Sunday, January 31, 2016

Triumph Overpaid Carlyle Group for Vought Aircraft reported:

Triumph reported an $88 million fourth-quarter loss after writing off $229 million of the $1.4 billion it paid Carlyle Group for Boeing supplier Vought Aircraft Industries in 2010.
Triumph wrote off 16.4% of Vought's purchase price.  Besides paying too much for Vought Triumph inherited the company's promise to create 3,000 new jobs and employ 6,000 total in Texas through 2019. 
Governor Rick Perry, intent on pushing public money to corporate friends and supporters, gave Vought $35 million without the company formally applying for funds.  Attorney General Greg Abbott, now Texas Governor, prevented the public from knowing the most basic information about his boss' corporate slush fund.  Yes, neither party is in jail for being an abysmal shepherd of public funds.

Carlyle owned Vought took the $35 million in 2004 and by 2005 knew it wouldn't come close to reaching their Texas job promise.  South Carolina won Vought's Boeing Dreamliner production.  Vought's CEO under Carlyle told Dallas Business Journal in 2007 that the job promise was worthless, yet no one pursued repayment.

By the time Carlyle sold Vought in 2010 it paid back a mere $900,000 to Texas taxpayers.  Triumph paid back $9.2 million since paying too much for Vought.
PEUReport began covering Vought's employment promises and abject failures in 2008

There are numerous posts on this blog that detail aspects of Vought's operations and hollow employment promises.  Yet, they still hold $25 million in public money a mere four years from the end of the agreement.

Saturday, January 30, 2016

Toshiba Could Compound Cultural Dysfunction with PEU Sale

Toshiba Corporation, lured by the siren song of executive rewards, falsified profits from 2009-2014.  WSJ reported;

Three consecutive Toshiba chief executives fueled the accounting irregularities by setting unrealistic profit targets and demanding that subordinates meet them, an independent panel hired by the company said Monday.
Now the company wants to rectify longstanding accounting fraud by partnering with a private equity underwriter (PEU) on its medical imaging business.  Apparently Toshiba executives haven't learned how PEUs pressure affiliates to perform financially such that executives commit bribes or fudge profit numbers.

Toshiba knows its internal failings:  Japan Times reported in July 2015.

It emerged this year that from fiscal 2009 to 2014 the firm manipulated its accounting to produce a ¥152 billion net profit.

Toshiba Corp. will forgo bonuses to all 33 executive officers for the current business year as managers take responsibility for an accounting scandal, company officials said Thursday.

The move is aimed at restoring trust in the company as soon as possible, the officials said.

The performance-linked payment (is) usually paid in July
The falsified profit numbers produced performance payments from July 2010 to July 2014.  Japan once widely embraced the leadership teachings of Dr. W. Edwards Deming, who encouraged management to drive out practices that encouraged the falsification of numbers.  Fear is one cause and greed is another.

He also spoke about constancy of purpose, which is greatly harmed by the buying and selling of companies and PEU profit maximization machinations.  Having made one great sin by driving in fear and greed, Toshiba looks to compound it by partnering with a PEU on Toshiba Medical Systems.

Toshiba need only look at The Carlyle Group's decimation of Johnson & Johnson's Ortho-Clinical Diagnostics Inc.

Ortho-Clinical missed a deadline last year for reporting its third-quarter 2014 earnings and disclosed them late, citing accounting complexities
Carlyle loaded Ortho up with debt.  Bloomberg reported:

Carlyle acquired the unit, which provides medical tests and equipment for disease screening, from J&J with more than 80 percent of the deal financed using credit.
Profits for the third quarter declined in each of the last two years under Carlyle's ownership.

The company’s $1.3 billion of 6.625 percent bonds sunk to 68.1 cents
Leveraged buyouts can kill a company's culture.  I'd love to hear from Ortho-Clinical employees on their culture with The Carlyle Group as their "sponsor."

Toshiba's case of cultural sickness will go from bad to worse with a majority PEU owner.  They can't see it.

