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Carlyle Group Embraces Telecom
Deal for Japanese Wireless Firm Follows Other Investments

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By Terence O'Hara
Washington Post Staff Writer
Tuesday, June 22, 2004; Page E05

The Carlyle Group said yesterday it would buy one of Japan's largest wireless data providers, the latest in a flurry of activity by the Washington private equity company's telecommunications and media buyout group.

Carlyle led the team purchasing Tokyo-based DDI Pocket for $2.03 billion. Carlyle will own 60 percent of the company, with wireless handset maker Kyocera Corp. owning 30 percent. The seller, Japan's KDDI Corp., the second-largest telecommunications company in Japan, will retain a 10 percent interest.

Carlyle also was part of yesterday's $2 billion purchase of the U.S. and Mexican assets of movie theater chain Loews Cineplex. Bain Capital LLC and Spectrum Equity Investors were partners in that buyout.

The group also has a piece of the $4.3 billion buyout of satellite network owner PanAmSat Corp., which is expected to close this summer. Also pending is Carlyle's $1.7 billion purchase of Verizon Communications Corp.'s local phone business in Hawaii. And 10 months ago, Carlyle was part of a group that bought phone directory company Dex Media Inc. from Qwest Communications International Inc. for $7.05 billion. Carlyle plans to take Dex public in a $1.5 billion stock offering later this year.

"Clearly we feel this is a good time to be buying telecom," said Carlyle spokesman Chris Ullman.

A number of private equity firms -- investment advisers that use large pools of money raised from well-heeled investors to take large stakes in companies or buy them outright -- have taken similar plunges into the telecommunications and media sectors in 2004. Kohlberg Kravis Roberts & Co. led the PanAmSat deal. Providence Equity Partners, Blackstone Group, Bain Capital and Madison Dearborn Partners are among the major private equity groups investing in the sector. Intelsat Ltd., a Bermuda satellite company with most of its operations in Washington, is widely expected to sell to a group of private equity investors this summer.

A number of factors are driving the activity: plenty of willing sellers and cheap prices. Investors are also betting that the telecom sector will continue its worldwide recovery from a low point two years ago, raising both the cash flows and the market value necessary to make financing of such buyouts feasible.

Through May, $121.7 billion of telecom mergers were completed, compared with $140.5 million in all of 2003, according to recent data released by Dealogic, a merger-and-acquisition market research firm. Telecommunications now account for about 22 percent of Carlyle's $18 billion of assets under management. Telecom and media investments make up about 22 percent of the $5.5 billion Carlyle has invested in the equity of companies at the end of the first quarter, Ullman said.

"We've seen a wonderful group of opportunities," said Michael J. Connelly, a managing director in Carlyle's media and telecommunications group.

Connelly, who also led the Loews' purchase, said Loews management will stay in place, saying the company is well-managed, has stable cash flow and a good business plan. Loews filed for Chapter 11 bankruptcy protection in 2001, one of many similar filings by chains that borrowed too much to expand too fast in the late 1990s. Canadian buyout firm Onex Corp. bought Loews out of bankruptcy in an equity-for-debt swap worth about $300 million.


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