Am I the only person getting nervous about these Private Equity Firms?

[Jimmy Higgins]

Yeah... a few years ago... Maytag, who had hit bottom because of terrible management, in a deal with Ripplewood (a Private Equity Firm or PEF for this thread) was going to allow Ripplewood to turn Maytag into a private company. The deal gave the Stock Board a way out and a large amount of money for services they failed to do well at all. Stockholders told the board to go fuck themselves and Whirlpool ended up buying Maytag.

But in the past couple of weeks, we've seen a few huge deals come forth regarding publicly traded companies being snarfed up by huge rich private equity firms. The latest of these is Alltel (http://news.yahoo.com/s/nm/20070521/ts_nm/alltel_tpg_dc_3;_ylt=Ai8CwOxZaurUnDG6oBFXVLlkM3wV)which is involved with a deal to be sold to Goldman Sachs and TPG. Chrysler (http://www.suntimes.com/business/394190,CST-FIN-Chrys21.article) has been bought by Cebreus (another PEF). The Carlyle Group was also trying to get Alltel.

I have a saying, Don't trust government, but trust the people less and trust big business even less than that. I may need to add, don't trust PEF at all. There is something unnerving about the top 0.01% of the population buying up the companies in the country. Am I the only one?

[Stinger]

Yeah... a few years ago... Maytag, who had hit bottom because of terrible management, in a deal with Ripplewood (a Private Equity Firm or PEF for this thread) was going to allow Ripplewood to turn Maytag into a private company. The deal gave the Stock Board a way out and a large amount of money for services they failed to do well at all. Stockholders told the board to go fuck themselves and Whirlpool ended up buying Maytag.

But in the past couple of weeks, we've seen a few huge deals come forth regarding publicly traded companies being snarfed up by huge rich private equity firms. The latest of these is Alltel (http://news.yahoo.com/s/nm/20070521/ts_nm/alltel_tpg_dc_3;_ylt=Ai8CwOxZaurUnDG6oBFXVLlkM3wV)which is involved with a deal to be sold to Goldman Sachs and TPG. Chrysler (http://www.suntimes.com/business/394190,CST-FIN-Chrys21.article) has been bought by Cebreus (another PEF). The Carlyle Group was also trying to get Alltel.

I have a saying, Don't trust government, but trust the people less and trust big business even less than that. I may need to add, don't trust PEF at all. There is something unnerving about the top 0.01% of the population buying up the companies in the country. Am I the only one? That's interesting. I will do some research on this. I'm not that excited though. There is a ton of private equity in the market now. It won't last forever. They are doing a lot of crazy deals.

[AdamWho]

I have always seen private equity as a throwback to the robber barons of the 1800s. Power will be consolidated in few hands with less and less shareholder input; but it wasn't like they were really listening to shareholders anyway.

[coloradoatheist]

Going to a private equity firm has been a result of Sarbanes Oaxley and only more will go that route unless Sarbanes gets reduced or nullified.


Mike

[AdamWho]

Going to a private equity firm has been a result of Sarbanes Oaxley and only more will go that route unless Sarbanes gets reduced or nullified.

Agreed, about SOX being the cause. Have you ever read SOX, it is only about a page but the regulations are 1000s of pages. Corporations have demonstrated that they cannot be trusted but I think that the regulations can be stream-lined.

[Mr. B]

They buy these companies for one reason only: to fix them (they hope), and then, at some later date, sell them back to the public for much more than they had paid.

[inmeitrust]

Can one invest in a PEF? Not publically, of course, but find a way to throw a few thousand in.

[Jimmy Higgins]

Going to a private equity firm has been a result of Sarbanes Oaxley and only more will go that route unless Sarbanes gets reduced or nullified.


MikeYou mean the law created to keep companies from lying to stockholders is the reason why the big fish will only buy privately now, so they can rape a company all they want?

These companies aren't tiny miniscule ones. They are becoming large important players. Companies being bought for over $30 billion!

