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April 30, 2007

'Companies Act Change May Hamper Brait's Bid' - Business Day

Business Day (Johannesburg) NEWS April 24, 2007

By Nicola Mawson Johannesburg

AN AMENDMENT to the Companies Act would make it more difficult for private equity corporations to buy out firms with a slim majority, market commentators have said.

While the new legislation has yet to come into effect, it would require a three-quarter majority to sell more than half a company's assets.

With Brait Private Equity's R14,2bn bid for Africa's largest food retailer, Shoprite, still hanging in the balance, this deal could be the first high-profile takeover to be tested under the new law.

Brait's proposed buyout is asset-based, as opposed to Bain Capital's buyout of Edgars Consolidated Stores which is at company level. This means that, until the new law comes into effect, Brait needs only 50% plus one vote to seal shareholder approval.

However, the amendment seals shut a loophole that had been a contentious issue among some shareholders.

A lawyer specialising in company law said the amendment, gazetted last week, was not yet in effect but, should it come into effect before shareholders had voted, a 75% yes vote would be required.

Sanlam Private Equity deputy CEO Cora Fernandez said private equity deals were likely to slowdown substantially. The amendment would make it more difficult for international private equity firms to target larger capitalised firms, which had diverse shareholder bases.

Craig Forbes, transactor in corporate finance at RMB, said the government was aligning the two buyout methods, which would make it more difficult to buy out companies, and this would go some way towards protecting minorities.

"It seems reasonable that you would need three-quarters (of shareholder agreement) to sell over half your assets."

Brait's takeover bid still faces several hurdles before shareholders go to the polls and institutional investors challenging the deal have already vowed to protect minorities.

Asset managers challenging the deal are: Coronation Fund Managers, Peregrine Capital, Stanlib and Polaris Capital. Core objections to the deal were that the offer price fundamentally undervalued Shoprite and that Shoprite chairman Christo Wiese should not be allowed to vote his stake in favour of the deal, as this was a conflict of interest.

Despite the possible change in law, Brait executive director Eduardo Garcia said he did not view the new law as a threat. He said the private equity firm had taken note of the impending change and viewed it as an enhancement to companies' statutes. Brait was still trying to move the Shoprite transaction forward and hoped to make an announcement soon, Garcia said.

Copyright © 2007 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com).

April 28, 2007

Korean Coca-Cola unions declare opposition to possible buyout by CVC Capital Partners, threaten industrial action

In a press release issued on the morning of April 27, the three unions representing workers in Coca-Cola Korea Bottling Company (CCKBC) North, Southwest & Southeast announced their opposition to the sale of the CCKBC to a private-equity fund, CVC Capital Partners. The three unions, affiliated to the IUF, have made it clear that they will oppose such a sale under any conditions. In their press statement the unions assert that, “there is no possibility that we will accept CVC (a private equity fund), which has submitted a letter of intent to buy CCKBC. We will never accept CVC owning CCKBC even if CVC agrees to guarantee union demands. We three unions are planning to demand that CVC should be excluded from the bidders.”

According to recent media reports Coca-Cola Amatil (CCA), which owns CCKBC, has received several letters of intent by potential buyers, including a joint bid by CVC Capital Partners and Woongjin Foods.

The reason for rejecting a private equity buyout is clear. A leveraged buyout by a private equity fund would inevitably undermine employment security, since the buyout would be financed with loans secured against CCKBC’s assets and so would burden the company with more debt. This debt burdern would increase under the practice of dividend recaps (getting CCKBC to borrow money that would then paid out as a special dividend to the private equity fund), plus the extraordinarily high fees charged by private equity firms to ‘advise’ on the buyout. Faced with an increased debt burden, workers would face increased pressures of restructuring and cost-cutting.

Increased debt, restructuring and a short-term drive to drain the company of cash casts doubt on the viability of any “guarantees” regarding wages & benefits, employment security, and trade union rights.

So the CCKBC unions have sent a clear warning: “We three unions emphasize again that we strongly oppose the acquisition of CCKBC by the CVC private equity fund and that CCA must accept unions’ demands and negotiate with unions faithfully. We three unions are giving CCA a warning: CCA will bear the blame for any situation that might occur should CCA intend to refuse union demands.”

