The world's largest real estate franchisor Realogy Corporation is going private. The company will be acquired by an affiliate of Apollo Management, L.P., a leading private equity firm, in a transaction valued at approximately $9.0 billion. The transaction includes the assumption or repayment of approximately $1.6 billion of net indebtedness and legacy contingent and other liabilities of approximately $750 million.

The unbundling of Cendant which resulted in the formation of Realogy, has put at least 25 percent more in the pockets of stockholders, who will cash out nicely under the terms of the Apollo buyout. Stockholders will receive $30.00 per share in cash at closing, representing a premium of 26 percent over Realogy's average closing share price since its spin-off from Cendant Corporation on August 1, 2006.

According to Chairman and Chief Executive Officer Henry R. Silverman, the transaction will "enable stockholders to realize the value of Realogy's fundamentally strong businesses. At the same time, the valuation takes into account the substantial pressures and uncertainties facing the residential real estate markets that may well continue for some time. Realogy will benefit from ownership by an investor committed to building further on the solid foundation provided by the Company's leading market positions and to developing long-term opportunities for growth.”

The transaction should close during the spring of 2007, subject to a shareholder vote, antitrust and insurance approvals, and other customary closing conditions, says the company. Mr. Silverman will likely continue to serve as Chairman and CEO until the expiration of his current employment agreement on December 31, 2007, at which time it is expected that he will be succeeded as CEO by Richard Smith.

Who is Apollo and what do they want with Realogy? Apollo Management L.P. is a private equity firm with offices in New York, Los Angeles and Londone. Founded in 1990 by Leon Black (Apollo Advisors), the firm has invested over $16 billion in US and international companies.

This isn't Apollo and Silverman's first transaction. In late 1997, Cendant and Apollo formed a joint venture to create NRT Incorporated, which was subsequently wholly acquired by Cendant in 2002. In 2005, before Silverman decided to unbundle Cendant to provide greater shareholder value, an Apollo subsidiary called Affinity Acquisition Holdings LLC stepped up to the plate to buy out the Marketing Services Division for about $1.83 billion.

What's interesting are the terms. Mr. Silverman and the Company have agreed that he will not be an equity participant with Apollo in the acquisition, and will receive the same per share consideration for his shares and in-the-money options as other stockholders and optionholders under the merger agreement. As with all other optionholders, all of Mr. Silverman's out-of-the-money options will be cancelled.

He'll still make out well, however. The move will "protect his personal billions," with the "bull leaving the herd," says one pundit. In other words, he chose an ethical way to cash out without destroying the investors who supported the company. You never know when you'll need those investors and their faith again.

Mr. Silverman has a profitable history of doing business with friends like The Blackstone Group, where he was once a partner, and Apollo Management, previously known as Apollo Advisors.

Private equity deals are flourishing due to a booming Wall Street and humming economy. But when securities such as Cendant aren't growing in value the way founders/management believe they deserve to, unbundling the pieces and selling to private equity firms is one way to capitalize on a good business.

Using money from private equity firms has been a good way for Silverman to advance Cendant/Realogy, and the Realogy sale poses some risks -- a rise in inflation could result in higher mortgage interest rates, which could smother the housing market further. But the advantage is that private equity holdings don't get the media scrutiny of publicly held equities, and they certainly don't have to air their financial laundry for the SEC, investors and the public. Even better, they are making their investors rich. According to Thomson Financial, a consulting firm, from June 2005 through June 2006, private equity firms returned 22.5 percent profit to investors versus the S & P 500's 6.6 percent. Over 10 years, private equity firms have returned 11.4 percent versus 6.6 percent, and over the last 20 years, 14.2 percent versus 9.8 percent.

One advantage that private equity-held firms have is that they don't have to be slaves to public perceptions of growth. Subsequently, they can afford to pursue long-term goals, rather than short-term investor appeasement via quarterly growth. They can afford to do more tinkering to meet their goals of selling them off in three to five years.

Explains analysis Fortune writers Geoffrey Colvin and Ram Charan, "The eventual buyer could be another company in the portfolio company's industry, another private-equity firm or the public, through an IPO. The holding period is occasionally less than a year or as long as ten years. But always the goal from day one is to sell the company at a profit."

They observe, "Facing a goal like that changes a manager's mindset -- usually in positive ways. No longer seeing a corporate future that stretches indefinitely into the distance, executives realize that they gain nothing by resisting change: With the exit looming, driving change is their only hope."

Unlike publicly-held companies where executives tend to do well regardless of their performance, executive pay and performance is more closely aligned in privately-held companies.

"Not only is a far larger share of executive pay tied to the performance of an executive's business, but top managers may also be required to put a major chunk of their own money into the deal," says the authors.

That's a substantial compliment to Smith, who will be liberated from the daily distractions of the "stock market, media and Wall Street analysts."

With a track record of buying its way to success, Silverman has acquired a substantial number of properties in Realogy. Now making them work will be Smith's job.