Can one invest in a PEF? Not publically, of course, but find a way to throw a few thousand in.
Those people would probably laugh at you. These are very powerful and very rich people in these things.

They buy these companies for one reason only: to fix them (they hope), and then, at some later date, sell them back to the public for much more than they had paid.
Or cash out the well funded pension or medical plan and sell. Chrysler will be very interesting on that point.

[coloradoatheist]

You mean the law created to keep companies from lying to stockholders is the reason why the big fish will only buy privately now, so they can rape a company all they want?

These companies aren't tiny miniscule ones. They are becoming large important players. Companies being bought for over $30 billion!


Those people would probably laugh at you. These are very powerful and very rich people in these things.


Or cash out the well funded pension or medical plan and sell. Chrysler will be very interesting on that point.


And companies are finding it's too costly to stay listed and sometimes too much risk for their reward so they turn to these private equity to drive shareholder value.

According to wikipedia you have to have a net worth of $1million and $200K to invest in the funds before they will let you enter.

Mike

[Marz Blak]

Can one invest in a PEF? Not publically, of course, but find a way to throw a few thousand in.

Blackstone is getting ready to do an IPO, so that would be a way in. Probably non-voting stock, I'd guess.

[Jimmy Higgins]

And companies are finding it's too costly to stay listed and sometimes too much risk for their reward so they turn to these private equity to drive shareholder value. Really? How does Microsoft and Intel do it then? How can it be too costly to not lie to the stockholders?!

[Loren Pechtel]

Really? How does Microsoft and Intel do it then? How can it be too costly to not lie to the stockholders?!

It's not that it's too costly not to lie. It's that it's too costly to prove you're not lying.

[Jimmy Higgins]

It's not that it's too costly not to lie. It's that it's too costly to prove you're not lying.
Wait, so how do companies manage to deal with it then if it is so costly? Last time I checked, I didn't see companies leaping from the NYSE or NASDAQ like the mythical lemmings that Disney threw off the cliff.

[AdamWho]

SOX is expensive but companies had it coming and to think that it was passed by a republican congress under a republican president. SOX will be scaled back to make it easier to comply with; this is a fact.

[Xoxarle]

My employer's parent company was taken over by a private equity consortium last year, in what was one of the biggest deals of its kind prior to the Chrysler buyout.

After lying low for a year, the new owners are now on a mission to cut costs. They brought in a new CEO, gave him a $100 million contract, and ordered him to cut 10% from operating costs, roughly $150 million. To achieve this, approx. 10,000 employees (from around the globe) have been or will be fired. The reason they waited a year to get busy is that they agreed not to tamper with the severance formula for the first year of ownership. The new deal they're offering is miserly.

It's too early to judge whether they are going to break the back of my company with the restructuring, but it is a potential risk. Morale is very low and there has been an exodus of co-workers, both voluntary and involuntary.

This is either capitalism at its most greedy, ruthless and heartless, or the inexorable marketplace drive for efficiency, according to your political leanings. I see both forces at work here. Our company could use some restructuring, but it also had a track record of growth and profitability long before the new consortium took over. We were by no means ailing.

Our parent company was vunerable because of an ill-advised takeover bid which prompted a shareholder revolt. Our ignominious CEO resigned in disgrace, but not before they rigged their own rules to award him 2 years of unearned service, to allow him to pad his severance package, which ran to millions of Euros. One rule for the rich, another for the poor ...

[thefugitivesaint]

I'm waiting for the reinstitution of the "company town" and "company script", to be used at the "company store" and carried back to your home, a "company property". Fun times ahead i'm sure.

[Mr. B]

Or cash out the well funded pension or medical plan and sell. Chrysler will be very interesting on that point.It doesn't make any sense to simply cash out an overfunded pension plan and then try to sell the company. They haven't created any value; therefore, they wouldn't make any profit by selling.