April 25, 2007

IUF at the European Parliament: Private Equity's Impact on the European Food Sector

On April 19 at the European Parliament in Brussels, the IUF presented evidence on the destructive impact of private equity buyouts on the European food sector, highlighting the buyouts' destructive impact on employment, the environment and employment conditions generally. The seminar was organized by the IUF together with the Party of European Socialists, the structure grouping Europe's labour and social-democratic parties.

Click here to read the IUF presentation.

'Pass the Cookies' - Goldman Sachs Raises $20 Billion Buyout Fund

Goldman Sachs has raised USD 20 billiion for its latest fund for buying, stripping and selling businesses, more than doubling the USD 8.5 billion it raised last year and beating the USD 18.5 billion Blackstone has raised to date in its latest effort.

"My guess is you will see someone in the next 12 months try to top this Goldman deal," said Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College. "When the cookies are being passed around you'd better take some, because you don't know when they're coming back around again."

Buyout funds in 2006 raised over USD 700 billion - an amount equivalent to buying the national economy of the Netherlands, or the economies of Argentina, Poland and South Africa combined - with billions of dollars to spare.

April 22, 2007

CVC Capital Partners in bid for buyout of Coca-Cola Korea Bottling Company (CCKBC)

According to Reuters, the private equity fund CVC Capital Partners has teamed up with the Korean food company, Woongjin Foods, to bid for the purchase of Coca-Cola Korea Bottling Company (CCKBC) from Coca-Cola Amatil. Other bidders for the KOrean Coca-Cola operations include the Korean food and beverage firms CJ, Lotte ChilsungDongwon F&B, Namyang Dairy Products, Samlip General Foods and SPC.

April 21, 2007

Chris' & Pitt's Food Products, Inc. to be Acquired by Creo Capital Partners, LLC

Chris' & Pitt's Food Products, Inc. to be Acquired by Creo Capital Partners, LLC

2007-04-20 21:42:14 -

HOUSTON, April 20 /PRNewswire/ -- Chris' & Pitt's Food Products, Inc., ("C&P"), announced today that it has been acquired by an affiliate of Creo Capital Partners, LLC ("Creo"). The purchase price was not disclosed.

The C&P acquisition marks Creo's fourth investment in the branded food and beverage space and is expected to result in increased sales activity, enhanced customer support, and other synergies between C&P and Creo's other food businesses.

Nick Sternberg, Partner of Creo Capital Partners said, "Creo continues to focus on acquiring brands in the food and beverage industry. We have developed a strong infrastructure to manage and grow food and beverage brands and we believe that C&P is a great addition to our portfolio. C&P has very solid long term relationships with its existing customers and we look forward to introducing the brand to new distribution channels that we have developed through our other food company investments."

John Labbett, Chief Executive Officer of two of Creo's current food portfolio companies (First Street Food Group, LLC and National Harvest Group, LLC) will assume the rule of Chief Executive Officer of C&P.

C&P markets and distributes a wide variety of barbeque sauces and frozen entrees through retail, warehouse and food service channels.

Nixon Peabody LLP served as legal advisors on the transaction.

Creo Capital Partners, LLC (http://www.creocapitalpartners.com/) is a Los Angeles-based private equity firm specializing in organizing, structuring and sponsoring recapitalizations, restructurings and acquisitions of mid-market companies. Creo focuses on partnering with management to create superior returns for all stakeholders. Established in early 2005, Creo Capital Partners has quickly built up a portfolio of investments that now include companies in a wide range of industries including the frozen food, seafood, construction supply, transportation apparel and engineering sectors.

Source: Creo Capital Partners, LLC; Chris' & Pitt's Food Products, Inc.

April 20, 2007

Heinz Shares Rise on Report of Possible Sale, Buyout - Bloomberg

“Shares of H.J. Heinz Co., the world's biggest ketchup maker, rose the most in 11 months after Dealreporter.com said the company may put itself up for sale or be taken private. Heinz hired bankers to study options including a sale to private-equity firms, acquisitions or selling assets, the news service said today, citing two people it didn't identify. Carlyle Group and TPG Inc., the private-equity firm formerly known as Texas Pacific Group, recently considered buying Heinz and decided against it, Dealreporter.com said.”