Friday, January 22, 2016

Davos Men Push Back Against Angry Voters with Job Threats

Fortune reported:

One of the main themes of this year’s World Economic Forum is how technology could shrink the workforce, cutting as many as 5 million jobs worldwide in the next few years.

Gary Cohn, the chief operating officer of Goldman Sachs, says that many of the companies he works with are looking to “optimize” their workforce. He says that will result in the redistribution of more U.S. employees to lower cost areas, like Bangladesh, India, or Warsaw.
Clearly American jobs will be lost to optimize executive compensation, pure and simple.

Update 1-24-16:  On one estimate, 47% of US jobs are at risk from automation.

Thursday, January 21, 2016

PEU Schwarzman Shows Davos to be Insular Crowd

Blackstone Group co-founder Stephen Schwarzman expressed surprise at American voters finally reacting to the economic raw deal both political parties served up in the new millennium.  His ear comments came at the annual meeting of global tamperers in Davos, Switzerland, known as the World Economic Forum.

Treasury Chief Jack Lew, a product of Wall Street, stood front and center this morning at Davos.  He is but one in a long line of public servants with a storied investment banking career. 

Many returned to Wall Street or joined private equity firms, formerly known as leveraged buyout organizations.  Private equity underwriters (PEU) became ubiquitous during the George W. Bush and Barack Obama Presidencies.

America's Red and Blue political teams sucked up to the greed and leverage boys, giving them fundraising titles like "pioneer" and "super bundler."  In return PEUs got to keep their preferred carried interest tax treatment, something the general public has opposed for nearly a decade.

Private equity mavens started the "debt for dividend" strategy that public company CEOs twisted to "debt for shared buyback," borrowing to reduce the number of shares in public float.  This move manipulates income per share numbers by making it higher.  Companies, public and private, have loaded up on covenant lite cheap debt, facilitated by an extremely low interest rate environment.

Employees know the deal they've gotten from management this past decade.  They've seen co-workers tossed aside and valued benefits cut.  Some had their company bought and sold numerous times.  With each management iteration the gap between executive words and actions often grew to canyon spanning dimensions.  The people at the top got rich while worker pay stagnated.

Voters know the system is rigged when nearly every ex-politicians and public servant is now a senior advisor for a Wall Street or private equity firm.  We know who's deal has gotten better and better the last ten to fifteen years.  It's the PEU crowd, the Wall Streeter, the Davos Man.  It's not us.

Many thought President Obama's campaign rhetoric would begin to turn this tide.  After inauguration his language quickly changed and he steered his boat to the sweet spot in the current and rode it.  Voters are grateful there is anyone speaking to our pain, our needs, to our hearts.  The Schwarzman's of the world don't see us, much less hear or speak to us.

Asking Bloomberg to investigate the cause of voter anger, as if it's a sudden surprise, is laughable.  I started PEU Report in 2007 because I didn't see anyone writing about the seismic shifts in how business is done.  Someone noticed.

Readership varies, but that's not why I write.  A record must be kept.  The Schwarzman's can't be the only ones leaving their take for the world to digest or regurgitate.

Wednesday, January 20, 2016

Davos Opens

The World Economic Forum officially kicked off two days after Oxfam released their report on the impacts of the global economy.

During the period 2010-2015, the total wealth of the world’s poorer half went down from $2.5 trillion to $1.8 trillion, while the total wealth of the world’s 62 richest people went up from $1.2 trillion (not counting undeclared wealth) to $1.8 trillion (also not counting secret wealth). 
Davos featured income inequality in 2015.

“The global inequality crisis is reaching new extremes. The richest 1% now have more wealth than the rest of the world combined. Power and privilege is being used to skew the economic system to increase the gap between the richest and the rest. A global network of tax havens further enables the richest individuals to hide $7.6 trillion.” 

And that's what Davos was engineered to do, serve the captains of industry.  Private equity underwriters are the captains of captains in an industry all their own.

