Reply #24: The mind-boggling rise of Cerberus [View All]

[UpInArms]

http://www.businessweek.com/magazine/content/05_40/b3953110.htm

excerpt:

Cerberus has been shopping up a storm for a year now, seemingly coming out of nowhere to build a corporate empire. With more than $16 billion of investors' assets on its books -- almost double what it had in 2003 -- it has bought 28 companies and snapped up stakes of at least 15% in an additional 15 over the past decade. According to BusinessWeek estimates, Cerberus controls companies that ring up at least a combined $30 billion in annual sales, more than McDonald's, 3M (AXP ), Coca-Cola (KO ), or Cisco Systems (CSCO ). With more than 106,000 employees, Cerberus companies have a bigger payroll than Exxon Mobil Corp. (XOM ). Its trophies include 226 Burger King restaurants, the National and Alamo car-rental chains, building-products maker Formica Corp., and the old Warner Hollywood Studios, where blockbusters such as Basic Instinct were made. Its companies connect BlackBerrys, provide medical therapy, and set up military-base camps in Iraq.

PICKUP TRUCKS AND BUD
The mind-boggling rise of Cerberus -- from a fringe vulture fund started with a grubstake of about $10 million in 1992 to a Wall Street powerhouse -- has been driven by its enigmatic boss, Stephen A. Feinberg, 45. Like other hedge-fund managers and buyout kings, Feinberg has a penchant for secrecy, although his is more developed than most. While co-founder William L. Richter deals with investors, and lieutenants such as former Vice-President Dan Quayle jet around the globe to seal deals, the mustached Feinberg keeps very much to himself in a nondescript office on the 22nd floor of a high-rise on Manhattan's Park Avenue. The walls are bare save for a lone photograph of a motorbike that is propped up against his window; a black kid-size motorbike with training wheels -- a gift from an outside adviser -- is parked next to his desk.

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However six-pack his origins, Feinberg now moves in rarefied circles. Defense Secretary Donald H. Rumsfeld was an investor in 2001, according to government ethics disclosures. Hedge-fund legend Michael Steinhardt is a shareholder and director in Cerberus' lending arm, Ableco LLC. Michael Dell's private-investment firm has joined with Cerberus and home-builder Lennar Corp. to develop upscale residential communities on the former El Toro Marine Corps Air Station in Irvine, Calif. His roster of investors also includes public pension funds such as TIAA-CREF and the California State Teachers' Retirement System.

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This is a long way from traditional hedge-fund or even vulture-fund investing. In fact, Feinberg is breaking important new ground in the hedge-fund business. While many funds stick to a single, sharply focused strategy, Feinberg casts a wide net. Not content simply to trade securities the way other funds do or to assemble assorted companies for resale in the same way as many buyout firms, he's forging what looks more like an integrated industrial conglomerate than an investment firm. His secret weapon: a deep bench of 80 seasoned executives who troll the world for investment opportunities and stand ready to parachute in and run the companies he buys. Put all the elements together, says David M. Rubenstein, Carlyle Group co-founder and managing director, and "Feinberg may have perfected a new business model."

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