Continue reading: Mark Clothier, "Heinz Shares Rise on Report of Possible Sale, Buyout", Bloomberg, 19 April 2007.

April 18, 2007

Blackstone Group sells Extended Stay Hotels to Lightstone Group for US$8 billion

According to CNN Money.com, "Commercial real estate group Lightstone Group is buying Extended Stay Hotels from private equity firm Blackstone Group for $8 billion in one of the biggest hotel deals in history." (April 17 2007)

After completion of the acquisition of Extended Stay Hotels (which includes the Homestead Studio Suites, StudioPLUS Deluxe Studios and Crossland Economy Studios brands), Lightstone, Group will own 683 properties with 76,000 rooms in the US.

April 17, 2007

Four Seasons Hotels "goes private" in buyout by Bill Gates' Cascade Investment & Kingdom Hotels International

The Toronto-based Four Seasons Hotels, which manages over 18,000 rooms around the world, will be taken private in a buyout deal by Cascade Investment, L.L.C., an entity owned by Microsoft founder Bill Gates, Kingdom Hotels International, which is owned by a trust created for Saudi prince Alwaleed and Four Seasons' CEO Isadore Sharp.

Japan Airlines Corp (JAL) sells hotels in Tokyo and Okinawa to US-based private equity funds

Japan Airlines Corp (JAL) has sold hotels in Tokyo and Okinawa to the US-based private equity funds Aetos Capital and Lone Star Funds. The Dallas-based Lone Star Funds bought three hotels in Okinawa - Hotel Nikko Naha Grandcastle, Hotel Nikko Yaeyama and JAL Private Resort Okuma - for at least ¥15 billion. This is Lone Star Fund's seventh hotel buyout in Okinawa. In the deal with Aetos Capital, JAL sold its 48% holding in Tokyo Humania Enterprise, which owns the building of Hotel Nikko Tokyo.

The deal follows JAL's earlier sale of two hotels to Goldman Sachs, including City Hotel in Kawasaki City.

In 2003 Goldmn Sachs bought three hotels from the Daiei retail store: Shin-Urayasu Oriental Hotel in Urayasu City, Chiba Prefecture; Kobe Meriken Park Oriental Hotel in Kobe City; and Nanba Oriental Hotel in Osaka.Goldman Sachs also owns the Hotel Nikko Alivila of Yomitanson, Okinawa.

Goldman Sachs also has bought local hotels such as Izumiso Inn in Ito City, Shizuoka Prefecture, and Komaki Hot Springs Hotel in Misawa City, Aomori Prefecture.

In related news, Morgan Stanely will buy 13 hotels (4,943 rooms) from All Nippon Airways for ¥281.3 billion (US$2.37 billion) in Japan’s largest ever real estate deal. According to Forbes, the deal will make the U.S. investment bank the largest hotel owner in Japan.

Morgan Stanley already has interests in 14 hotels in Japan.

According to a report in March, Morgan Stanley Real Estate fund will own 74.9% of a joint venture with Starwood Capital’s Starwood Hotels & Resorts designed to acquire the Sheraton Grande Tokyo Bay Hotel from Taisei Corporation Group,with Starwood owning the remaining 25.1%. The 802-room hotel, which is close to Tokyo Disney Resort, has been managed by Starwood since its opening in 1988 and will continue to be operated by the hotel company under a long-term management agreement with the joint venture.

In the latest deal to buy 13 hotels from ANA, Morgan Stanley will acquire the land and buildings, as well as a property management company and hotel management company, but ANA will continue to operate the hotels along with theInterContinental Hotels Group (IHG). ANA signed a partnership deal with IHG in October 2006.

Morgan Stanley is currently raising $8 billion for a global real estate fund, of which up to 40% could be deployed in Japan, where it began investing in distressed real estate assets in the late 1990s.