Wednesday, January 13, 2016

Power Africa to Follow Davos

After the greed and leverage boys meet for deal making in Davos, Switzerland January 20-23rd they can fly to Washington, D.C. for the Power Africa Summit which runs January 27-29.

The Powering Africa: Summit is a meeting place to enable dialogue between public and private sector decision-makers across the US and Africa, promoting the investment opportunities in Africa's power sector. Those attending will include Ministers of Energy from Africa, heads of African utilities and regulatory bodies, US-based private equity houses and wealth management establishments.

The most notable of these are Blackstone, KKR, the Abraaj Group and the Carlyle Group, who have invested billions of dollars in pursuit of cornerstone energy projects that will draw directly on the spending power of the consumer.  
January looks like a busy month for global tampering for the PEU boys.

Tuesday, January 12, 2016

Carlyle Monetizes Mountain Water: Thumbs Missoula, Montana PSC

The Carlyle Group took the bold step of selling Missoula's Mountain Water, a division of Carlyle's Park Water holdings.  The sale occurred after a court condemned Mountain Water, giving the City of Missoula the right to buy their local water company for just under $90 million.

Apparently, The Carlyle Group is bigger than local governments or state public utility commissions.  The billionaire boys are used to steering government, not the other way around..

Monday, January 11, 2016

Citizen Hillary Mined PEU Speaking Fees: Davos Nearing

The Clinton's millions in speaking fees have been reported by WaPo and The Intercept. Three private equity firms hired Hillary Clinton to speak since she stepped down as Secretary of State.  Leon Black's Apollo Global Management, David Rubenstein's Carlyle Group and Henry Kravis' KKR each paid Mrs. Clinton hundred of thousands of dollars.

It's worth remembering this fact as the World Economic Forum nears.  The meeting of global tamperes clearly has a bias towards the financial sector. Only months ago the WEF released two reports on Alternative Investments 2020.  Alternative investments include private equity underwriters and hedge funds.

One report is on regulatory reform and the other on the future of alternative investments.

Private equity underwriters rode decades of financial engineering and their preferred tax status to become financial behemoths.  Their spectacular ascent occurred under Red and Blue Presidents.  Bill Clinton privatized government background checks to The Carlyle Group's profitability.  George Bush's two terms in office saw Carlyle grow from $3 billion under assets to over $90 billion.  Carlyle more than doubled again under Obama.  How big might they get under Hillary Clinton's shepherding?

The PEU ground may become fertile under the Fourth Industrial Age, the theme of this year's World Economic Forum:

The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country.
PEUs love disruption.  It's the field in which billionaires are made.  They need politicians to socialize their Third Wave losses as they privatize their Fourth Wave gains.  I believe Hillary is up to the task.

Sunday, January 10, 2016

Davos Masters: Mastering the Fourth Industrial Revolution

The power, greed and leverage class will once again convene in Davos, Switzerland at the 46th World Economic Forum annual meeting.

“There are many challenges in the world today, and I feel that one of the most intense and impactful will be shaping the ‘Fourth Industrial Revolution’ – driven by the speed, the breadth and the complete ‘systems innovation’ of technological change underway. The challenges are as daunting as the opportunities are compelling. We must have a comprehensive and globally shared understanding of how technology is changing our lives and that of future generations, transforming the economic, social, ecological and cultural contexts in which we live.

Central questions that will be asked of the Fourth Industrial Revolution include:

1)  How will it transform industry sectors, including health, mobility, financial services and education? 

2)  How can technology be deployed in ways that contribute to inclusive growth rather than exacerbate unemployment and income inequality? 

3)  How can breakthroughs in science and technology help in solving problems of the global commons from climate change to public health? 

4)  How will emerging technologies transform the global security landscape? 

5)  How can governments build institutions capable of making decisions when the challenges they face are more complex, fast-moving and interconnected than ever before? 

I recognize a few PEU underlying themes.  The answer to unemployment and income equality is technology, which the government must purchase from the private sector.  It's not making America's billionaire class pay a higher tax rate than their secretaries or taxing their investment packaging which now get the treatment of local, safety net hospital..