[Brotherpug]

It doesn't make any sense to simply cash out an overfunded pension plan and then try to sell the company. They haven't created any value; therefore, they wouldn't make any profit by selling.

There are lots of opportunities to make a fast profit aren't there? You can be sure that they will have thought this through before they bought. What about splitting the company and selling the pieces? They won't have bought a car manufacturing company in order to manufacture cars, that isn't what private equity does.

[Jimmy Higgins]

It doesn't make any sense to simply cash out an overfunded pension plan and then try to sell the company. They haven't created any value; therefore, they wouldn't make any profit by selling.
Well that's what the layoffs are for. Cut that staff down 10 to 15% and you've cut those costs. Sneak away with the pension fund and all is well. In fact, with the cash from the pension fund, they can sell at a loss and still make money.

DON'T TRUST BIG BUSINESS... TRUST BIG BUSINESS OWNERS EVEN LESS!!!

[Mr. B]

Well that's what the layoffs are for. Cut that staff down 10 to 15% and you've cut those costs. Sneak away with the pension fund and all is well. In fact, with the cash from the pension fund, they can sell at a loss and still make money.

DON'T TRUST BIG BUSINESS... TRUST BIG BUSINESS OWNERS EVEN LESS!!!Fine. Thus, you agree with me that it's not just "cash out ... and sell" as you said in post #8. That was my point.

And my bigger point was that those PEF weren't planning on buying up America, as you indicated in the OP in order to concentrate the wealth even further. Rather, they can be looked on as the analog of those who buy "fixer-upper" homes, fix them up, and then sell them for a profit. Those PEF guys look to make the companies they buy more efficient, and then--assuming that they can make them more efficient--sell them at a profit.

We can argue about whether job cuts in themselves are a good or a bad thing. But that's for a different thread--besides which, I'll be out-of-touch for several days.


DON'T TRUST BIG GOVERNMENT... TRUST THE VOTERS EVEN LESS!!!



DON'T TRUST BIG BUSINESS... TRUST BIG BUSINESS OWNERS EVEN LESS!!!By the way, I thought like this when I was 25.

[Mr. B]

There are lots of opportunities to make a fast profit aren't there? You can be sure that they will have thought this through before they bought. What about splitting the company and selling the pieces? They won't have bought a car manufacturing company in order to manufacture cars, that isn't what private equity does.If you'd read my posts in this thread, you'd know that I said nothing different from this.

[Brotherpug]

If you'd read my posts in this thread, you'd know that I said nothing different from this.

Yep. I was supporting you.

[JustBlazed]

I work in the collegiate field.....so don't forget Sallie Mae (http://ftalphaville.ft.com/blog/2007/05/17/4607/the-prospects-for-financial-buy-outs/)in all of this.

Private-equity firm J.C. Flowers & Co. -- which led an investor group that agreed to buy Sallie Mae April 16 -- said at the time it intended to retain Sallie Mae`s management, including Fitzpatrick.

But the firm concluded Fitzpatrick`s resignation would help reduce congressional opposition to the deal, the Journal said.

It would also convince lawmakers there would soon be a 'new' Sallie Mae that would operate more openly and in closer cooperation with Congress than it had in the past, the Post said.

There has been a big fallout in the student loan industry recently, so it's no wonder they have decided to go private to avoid the strict regulations of both SOX and potential changes to the Higher Education Reconciliation Act that is still in progress. Another company I worked for a few years ago called Education Management (http://www.uh.edu/ednews/2006/hc/200603/20060306edmanagement.html) was also bought out by a private equity firm in 2006. I'm looking for more for-profit colleges to go private over the next few years.

Fool.com has a decent article about the whole buyout issue going on right now....

http://www.fool.com/investing/general/2007/05/23/dueling-fools-private-equity-buyouts.aspx

[Mr. B]

Yep. I was supporting you.Maybe I need to clean my reading glasses.

[Jay GW]

opening a pef to people with $50 dollars would defeat their entire purpose