ANA to sell 13 hotels to Morgan Stanley for 280 billion yen
Kyodo News International 13 April 2007

All Nippon Airways Co. said Friday it will sell 13 domestic hotels to U.S. brokerage group Morgan Stanley for 281.3 billion yen as part of retrenchment measures.

Under the deal, decided at an ANA board meeting earlier in the day, the land and buildings of the hotels will be sold, and the airline will continue to operate the hotels, the airline said.

ANA is expected to reap about 130 billion yen in profit from the sale, according to sources close to the matter.

Foreign brokerage firms and investment funds have been accelerating real-estate investments in central Tokyo, where land prices are rising in line with Japan's economic recovery.

Morgan Stanley has already acquired a large-scale office building in Tokyo and other properties in Japan.

ANA had sought a buyer for the hotels through an auction, and real estate companies and investment funds at home and abroad had made bids.

The 13 hotels include the company's flagship hotel ANA InterContinental Tokyo, located in Minato Ward, as well as hotels in Hokkaido, Toyama, Ishikawa, Hiroshima, Fukuoka, Okinawa and other prefectures.

ANA said that together with InterContinental Hotels Group of Britain it will continue to operate the hotels after Morgan Stanley purchases them, and the names of the hotels will remain unchanged.

Japanese airlines are now focusing their financial and manpower resources on core airline businesses ahead of the 2010 expansion of Haneda airport in Tokyo.

Last October, ANA announced the sale of 74 percent of its stake in its hotel managing unit to InterContinental.

In a similar move, Japan Airlines Corp. has sold hotels in Tokyo and Okinawa to U.S. investment funds Aetos Capital and Lone Star, respectively. Copyright (c) 2007, Kyodo News International, Tokyo

South Africa's Tiger Brands to sell Dairybelle dairy unit to private equity fund

A report in Business iAfrica.com yesterday
stated that competition authorities will hear the case for Standard Bank Private Equity's proposed acquisition of Dairybelle, which is a division of Tiger Food Brands, South Africa's biggest consumer-branded products group.

According to the report: "Standard Bank intends to acquire the entire issued share capital of Dairybelle as a going concern. Standard Bank also intends to acquire trademarks relating to Dairybelle business from Tiger Food Intellectual Property Holding Company. Post merger, Standard Bank will control the business and trade marks of Dairybelle as a going concern. The Competition Commission has recommended that the Competition Tribunal approve this merger without conditions."

April 16, 2007

Cashing in Early: New Accounting at Blackstone to Book Buyout Profits Before Companies Sold Off!

Financial engineering to "unlock" value from companies acquired through buyout deals seemingly knows no limits. Undeterred by corporate governance critics of an IPO which will give investors no say in how it runs its buyout business, Blackstone now plans on booking profits from future sales at the time of purchase! "They are being more intellectually rigorous," said one accountant specialising in private equity. "It would allow them to book profit a damn sight earlier, like several years earlier." James Mackintosh of the Financial Times explains this rigorous exercise in creative accounting here.

Private equity buyout of German confectionery firm van Netten

The private equity firm ARQUES Industries AG has taken over all shares in the confectionery manufacturer, van Netten GmbH.

Investor acquires German candy maker
By Catherine Boal 11/04/2007

German equity investment company Arques has taken over confectionery firm van Netten in yet another example of private investors moving into the food industry sphere.

By gaining control of the confectionery maker, which generates revenues of around €70 million each year, Arques hope to increase its own group profits to €1.4 billion.

Van Netten produces fruit gums, jellies, sweets and sugar coated candies. The company, based in Dortmund, supplies trade chains with private and store brands throughout the key markets of Germany, Eastern Europe and the EU.

Arques executive chairman Dr Peter Löw said: "With the confectionery manufactuerer, van Netten, we have acquired a traditional company which has been firmly established on the market for years.

"Van Netten is not only a partner to the trade but also to the industry and is considered a reliable and competent service provider which has already developed numerous confectionery innovations."

Arques specialises in the acquisition of medium-sized businesses in Switzerland, Germany and Austria, concentrating on those with revenues of at least €250 million. The van Netten buy-out is its fifth this year and others are planned in order to meet the group's 2007 annual revenue target of €1.5 billion.

