOs
HaloSource Inc., a Bothell, Wash.-based antimicrobial technology company focusing on safe water and
infection control, has raised around $80 million via an IPO in London. Approximately $30 million of the
offering came from selling shareholders. HaloSource had raised over $52 million in VC funding from Origo
Sino-India, Origo Resource Partners, Unilever Venture Partners, Alexander Hutton Venture Partners,
Britannia Holdings and WRF Capital. www.halosource.com

Exits
TDC has hired JPMorgan, Morgan Stanley and SEB to manage a major share sale this December,
according to Reuters. The deal would provide some liquidity for five private equity firms that acquired the
Danish telco in 2005 for $18 billion.

Other Deals
Pfizer (NYSE: PFE) has agreed to acquire King Pharmaceuticals Inc. (NYSE: KG) for $3.6 billion in cash.
The $14.25 per share offer represents a 40% premium to yesterday's closing price for King Pharma shares.
www.pfizer.com

Firms & Funds

SVB Financial Group has opened an international subsidiary in Beijing. It will be led by Michael Yahng,
who previously was with TianDi Growth Capital. www.svb.com

Moving In, Up and On

Savio Tung has joined the advisory board of VC firm WI Harper Group. He is a founding partner of
Investcorp, and currently is chairman of the firm's technology investment committee. www.wiharper.com

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