BusinessWeek – It was an epic showdown between legendary buyout king Henry R. Kravis and New Age hedge fund manager Stephen A. Feinberg — and Feinberg won. On Apr. 3, General Motors Corp. (GM ) announced that it would get about $14 billion over the next three years for selling a 51% stake of its highly profitable GMAC finance division to a group led by Feinberg’s firm, Cerberus Capital Management LP.
Ever since, Wall Street has been buzzing over how the 46-year-old Feinberg snapped up a huge financial-services company for little more than its book value from Kravis, age 62. Kravis may someday look wise for having turned his back on a deal heavily laden with risk. But losing to Cerberus has to sting.
A big battle between established buyout firms such as Kohlberg Kravis Roberts & Co. and scrappier hedge fund groups like Cerberus — named after the three-headed dog in Greek mythology that guards the gates of Hades — has been brewing for a while. In a 2004 speech to a few hundred private-equity investors and bankers, Kravis warned that hedge funds had little experience managing companies or “creating value.”
Since then, Kravis has been forced to fend off Feinberg multiple times to buy companies. In 2005, a KKR group beat out Cerberus for troubled retailer Toys ‘R’ Us Inc. by paying $6.6 billion for it. In January, a Cerberus group picked up the grocery chain Alberston’s Inc. (ABS ) that KKR had been eyeing.