Private equity companies have increasingly been turning their attention to the food sector as an area of lucrative growth.

In the UK, the second largest biscuit manufacturer Burton's was the subject of a tussle between two leading equity firms earlier this year.

The British group, Duke Capital, acquired the biscuit maker in a deal worth around €200 million while another leading biscuit producer, United Biscuits, was acquired by a consortium involving Blackstone and PAI at the end of last year and Lion Capital targeted crisp company Kettle in September.

Arques Takes Over Confectionery Manufacturer, van Netten
Source: ARQUES Industries AG 10/04/2007

Starnberg, 4 April 2007 - The equity investment company ARQUES Industries AG has taken over all shares in the Dortmund-based confectionery manufacturer, van Netten GmbH. Seller is Zuckerfabrik Jülich AG, which is to concentrate on its core business in the future. The transaction is subject to the approval of the relevant cartel authorities.

The company, van Netten GmbH, founded in 1918 and based in Dortmund, is a manufacturer of confectionery and generated revenues to the value of approximately EUR 70 million. Van Netten supplies large trade chains and discounters with private brands and store brands. The target markets of the confectionery manufacturer are Germany, the European Union and Eastern Europe. The company specialises in the production of fruit gums, jellies, confectionery, sweets and sugar-coated candy. Within the context of the transaction, ARQUES acquires, among other things, an almost 100,000 square meter large property on which storage and production facilities are located.

"With the confectionery manufacturer, van Netten, we have acquired a traditional company which has been firmly established on the market for years. Van Netten is not only a partner to the trade but also to the industry and is considered a reliable and competent service provider which has already developed numerous confectionery innovations", said ARQUES executive chairman, Dr. Dr. Peter Löw.

The company was taken over in accordance with the ARQUES philosophy. The acquisition of van Netten GmbH is already the fifth transaction of the ARQUES group in 2007. Companies with a revenue volume of approximately EUR 250 million have been acquired. ARQUES expects to buy additional companies with revenues of EUR 800 million in the current financial year. By way of the acquisition of van Netten, the ARQUES annualised annual group revenues rise to approximately EUR 1.4 billion. At the press conference on March 30, ARQUES affirmed its target for 2007 of generating consolidated annual revenues of EUR 1.5 billion as well as an EBITDA of EUR 180 million.

TXU maintenance workers reach deal with TXU buyers, KKR and Texas Pacific Group

The International Brotherhood of Electrical Workers, representing TXU Electric Delivery workers, reached an agreement with the prospective buyers of TXU Corp, KKR and Texas Pacific Group, which have launched a US$32 billion leveraged buyout of the company. The agreement calls for the immediate suspension of a transmission and distribution joint venture planned by TXU and the scrapping of a proposed outsourcing agreement.

Continue reading: Jaime S. Jordan, ‘TXU maintenance workers reach deal with TXU buyers’, Dallas Business Journal,11 April 2007.

For background on organizing at TXU, see: IBEW Takes on Big Guns at Texas Utility and Wins 254 to 218 (20 December 2006)

April 14, 2007


"Proponents of buyouts argue that they free companies from the tyranny of short-term earnings expectations, the burdensome requirements of the Sarbanes-Oxley corporate reform law and pressures exerted by big investors such as hedge funds. That may be fine for management, but it ignores the fact that large privately held companies tend to be less responsive to concerns about their impact on labor and the well-being of communities in which they operate."

Continue reading: Philip Mattera, ‘Private Inequity: How mammoth Buyouts are changing business for the worse’, Corporate Research E-Letter No. 64, March-April 2007.

Also read: "The private equity challenge for corporate researchers", Dirt Diggers Digest No.76, 13 April 2007, edited by Philip Mattera.

Corporate Research E-Letter No. 64, March-April 2007

By Philip Mattera

Millions of people worry each day about the ups and downs of the Dow Jones Industrial Average, but the real action in big business is increasingly taking place not in public stock markets but in an arena known as private equity. What sounds like a topic of interest only to accountants is actually a trend with widespread consequences for us all. Buyouts of large companies are making a few people fabulously rich but are also weakening parts of the economy, eroding job security and limiting the ability of society to exercise oversight of Corporate America.

