Carlyle to sell 7.5 pct stake to Abu Dhabi group

By Michael Flaherty and Megan Davies

NEW YORK (Reuters) - Carlyle Group CYL.UL said on Thursday it is selling a 7.5 percent stake to an investment unit of the Abu Dhabi government for $1.35 billion, valuing the private equity firm at $20 billion.

The deal gives Carlyle cash to expand its already sprawling business and a key partner in the Middle East.

"As a global firm, having these types of relationships is a good thing," Carlyle spokesman Chris Ullman said on Thursday. He added that the Middle East is a region where Carlyle can achieve strong investment returns. The firm recently set up a Middle East buyout group, with around 10 professionals working in Dubai, Egypt and Istanbul.

The two parties said the deal was struck at a "liquidity discount" of 10 percent to the $20 billion valuation of Carlyle that they had agreed upon. With the discount, a 7.5 percent stake in Carlyle is worth $1.35 billion.

The discount compensates for the relative difficulty in selling Carlyle, a privately held company, than if it were publicly held. The transaction gives Carlyle a large shareholder and a market valuation, both of which could set the stage for a public offering.

Carlyle's move follows Blackstone Group LP's (BX.N: Quote, Profile, Research, Stock Buzz) sale earlier this year of a $3 billion stake to the Chinese government, just prior to selling a 10 percent stake in an initial public offering that raised more than $4 billion.

"In some respects it may be a better move than going public," Duke University Law School Professor James Cox said of the Carlyle deal.

"If you can raise substantial sums of money on terms that work well for you ... why would you submit any of your operations to the enhanced transparency that we saw happen to Blackstone on its offering?"