Archive for July 2006
Private Money: The New Financial Order — Cash Machine: In Today’s Buyouts, Payday For Firms Is Never Far Away — New Owners Extract Stream Of Charges and Dividends, Running Up Company Debt — Burger King’s Menu of Fees
When a trio of private investment firms acquired Burger King Corp. in late 2002, the chain was unprofitable. But immediately, it started paying off for the investors.
At the time of the acquisition, Burger King paid its new owners — Texas Pacific Group, the private-equity arm of Goldman Sachs Group Inc. and Bain Capital — $22.4 million of unspecified “professional fees.” Burger King also started paying the group quarterly management fees for monitoring its business, serving on its board and other services. The total reached $29 million by this year.
In February, after three years of restructuring efforts under the new owners, Burger King announced plans to sell shares in an initial public offering. Three months before the sale, Burger King paid the owners a $367 million dividend. The company justified it in part by saying it had produced cash “in excess” of its needs — and then borrowed to make the rich payment. Burger King also paid the owners a $30 million fee to terminate their management agreement.
According to company filings, the three firms collected a total of $448 million in dividends and fees from Burger King — approximately what they initially invested. All that took place before the May stock sale, which valued their remaining stakes at $1.8 billion — more than triple their original investment.
These are the new rules of the private-equity game, part of a growing wave of private money reshaping global financial markets. Just yesterday, hospital operator HCA Inc. announced it would be taken private by Bain Capital, Kohlberg, Kravis Roberts &Co., Merrill Lynch &Co. and HCA managers and founders for $21.3 billion plus assumed debt. Excluding debt, it would be the second largest buyout on record, after KKR’s $25 billion buyout of RJR Nabisco Inc. in 1989, and the second time HCA has been taken private. Read the rest of this entry »
By Greg Ip and Deborah Solomon
17 July 2006
The Wall Street Journal
(Copyright (c) 2006, Dow Jones & Company, Inc.)
IN ANNOUNCING a big drop in its estimate of this year’s federal budget deficit, the Bush administration was quick to credit itself.
“Tax cuts worked to generate economic growth, and economic growth is now working to raise revenues,” White House budget director Rob Portman said last week during an online discussion with the public.
But this explanation falls short. While tax revenue is growing far faster than the Bush administration forecast in its budget projections in February, the nation’s economy isn’t.
What has changed isn’t the size of the economy, but how the economic pie is divided. The share of national income going to corporations and the wealthiest individuals, already large, has expanded, while the share going to typical wage earners has shrunk. Because corporations and the wealthy generally pay income tax at higher rates than does the typical wage earner, that shift benefits the federal Treasury. Read the rest of this entry »