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Mon, Dec 25, 2006 - Page 11 News List

Secretive Cerberus quietly building financial empire

SILENT INFLUENCE Although it avoids media attention, the investment firm has a hand in some of the world's best-known companies and hires political heavyweights

NY TIMES NEWS SERVICE , NEW YORK

Coy Wyatt, foreground, clamps electrical lines under a bus being built for the Chicago Transit Authority in a North American Bus Industries factory in Wichita, Kansas on Aug. 21. North American Bus Industries, Inc of Anniston, Alabama, was acquired by Cerberus Capital Management, LLP in February and now manages funds and accounts with capital in excess of US$16 billion.

PHOTO: AP

On the upper floors of a soaring Midtown Manhattan skyscraper, behind heavy glass doors that do not bear his name, sits Stephen Feinberg, one of the country's most powerful -- and anonymous -- financiers.

Over the last few years, Feinberg's US$24 billion investment fund, Cerberus Capital Management, named after the mythological three-headed dog that guards the gates of Hades, has quietly acquired some of the world's best-known companies. The car rental chains National and Alamo, as well as parts of Air Canada and the retailers Mervyn's and Albertson's, are now all within the Feinberg empire.

Last month Feinberg secured a majority stake in General Motors' financing arm, GMAC, thus gaining control of the seventh-largest financial institution in the US.

Army contractor

Through another company it controls, IAP Worldwide Services, Cerberus is poised to become one of the US Army's largest contractors in Iraq. Earlier this month, Cerberus and other funds offered to invest up to US$3.4 billion in Delphi Corp, the auto parts giant.

All told, Cerberus has a controlling interest in more than 45 companies that employ more than 250,000 people and generate US$50 billion in revenue each year, more than the sales of Microsoft, Motorola or PepsiCo. The fund has earned an average annual return of about 22 percent over the last seven years, according to its marketing materials, and Institutional Investor magazine estimated that Feinberg took home a US$75 million paycheck in 2004.

The executive ranks of Cerberus include former treasury secretary John Snow and former vice president Dan Quayle.

For all of that, however, very little is known about Cerberus beyond its intimidating name -- a reflection of how greatly Wall Street players like Feinberg value secrecy, and the pivotal role stealth plays in amassing and deploying the vast pools of capital that private equity investors control.

"Secrecy is very important to how takeover deals get done," said Henry Hu, a professor of corporate and securities law at the University of Texas at Austin.

"Secrecy gives you access to private information. It lets you bid on companies before the competition is aware they are for sale. Secrecy is part of how this industry works," he said.

THE DOWNSIDE

But secrecy also has its downside. Although many backers of Cerberus say Feinberg, 46, is known for his loyalty to investors and partners, his analytical savvy and creative takeover strategies -- the fund's tactics in the bare-knuckled and risky arena of debt investing -- have given Cerberus its share of bruises.

Court documents detail legal brawls in which investors accuse Cerberus of orchestrating secretive deals that transgressed legal and ethical boundaries, accusations the firm denies.

"These guys come from a different background than other buyout firms," said Joel Simon, a principal at XRoads, a financial advisory firm, when asked to describe how Cerberus operates. "When you play in the distressed arena, you develop sharp elbows. They have a reputation as tough negotiators who avoid public attention."

Cerberus has lost out on deals because of its secretive image, and it risks attracting the kind of regulatory scrutiny the takeover industry as a whole is trying to avoid.

So Cerberus is trying to change. In the spirit of greater openness, it recently built a Web site to give the public a sliver-sized glimpse of the firm. Along with high-profile hires of political heavyweights, Cerberus has become a major political donor. It has distanced itself from its roughneck roots by hiring dozens of image-improving blue-chip executives and, during the GMAC announcement, went so far as to let a senior manager appear at a press conference for the first time in the fund's history.

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