Fueled by low interest rates and a steady flow of capital from large investors, private equity deals have been popping up everywhere in the business world during the past few years. Well-known companies such as Hertz, Toys “R” Us, Dunkin’ Donuts and Madame Tussauds waxworks museums have been subjected to buyouts. Former CEOs of major publicly traded companies, such as Jack Welch of General Electric and Louis Gerstner of IBM, are now in the buyout game. Singer/humanitarian Bono moonlights as a principal in a private equity firm that specializes in media and entertainment deals.

In 2006 there were more than 1,000 private-equity buyouts worldwide with a total value of $500-$700 billion (depending on who’s counting). Last November, a leading private equity firm called Blackstone Group agreed to pay $32 billion for a commercial real estate business called Equity Office Properties Trust in what was then the largest private equity deal ever. The previous record holder was the $31 billion buyout of private hospital operator HCA four months earlier. Only a few months into the new year, a new record has been set. Private equity pioneer Kohlberg Kravis Roberts & Co. (KKR) and another buyout firm called Texas Pacific Group agreed to pay $45 billion to take over electric power company TXU Corporation.

Proponents of buyouts argue that they free companies from the tyranny of short-term earnings expectations, the burdensome requirements of the Sarbanes-Oxley corporate reform law and pressures exerted by big investors such as hedge funds. That may be fine for management, but it ignores the fact that large privately held companies tend to be less responsive to concerns about their impact on labor and the well-being of communities in which they operate.

The private equity boom of recent years can be seen as a revival of the takeover dramas of the 1980s—with some of the same actors. Back then, people rarely used the genteel phrase “private equity.” Instead, the talk was of leveraged buyouts (LBOs)—the process by which a group of investors, often including top management, took a firm private by purchasing the publicly held shares with funds borrowed using the assets of the company as collateral. Investor groups were able to raise large sums of money—usually through the use of high-risk junk bonds—while investing little cash of their own. This process reached its height—or its depth, according to critics—in the controverial $25 billion buyout of RJR Nabisco by KKR, a deal immortalized in the book Barbarians at the Gate.


With the resurgence of buyouts in recent years, the objections voiced to LBOs in the 1980s take on a new relevance. The criticisms can be divided into two categories, the first relating to their direct business impact:

They milk the companies they buy. Private equity firms are supposed to make their money when they resell the companies they acquire. But these days they also reward themselves well before that sale takes place—by extracting lavish dividends and management fees out of the revenues of the companies in their portfolio. A private equity group led by Texas Pacific collected a total of $448 million in dividends and fees from Burger King, which it acquired in 2002. That was about the amount the group paid to gain control of the fast-food chain in the first place. When 26 percent of Burger King was sold to the public in 2006, the group’s remaining stake grew in value to $1.8 billion. In other words, it recouped its entire cash outlay and still had a property worth four times its original investment.

The dividends and fees are so attractive that in some cases they become more important than increasing the value of the company. Whereas buyout firms used to spend years restructuring companies, many now take their payments and quickly resell. “An ethos of instant gratification has started to spread through the business,” warned Business Week.

They load up companies with massive amounts of debt. Debt, of course, is at the heart of leveraged buyouts, but today’s takeover firms often force their companies to continue borrowing large sums even after the transaction is completed. Sometimes the loans are not for operations but to pay the dividends demanded by private equity owners themselves. In 2004 nutrition-bar maker Nellson Nutraceutical, which had been bought out for $300 million by Fremont Partners, was forced to borrow $100 million in part to pay a dividend of $55 million to Fremont. This helped push the company into bankruptcy.

They pay obscene amounts of money to top executives. One way to soften up a company for a takeover is to neutralize opposition from its top executives. Buyout firms often do this by including those executives in the investor group buying the company and by keeping those executives in place after the sale. This way they enjoy a windfall often in the hundreds of millions of dollars and get a huge boost in their salary and bonus.

They micromanage the firms they buy. Corporate executives enjoy the payday from buyouts but they find that their new owners may interfere in management much more than big investors did when the company was public. Buyout firms put their own people on the board of companies they buy, and those directors often interfere in decisions that are normally left to management in public companies.

