Sunday, June 3, 2007

Kick to Curb, Private Equity Style

I was sprawled out relaxing and reached for Friday's Wall Street Journal. On page C3 was an article on Blackstone Group's soon spewing of Orbitz back into the public markets after less than a year.

It hopes to "raize" up to $750 million, and I suppose they will spin out the remaining portions of Travelport, the parent company, in due time and at maximum reward. After all, they have $4.3 billion to recoup, which means they probably have more like $6 billion they would like to recoup.

But reading on, we find that Orbitz has a "history of operating losses and said it would continue to incur significant sales and marketing expenses."

So here we have Blackstone offloading a company they took over, after a brief period, and without furthering the company's prospects at all. On top of that, according to the Journal, Orbitz will not receive any of the proceeds once tossed back into the public world.

Seeing a problem here? Cause I really see a problem here. And in the same paper we read of the $17.6 billion buyout of Freescale Semiconductor holdings, and how the private equity firms who now control it (including Blackstone) must figure out a way to balance debt payments they loaded on the company with the company's actual business prospects and cash flow.

In reporting the news, it is not necessarily the Wall Street Journal's task to comment on the rightness of any of this. Though we imagine someone should have eyebrows appropriately raised to high heaven.

No comments: