Is that the flavorful grease of a succulent goose I see dripping down the face of Stephen A. Schwarzman, the "boldly going where no private equity fund has gone before" head of the Blackstone Group?
He had to eat the whole thing, taking his firm public in a manner both ostentatious and foul, all in a bid, I assume, to accummulate the capital necessary to pursue deals big enough to make his competitors feel a bit inadequate.
Certainly this is not merely about money--personal money--as most private equity firms and hedge funds provide ample reward, and out of the site of the salivating jaws of congressmen and those with inclinations toward envy or conspiracy. (And we all know that type, who insist that every lawyer, politician, teacher, cop, wealthy person, or anyone remotely better off, more productive, or happy is part of a vast conspiratorial force that bends corners to achieve ends that will ultimately lead to... well, goodness knows what).
The problem-and there is one-is that this was a deal that need not be made, resulting in short term gain and the type of close government scrutiny that will inevitably put the kibosh on taking advantage of that new public status. Every now and again moneyed types on the Upper East Coast manage to forget that power in the form of your local Washington Congressman can beat the dickens out of your wad (of cash).
And Friday it came, with Dems lining up to sock it to firms by converting carried interest taxed as capital gains (15%) into income taxed at rates (35%) beneficial not to government coffers necessarily, but to political campaigns.
Despite this, Schwarzman has spent a more than a prudent amount of time doing a happy dance with a bullseye mask on his face, and one can hardly believe that Kohlberg, Kravis, Roberts is going to join in this dance.
Then again, these masked men are smart, and perhaps the dance is a safety dance, and during a peak in the market, they are selling? Perhaps we are all thinking expansion, or bigger deals, when they are thinking the hustle is done and it's time for a rest.
Or do they believe the new status and access to extra cash will let them go after ever larger quarry? Maybe putting a bid on the United States itself? Buying all the U.S. debt in the hands of Chinese and others, taking America private, kicking out the citizens, and selling off the states piece by piece to countries looking for additional real estate. Japan salivates, Monaco drools, Mexico dreams of empire.
Really. What is the point, and was it particularly well thought out? It is hard to determine who will benefit the most from this turn of events: Washington, the firm owners, or the new investors. I tend to doubt anyone benefits.
I am betting having that fat goose in the quiet of your corner of Connecticut, and without consideration of third parties, will prove infinitely more rewarding. I don't at all underestimate the likelihood of Washington reaching down Schwarzman's throat to retrieve a perceived golden egg.
Oh Steven, sixty going on six, fatboy with goose on your face. Look what you have done.
Tuesday, August 21, 2007
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.
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.
Shaking Wendy's
Let's chat about the Wall Street Journal for a moment. Monday's paper (4/30)--under the guise of financial insight--takes a look at Wendy's International, and how activist investors are once again trying to massage the stock upwards. This process is all sinister touch rather than loving care.
The problem with many of these activists, and hedge fund/private equity activists in particular, is that they are not always concerned about the long term viability of the business, but rather, a short term burst in the stock, or a method by which they can take control of the company, manipulate the balance sheet a bit and cash out, leaving the average bloke with not much more than what he had, perhaps a bit more efficient, with the efficiences going to pay off greater debt.
And it pains me to see Wendy's being mishandled in such a manner. Fundamentally it has a good product, and one I have been consuming for years. Never have spicy chicken sandwiches deserved such a precarious future.
The article mentions an investor who in 2005 built up a large enough position to push the company to sell off it's Canadian donut unit. That individual, founder of Pershing Square Capital, walked away with a 70% increase in the stock's price.
And yet here we are again, with people agitating for Wendy's to do something. Too often doing something financial (or something that causes immediate financial readjustments) is valued above doing something that actually creates long term benefit.
This time it's suggested that maybe Nelson Peltz, owner of Triarc, owner of Arby's, might have his hands around Wendy's, feigning a loving embrace.
One might think the Journal, or the commentary they allow in their paper, would be more suspect, or circumspect, about whether selling Wendy's to Arby's is actually good for Wendy's, or whether the immediate run up right now due to buyout speculation might ultimately mean ten years of failure or mediocre returns once sold.
The fact that the stock rose some 70% (according to the article) from April 2005 to late 2006 in the first activist moment, and is now still assumed to be ailing, with the original activist long gone, is rather telling. Nobody seems willing to let management focus on actually running the business.
Granted, management can do both, working on the actual product while seeking efficiences in its structure that reward shareholders. One certainly imagines that they can bite burger and sip shake in the same breath.
The bigger issue here is the reporting, the analysis. The idea of a sale to Triarc would surely--as it has been doing--loft the share price. But a sale to Triarc does not necessarily solve any problems in the fundamental business. Indeed if we are to recommend Triarc, the burger universe would have to have begun in September 2006 so as to remain oblivious to Triarc's mediorce performance in the preceding years.
Triarc can certainly bid for Wendy's and raise the share price, making nice returns for stockholders, but will the company's actual business be any better? Perhaps we should find Bill Ackman at Pershing. Maybe he has some answers, but I doubt it.
Our stock market is peaking, and it might be nice to have a monumental correction, if only to put the breaks on those who like to take companies into their own hands and for their own dark pleasure.
The problem with many of these activists, and hedge fund/private equity activists in particular, is that they are not always concerned about the long term viability of the business, but rather, a short term burst in the stock, or a method by which they can take control of the company, manipulate the balance sheet a bit and cash out, leaving the average bloke with not much more than what he had, perhaps a bit more efficient, with the efficiences going to pay off greater debt.
And it pains me to see Wendy's being mishandled in such a manner. Fundamentally it has a good product, and one I have been consuming for years. Never have spicy chicken sandwiches deserved such a precarious future.
The article mentions an investor who in 2005 built up a large enough position to push the company to sell off it's Canadian donut unit. That individual, founder of Pershing Square Capital, walked away with a 70% increase in the stock's price.
And yet here we are again, with people agitating for Wendy's to do something. Too often doing something financial (or something that causes immediate financial readjustments) is valued above doing something that actually creates long term benefit.
This time it's suggested that maybe Nelson Peltz, owner of Triarc, owner of Arby's, might have his hands around Wendy's, feigning a loving embrace.
One might think the Journal, or the commentary they allow in their paper, would be more suspect, or circumspect, about whether selling Wendy's to Arby's is actually good for Wendy's, or whether the immediate run up right now due to buyout speculation might ultimately mean ten years of failure or mediocre returns once sold.
The fact that the stock rose some 70% (according to the article) from April 2005 to late 2006 in the first activist moment, and is now still assumed to be ailing, with the original activist long gone, is rather telling. Nobody seems willing to let management focus on actually running the business.
Granted, management can do both, working on the actual product while seeking efficiences in its structure that reward shareholders. One certainly imagines that they can bite burger and sip shake in the same breath.
The bigger issue here is the reporting, the analysis. The idea of a sale to Triarc would surely--as it has been doing--loft the share price. But a sale to Triarc does not necessarily solve any problems in the fundamental business. Indeed if we are to recommend Triarc, the burger universe would have to have begun in September 2006 so as to remain oblivious to Triarc's mediorce performance in the preceding years.
Triarc can certainly bid for Wendy's and raise the share price, making nice returns for stockholders, but will the company's actual business be any better? Perhaps we should find Bill Ackman at Pershing. Maybe he has some answers, but I doubt it.
Our stock market is peaking, and it might be nice to have a monumental correction, if only to put the breaks on those who like to take companies into their own hands and for their own dark pleasure.
Monday, April 2, 2007
KKR
I admire a firm like Kohlberg, Kravis, Roberts, but probably not in an entirely practical way. When I look at private equity firms, and to a greater extent, hedge funds, it's like watching Errol Flynn in Robin Hood, one of my favorite films. You know how it goes: a bunch of guys, loyal only to each other, hanging out in the forest making mayhem, stealing the hearts of adoring women and the money of others, eating huge turkey and pig legs staight off the roasting fire. KKR is kind of the financial version of male freedom. They use dollars and debt instead of bows and arrows to acomplish the task. It's a battle, with money and financial ingenuity as the weapons.
Private money firms are the last vestiges of activity (along with Islamic clericdom) that go largely untouched by the process of feminization. And while a good many things need that woman's touch, such soothing hands rather squeeze the world of all its vitality and spirit. The male sense of adventure and conquest gets reduced--especially in the corporate world-- to joining some team in charge of employee moral and other masturbatory fruitlessnesses.
(I recall my boss asking me to join a team in charge of "fun", a role I declined, but which ultimately resulted in some not quite tasty Mexican food brought upstairs from "Prison Chef", the guy who runs the company cafe and who seems inches and a day out of prison).
It's grand to see KKR tearing it up, and for so long, like a beast roaming the financial jungle, consuming as it wills, and daring other carnivores to snatch its meal.
There is, however, a moment where we must take a pause and set the turkey leg down to ask what is going on here in the forest and at Robin's table. While I enjoy seeing private businesses doing their thing well, I do not necessarily enjoy seeing massive companies taken private, then sucked to the bone and spit back out into the public market. I am not entirely keen on financial transactions for the sake of transactions.
When I look at KKR and it's $29 billion dollar bid for First Data revealed today, or its ongoing attempt to rope in Texas energy company TXU, I wonder what the ultimate goal is. Or maybe, what the secondary goal is because ultimately deals are done for money, and I understand that. But after that, is there some vision being applied in these acquistions that will make it all worthwhile for the employees and customers of these huge companies? It's always an eyebrow raiser when such firms begin to cash out of the companies by borrowing funds to pay out huge dividends, basically using the companies as pack horses or whores, loading them up with debt and junk before setting them free back into the markets, all spent and walking funny.
There ought to be a benefit all the way around. The companies should be made more efficient, stronger, healthier, more financially flexible, while also rewarding all investors and stake holders (which I limit to investors and employees, and extend to the community if the company is drawing benefits from that community in some fashion).
If it turns out that the KKR's of the world are merely enriching themselves at the expense of formerly public companies and their employees, it is only a matter of time before various governments around the world begin to pass laws prohibiting the free movement and activity of private money. That would be the true shame. Then all adventure would be gone from the world. No battles to be fought, nothing to be discovered and no fortunes to be had.
Private money firms are the last vestiges of activity (along with Islamic clericdom) that go largely untouched by the process of feminization. And while a good many things need that woman's touch, such soothing hands rather squeeze the world of all its vitality and spirit. The male sense of adventure and conquest gets reduced--especially in the corporate world-- to joining some team in charge of employee moral and other masturbatory fruitlessnesses.
(I recall my boss asking me to join a team in charge of "fun", a role I declined, but which ultimately resulted in some not quite tasty Mexican food brought upstairs from "Prison Chef", the guy who runs the company cafe and who seems inches and a day out of prison).
It's grand to see KKR tearing it up, and for so long, like a beast roaming the financial jungle, consuming as it wills, and daring other carnivores to snatch its meal.
There is, however, a moment where we must take a pause and set the turkey leg down to ask what is going on here in the forest and at Robin's table. While I enjoy seeing private businesses doing their thing well, I do not necessarily enjoy seeing massive companies taken private, then sucked to the bone and spit back out into the public market. I am not entirely keen on financial transactions for the sake of transactions.
When I look at KKR and it's $29 billion dollar bid for First Data revealed today, or its ongoing attempt to rope in Texas energy company TXU, I wonder what the ultimate goal is. Or maybe, what the secondary goal is because ultimately deals are done for money, and I understand that. But after that, is there some vision being applied in these acquistions that will make it all worthwhile for the employees and customers of these huge companies? It's always an eyebrow raiser when such firms begin to cash out of the companies by borrowing funds to pay out huge dividends, basically using the companies as pack horses or whores, loading them up with debt and junk before setting them free back into the markets, all spent and walking funny.
There ought to be a benefit all the way around. The companies should be made more efficient, stronger, healthier, more financially flexible, while also rewarding all investors and stake holders (which I limit to investors and employees, and extend to the community if the company is drawing benefits from that community in some fashion).
If it turns out that the KKR's of the world are merely enriching themselves at the expense of formerly public companies and their employees, it is only a matter of time before various governments around the world begin to pass laws prohibiting the free movement and activity of private money. That would be the true shame. Then all adventure would be gone from the world. No battles to be fought, nothing to be discovered and no fortunes to be had.
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