All these tendencies also contribute to the other set of issues surrounding buyouts—those relating to the social impact of companies that have been taken private:

The risks for workers. The need of buyout firms to pay off debt and increase the value of the companies they buy often means the selling off of assets, a reduction of jobs and a squeeze on those workers who remain. Such concerns have prompted a backlash against private equity among unions in places such as Britain, South Africa and Australia. Just last week, a group of international unions issued a call for an investigation by the G8 group of rich countries on the threat of private equity and hedge funds to the stability of the global financial system.

The response among U.S. unions had been more subdued, which some observers attribute to the fact that many pension funds, especially in the public sector, have been major investors in private equity firms and thus have profited greatly from the trend. This attitude could change if a buyout is launched at a heavily unionized company such as Chrysler.

The risks for public oversight. Two of the things that make private equity so appealing for the buyout firms—escaping disclosure requirements and pesky investors—are a source of frustration for those monitoring corporate behavior. Publicly traded companies have to reveal a fair amount of information about their finances and operations, the compensation paid to their executives and the major legal proceedings in which they are involved. Watchdog groups continuously push for more extensive data on social impacts, but there is enough information (especially in the United States) to mount a critique. That information largely disappears when a company goes private.

Also eliminated are the possibilities for using shareholder activism to influence corporate policies on labor, environmental, human rights and other social issues. The TXU buyout has been lauded because it includes a scaling back of controversial plans by the company to build a slew of coal-fired power plants, but that situation is an anomaly.

Buyouts do not relieve a company of the obligation to comply with government rules relating to issues such as toxic releases, workplace health, product safety and fair competition. In fact, there have been reports that some private equity firms are being investigated for violations of antitrust laws. Overall, however, the secrecy in which these firms operate makes it much more difficult for outside critics to press them to do the right thing. The recent announcement that Blackstone Group is planning to sell a stake in itself to the public may lead to more disclosure of its finances, but little is likely to be revealed about the operations of the many companies in its portfolio.

In short, the rise of private equity makes large corporations a vehicle for enriching the few while reducing their level of public accountability.

The private equity challenge for corporate researchers
Dirt Diggers Digest No.76, 13 April 2007
Edited by Philip Mattera

Leveraged buyouts dominate the business news these days, and private equity firms such as Blackstone and KKR are being hailed as masters of the financial world. For corporate researchers, the expansion of private equity represents a significant challenge. The buyout firms are not subject to much in the way of disclosure requirements, and they tend to be secretive both about their own operations and those of the companies they have bought out.

Yet there are some sources to consult. In the course of writing a recent essay on private equity for the Digest’s sister publication the Corporate Research E-Letter, your editor collected information on these sources and presents the results here.

The most detailed data on private equity firms and their deals seem to reside in the high-priced services sold by financial information giants such as Thomson and Standard & Poor’s. Thomson’s SDC Platinum database includes a private equity feature called VentureXpert. Similar information can be obtained through S&P’s Capital IQ service. There are also some specialized data providers focusing exclusively on private equity deals, such as Private Equity Intelligence.

One of the most frequently cited publications in the field is Private Equity Analyst, an expensive monthly newsletter published by Dow Jones that has news as well as data. Dow Jones also publishes a daily service called LBO Wire.

Two other prominent publications are produced by Thomson: Private Equity Week and the biweekly Buyouts, content from which is also available on a subscription website. Both publications are available via aggregators such as Nexis.

There are two main directories of private equity and venture capital firms: Galante’s Venture Capital & Private Equity Directory, a Dow Jones annual that contains detailed profiles of more than 3,000 firms, and Pratt’s Guide to Private Equity Sources, published by Thomson.

As for free websites, see PrivateEquity.com , which has links to firm websites and other resources, and Private Equity Hub, a forum on private equity issues sponsored by Thomson. The website of the Center for Private Equity and Entrepreneurship, based at Dartmouth’s Tuck School of Business, has research papers and reference material on the subject. Some useful information can also be found on the websites of trade associations such as the European Private Equity & Venture Capital Association.

