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Carlyle, TCW management reach deal on acquisition

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David Lippman is the new CEO of TCW


Carlyle Group and TCW management will acquire The TCW Group from Paris-based Societe Generale.

Financial terms were not disclosed.

David Lippman, previously group managing director and head of fixed income at TCW, becomes president and CEO of TCW Group, effective immediately.

Mr. Lippman succeeds Marc I. Stern. Mr. Stern, who is also currently vice chairman of TCW, will become chairman of the newly formed TCW board of managers with the deal's anticipated completion in the first quarter of 2013.

Under terms of the deal, the TCW ownership stake held by its management and employees on a fully diluted basis will roughly double to about 40%.

For Carlyle, the deal will be a private equity investment rather than a permanent acquisition. Equity for Carlyle's investment in the deal will come from two of the private equity giant's existing funds, Carlyle Partners V, a $13.7 billion U.S. buyout fund, and the $1.1 billion Carlyle Global Financial Services Partners fund.

TCW's assets under management are roughly $130 billion, up from $127.3 billion as of June 30.

TCW executives confirmed that Carlyle will hold four of seven seats on TCW's board when the deal is completed.

In a joint telephone interview with Messrs. Lippman, Stern and Olivier Sarkozy, Carlyle managing director and head of the firm's financial services team, Mr. Lippman said the deal will allow TCW management and key employees to boost their combined equity stake in the company “from 17% to over 40%,” further strengthening the alignment of interests between employees and TCW clients.

Mr. Lippman rejected talk that compensation cuts in return for that equity were a centerpiece of efforts to boost TCW's profitability under the Carlyle deal. “Currently, there are over 150 holders of equity at the company and the vast majority will see absolutely no difference in their compensation,” he noted.

Mr. Stern, however, conceded the additional equity distribution would be “very useful in restructuring some of the compensation aspects of the firm.”

Asked about talk that a majority of key equity portfolio managers at TCW had yet to accept new long-term contracts with compensation cuts in return for equity, Peter Viles, a spokesman for the company, declined to comment.

Messrs. Lippman, Stern and Sarkozy likewise rejected speculation that TCW could face big layoffs. In effect, “there's no restructuring coming,” Mr. Lippman said. The company is working “just fine,” and with the completion of the deal there'll be more continuity than change at TCW, he added.

Mr. Lippman called TCW's operating margins “very healthy,” but declined to provide specific numbers.

Mr. Sarkozy likewise said Carlyle doesn't think TCW needs any fixing, with the company's broad suite of fixed-income and equity strategies for both institutional and retail investors “almost tailor-made for the environment that we're in.”

Mr. Sarkozy conceded that, unlike TCW's fast-growing fixed-income business, the company's equity operations aren't firing on all cylinders, but he said Carlyle will support management's plans to focus resources on its equity offerings. He predicted a “huge opportunity” for TCW in building that business.

The deal involves only “modest leverage,” Mr. Sarkozy said. He declined to provide specific details. Mr. Lippman called the low leverage Carlyle was willing to use a principal factor in management's eagerness to work with the private equity company.

Asked whether Carlyle's eventual exit from its investment would involve an IPO, all three said it's too early to speculate. However, Mr. Sarkozy conceded that one of the main attractions for his firm when looking at TCW was its potential attractiveness as a public company.

Morgan Stanley (MS) advised TCW on the deal. Bank of America Merrill Lynch and Sandler O'Neill & Partners advised Carlyle, while J.P. Morgan Securities advised Societe Generale.