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Government of Abu Dhabi Buys Stake in Carlyle

By Thomas Heath
Washington Post Staff Writer
Friday, September 21, 2007

Private-equity giant Carlyle Group said yesterday that it is selling a 7.5 percent share of its general partnership to an investment group owned by the government of Abu Dhabi.

The $1.35 billion sale to Mubadala Development is only the second time the Washington firm has allowed an outsider to buy into its highly profitable partnership. Carlyle sold a 5.5 percent stake to the California Public Employees' Retirement System (Calpers) in 2001 for $175 million.

The Mubadala investment values the privately held Carlyle at $20 billion. That is about six times the partnership's value when it sold the stake to Calpers.

Abu Dhabi is one of the seven oil-rich emirates that make up the United Arab Emirates, which has been looking for ways to invest the cash it is generating from a steady rise in oil prices. Some of the countries once sought to buy assets outright, but after the outcry over a bid to take over management of a U.S. ports operator, many have pursued less visible strategic investments with key firms.

Mubadala already has interests in sectors such as energy, heavy industry, telecommunications, infrastructure and aerospace, and it owns the luxury automaker Ferrari. As part of Carlyle deal, the Abu Dhabi government will make a separate $500 million investment in Carlyle funds.

Carlyle co-founder David M. Rubenstein said Mubadala would play a passive role in the partnership.

"They have no say in our investment decisions and no say in how we operate the firm," Rubenstein said.

Rubenstein, who raises billions from investors that include pension funds, institutions and wealthy individuals, said the money will be used to make investments or set up funds, whether or not Carlyle ultimately decides to go public.

"I don't know if we are going to go public or not," Rubenstein said. "This gives us the flexibility to say yes or no, we don't want to. The reason you go public is to get permanent capital to do a lot of things. But now we have permanent capital."

The transaction is the latest in a series of moves by the private-equity giants to seek sources of capital. The Chinese government recently bought a $3 billion stake in Blackstone Group, which went public this summer.

Founded in 1987, Carlyle raises money from private investors and uses it to buy and resell companies and invest in real estate and other assets. The company has about $76 billion under management.

The company focused initially on the defense industry, enlisting the help of advisers such as former president George H. W. Bush and former defense secretary Frank Carlucci. Over the years, it has brought on such business veterans as former IBM chief executive Louis V. Gerstner Jr., who now chairs the firm. At the same time, its business portfolio has expanded to include investments in industries as varied as real estate, skin care and doughnuts.

Carlyle has long taken on Middle Eastern investors in its funds, including the Abu Dhabi government, and made headlines when it bought out the bin Laden family's interest after the Sept. 11, 2001, terrorist attacks.

Before yesterday's announcement, Carlyle's 60 partners owned close to 95 percent of the company's shares, and Calpers owned the rest. But both allowed the value of those shares to be reduced to make room for the Abu Dhabi investment, according to a Carlyle source who spoke on condition of anonymity because the source was not authorized to speak about specifics. A Carlyle statement said the Mubadala deal includes "value-related protective rights," which protects the company if the value of its investment falls below $20 billion.

Calpers, which has seen its $175 million investment grow to an estimated $1 billion, said it approved of the transaction.

"We generally don't comment on ownership interest in private companies," said Calpers spokesman Clark McKinley. "However, we are very pleased with our overall global investment relationship with the Carlyle Group. This latest transaction is proof that the firm has built significant value for its investors."

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