The recent announcement of an initial public offering by Blackstone has lifted its veil of secrecy somewhat. The firm’s recent (March 22) S-1 filing with the SEC reveals information such as the fact that 39 percent of its invested capital comes from public pension funds (p.125).

Unions around the world are paying more attention to the private equity phenomenon. The IUF global union federation for food, farm and hotel workers has created a website called Buyout Watch. In the United States, the Service Employees International Union recently launched a blog focused on Blackstone.

As for researching the operations and finances of the companies bought out by private equity firms, these sources have little to offer. Blackstone’s S-1 listed only a portion of the firm’s holdings and the equity investment in each. (A fuller list with brief company profiles can be found on Blackstone’s website.) These portfolio companies have to be researched like other privately held firms, meaning that you have to depend on uneven sources such as D&B, state corporate filings, and documents from government regulatory agencies. But remember that some companies that are private in the sense that their stock does not trade on exchanges may still have bonds that are held by the public—and this means they have to file 10-Ks.

The New Titans of Wall Street: Unlike Past Entrepreneurs These Men Like to Hide in the Shadows out of the Public's Scrutiny - ABC NEWS

As Stephen A. Schwarzman, CEO and co-founder of the Blackstone Group, splashed out on a US$3 million birthday party, it's clear where the wealth that's being sucked out of companies is ending up. As this report from ABC News reminds us (though we don't need reminding): "It's All About the Cash".

"These guys are not people who buy and hold. They buy, transform and sell. They're sort of a new beast out there."
Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth's Tuck School of Business

Contine reading: Scott Mayerowitz, 'The New Titans of Wall Street - Unlike Past Entrepreneurs These Men Like to Hide in the Shadows out of the Public's Scrutiny', ABC News, 12 April, 2007.

April 05, 2007

Private-equity buyouts in the hotel industry: Hilton's sale of Scandic to EQT

Private-equity groups have become powerful new owners of hotel properties as major international hotel chains continue to sell-off properties. In March 2007 Hilton Hotel Corp. sold off the 132-hotel Scandic Hotel chain (the largest hotel operator in the Nordic region) to a Swedish private-equity group, EQT, for US$1.1 billion.

More on the sale of Scandic Hotel chain to EQT:

'Hilton deal puts focus on core brands,' Hotel & Motel Management, (2 April 2007)

Oliver Staley and Niklas Magnusson, ‘Hilton sells Scandic to EQT of Sweden’ (5 March 2007).

Hilton selling Scandic to EQT for $1.1 billion, Reuters (2 March 2007).

'Harpooning the Whale: Blackstone Group's bid to go public has exposed some interesting tax games' - NEWSWEEK

“When private-equity firms and hedge funds kept low profiles, they were well out of harpoon range. They benefited from an enormous tax loophole that few but the cognoscenti knew about and a nice legal loophole that's familiar to people in the world of partnerships but that I'd never heard of until last week. These things have now emerged into public view, thanks largely to Blackstone's bid to become a publicly traded company. The harpoons are flying-as well they should be.”

Continue reading: Allan Sloan, 'Harpooning the Whale' , NEWSWEEK, 3 April 2007.

April 02, 2007

Banks 'Salivating' Over Fees as $100 bn LBO Looms/Unilever Takeover in 'Realm of Possibility'

According to Bloomberg reporters Justin Baer and Edward Evans, "Bankers are salivating over about $2 billion of fees from leveraged buyouts in the first quarter, and that's just a fraction of what they're assured of earning in the busiest year so far for mergers and acquisitions."

Fueling the buyout binge is a record expansion in "sub-investment" debt, already up 73 percent from the previous 12 months and ready to finance an estimated USD 2 trillion in the US alone. The funds and their investment bankers are now eyeing Anheuser-Busch and Unilever…

Click here to read the report.

'Inside the Blackstone IPO' - www.blackstonerevealed.blogspot.com

A web log linked to news stories on Blackstone Group has been launched by SEIU, Inside the Blackstone IPO:


"The place to find all the news about the Blackstone IPO, up front, transparent and in one place. This site is hosted by the Service Employees International Union, wholly independent of the Blackstone Group."