Teaming up with the Locusts: A New Private Equity Model?
According to an article in The Financial Times (21 March 2007), 'Bertelsmann teams up with private equity':
"Bertelsmann, Europe’s largest media company, is joining forces with private equity groups, to establish a novel €1bn investment partnership which could herald a newly acquisitive growth phase for the owner of RTL and Random House. The family-controlled German group will contribute up to €500m to the new fund over three to four years, with the remaining equity provided equally by Citigroup Private Equity and Morgan Stanley Principal Investments."
The essential point, noted in another FT article given the website title "Bertelsmann makes friends with locusts..." is that if the "strategy works, it should allow Bertelsmann to place small bets – equivalent to 10 per cent of its annual acquisition budget – but give it the option to examine businesses for a few years before deciding whether to take full control or sell out."
This strategy is already being implemented by the US meat transnational Smithfield, which last year bought Sara Lee's European meat operations for 575 USD plus pension costs in a joint venture with Oaktree. Smithfield can thus use Oaktree to carry out a massive restructuring operation and then consider buying them out. Smithfield, which has been paying 24% to investors for the last two decades, operates the worlds largest pork processing facility, in Tar Heel, North Carolina, which has been resisting union organization for many years using the full panoply of anti-union techniques available to US employers. The acquisition of substantial operations in Europe via private eqiuty financing undoubtedly heralds an attempt to implement this industrial relations model in Europe.