Governments are responsible for global security and thus must foot the bill for intrusive spying, tracking and monitoring of all citizens.  Nearly every private equity underwriter is in the defense and homeland security space, often monetizing their affiliates by selling to fellow PEUs.

Government has been reduced to the simple task of decision making.  There's no discussion on the central role of government to ensure people are treated fairly.  PPACA, otherwise known as health reform, resulted in the deterioration of health benefits such that many people cannot afford to see their doctor or get prescriptions as they haven't met their absurd annual deductible and don't have the cash to pay for care.  Health reform has turned our nation into one of underinsureds.  Many employers have chosen to drop coverage levels to the point people are insured on paper.  There's no substance to the plan when it comes time for needed care."

Candidate Obama wrote to potential donors in 2008:

"If you're concerned about fairness in our economy, they (Republicans) won't do much to reward work and the workers who create it."
How have you fared under Obama's eight years in office?  My employer provided health insurance turned to junk over the last five years.  Pay has been stagnant, interrupted only by an occasional pittance of a raise 

Ironically last year's World Economic Forum had lots of talk about inequality, which grew by leaps and bounds in America under President Obama.

It's hard to believe this crew will do anything other than further their own nests.  It's been their practice for 46 years.  If they were doing such a great job why would security need to increase tenfold this year?  The Swiss Army will protect the billionaire class with 5,000 troops.

The :BO-PEU portion arose in the 1970's so their contribution to winning the global economy by having workers lose has been a mere thirty to thirty five years.

Enjoy the show of Davos masters adding to their personal pots.  If they have their way we'll be lucky to have one left to piss in.

Saturday, January 9, 2016

Fortress Investment Group's Ghoul-like Returns

32 Advisors website shamelessly reveals the ways politicians and public servants cash in after leaving government.  They profile how the big money boys hire political insiders, who subtly direct them to industries experiencing major disruption.  In this case 32 Advisors highlights Austan Goolsbee's turn at the till.

Through a contract with New York City-based consultancy 32 Advisors, Austan Goolsbee has held conference calls most Fridays since February 2013 with employees of large hedge fund firms Fortress Investment Group, York Capital Management, Perella Weinberg Partners, SkyBridge Capital and others.

Fortress Investment Group is the only publicly traded company in the group.  How has Fortress' stock performed since Goolsbee began advising them?  Fortress (symbol FIG) closed Friday at $4.65 per share.  The size of the loss depends on which Friday Austan started. 

February 1 - Close on 2-4 of $5.53, loss of 88 cents per share or a 16% decline

February 8 - Close on 2-11 of $6.32, loss of $1.67 or a 26% drop

February 15 -Close on 2-18 of $6.15, loss of $1.50 per share or 24% loss

February 22 - Close on 2-25 of $6.39, loss of $1.74 per share or 27% decline
Austan Goolsbee helped Fortress achieve ghoulish returns.

The big money boys are happy to pay retired political ghouls for insider connections, because that's the way work gets done in Washington.  Note that Goolsbee is advising Perella Weinberg, once cited by President Obama as speculators holding up efforts to save Chrysler.  Yet Obama reformed the healthcare landscape for those very same speculators.

Friday, January 1, 2016

CNBC's Annual PEU Review Omits Carlyle Group

 CNBC reported on 2015 stock performance for a number of publicly traded private equity underwriters (PEU).  Reporters used a number of terms besides private equity  to describe the companies, LBO, public deal makers, and hedge fund asset class.  They highlighted the beating most took in their annual stock performance.

I found it interesting the report omitted The Carlyle Group, especially given Carlyle co-founder David Rubenstein is a frequent guest speaker on CNBC.  Carlyle also values its good name.  I offer the following chart on Carlyle's 2015 stock performance.
The reported closed the story with "the hedge fund asset class is losing public favor."  That should help private equity keep its good name.  Blame it on the hedgies.

Update 1-8-16:  CG is down to $13.88 per share, nearly two dollars per share from 12-31.