States Risk Repeat of Wall Street Bailout with Private Equity Infrastructure Deals
A major increase in responsible infrastructure investment is critical to job creation and a U.S. economic recovery
WASHINGTON, DC – Increasing investment in infrastructure projects is critical to America’s economic recovery, but states that partner with private equity firms on deals risk a repeat of the Wall Street bailout, according to a draft of a policy discussion paper authored by one of the nation’s largest labor unions.
As states and the federal government seek ways to create jobs, generate revenue, and fix crumbling roads and bridges, momentum is building to address America’s infrastructure crisis. The policy discussion paper by SEIU, the nation’s second largest union of public sector employees, outlines the risks to states of doing deals with under-regulated private equity buyout firms whose risky financial strategies could put taxpayer dollars, and valuable state assets and services at risk. The report is online at behindthebuyouts.org
Private equity buyout deals typically involve large amounts of debt, increasing the risk of default if economic conditions fail to generate the revenue needed to make debt payments. If private equity-owned infrastructure projects default, taxpayers will be forced to pick up the tab, bailing out the financiers. In addition, most private equity deals are structured to generate short-term profits for the firms and their investors, a formula often at odds with taxpayers’ interest in steady, long-term state revenues and quality services.
Press Release . . .
Read the Report Here
America For Sale?
This week, SEIU began running radio and print advertisements in six states as part of an ongoing public awareness campaign highlighting the national security concerns raised by the growing links between foreign governments and private equity buyout firms. The ads – running in Virginia, Wisconsin, Alabama, Ohio, Michigan and Indiana – point out how foreign government-controlled investment funds, known as “sovereign wealth funds” (SWFs), are partnering with private equity funds to make huge investments in American companies that are responsible for important aspects of our national defense, energy, and homeland security. Because private equity firms are exempt from many of the public disclosure requirements that apply to public corporations, it is difficult to ascertain the size of the SWF’s holding or the manner in which decisions are made about the companies they own together, some of which are critical to national security.
Press release...
View the print ad (PDF)
Listen to the radio ad (MP3)
SEIU Statement on Announcement of KKR Going Public
"Buyer beware. Public offerings by buyout firms to date recommend caution to investors looking at KKR. At KKR, it’s a sure bet that Henry Kravis and the other principals will continue to find a way to take care of themselves. The question is, what will be the impact on other KKR stakeholders, including portfolio company employees, workers whose pension funds are exposed to KKR, and others? As the process moves forward, SEIU will look very closely at this transaction."
Press release...
AMERICA FOR SALE?
Foreign Governments' Links to Secretive Buyout Firms Raise Potential National Security Concerns, Says New Public Awareness Campaign
Ads calling for increased federal oversight to run in six states
Full Release...
Backgrounder: Carlyle Group/Abu Dhabi Portfolio Companies
Latest News
July 17, 2008
Global Actions Calling for Reform Put KKR, Buyout Industry on Notice
Thousands Protest Tax Loopholes That Benefit Wealthy Buyout CEOs
Washington, DC — Against a backdrop of rising income inequality and economic anxiety, thousands of workers and community leaders around the world rallied at corporate offices of global buyout firm Kohlberg Kravis Roberts & Co. (KKR) today calling for an end to tax loopholes for wealthy buyout CEOs. Workers also held actions focused on companies owned by KKR, state pension funds, and Sen. John McCain, who support maintain buyout industry tax loopholes.
More than 100 actions in 25 countries on six continents put the buyout industry on notice it will face a coordinated, growing global effort to end special tax breaks and business practices undermining the economic well-being of workers. For a list of actions, photos, and videos, visit www.july17action.org
SEIU and community leaders nationwide are engaged in a campaign to hold powerful corporate buyout firms—now effectively 5 of the top 10 largest U.S. employers—accountable to workers and communities. After Wal-Mart, the second largest U.S. employer is KKR, which owns a stake in companies that employ more than 800,000 workers. The July 17 Global Day of Action, focused on KKR, is the largest-ever coordinated action focused on a single multinational corporation.
“At a time when so many working people are hurting, special tax loopholes for buyout billionaires are immoral and indefensible,” said Stephen Lerner, Director of SEIU’s Behind the Buyouts Campaign. “Americans are hungry for changes to the economy and the tax system that reward the hard work of regular people—not the wealth of greedy buyout CEOs.”
Members of one of the nation’s largest unions, SEIU (Service Employees International Union), along with community leaders in major cities worldwide, have embarked on a series of initiatives to reform the buyout industry which, when taken together, create an ambitious blueprint to take back the economy for workers. Efforts include:
• Efforts in the European Union to pass far-reaching reforms that would lead to greater transparency and protect the economy from risky debt loaded deals. Reforms being considered include limitations on the interest companies could deduct from their taxes, requirements that buyout firms disclose any conflicts of interest, and measures to discourage buyout funds from completely depleting a company’s cash reserves1.
• Ballot initiatives in multiple states calling for public pension funds to consider, before investing, whether buyout funds behave responsibly or engage in behavior that hurts workers and communities. The ballot initiative was introduced today in Washington State, with other states to follow.2
• Legislation in the U.S. Senate to close tax loopholes that allow buyout CEOs to pay a lower tax rate on much of their income than many school teachers, bus drivers, and firefighters.
• Legislation in New York City to close a tax loophole that allows buyout firms to avoid paying millions in city taxes.3
Global Corporate Responsibility Principles for the Buyout Industry
The bad economic news that continues to hammer communities has already jumpstarted a national conversation about the inadequacy of current banking and financial regulation and the need for updated regulations.4 The remarkable same-day decision5 by the Office of Thrift Supervision in April to sign off on the $7 billion capital injection led by buyout giant Texas
Pacific Group (TPG) into Washington Mutual (WaMu)6 has raised concerns among shareholders and consumers nationally. Already, the deal has been sharply criticized by shareholders,7 and just last month WaMu announced that it would strip its CEO of his board chairmanship8.
A potential loan default and layoffs by Masonite, a door making company owned by KKR that has closed plants and dramatically reduced the size of its workforce since being bought out by KKR for $3.1 billion (Canadian) has also raised questions about the potential ripple effects of debt loaded companies on the overall economy. KKR borrowed 2/3 of the purchase price of the company significantly adding to the company’s debt. The sour economy and the increased debt
led to an announcement last week that Masonite would likely breach two of its loan covenants, possibly leading to default.9
In response to growing concern over the role that the buyout industry plays in the global economy, delegations of activists in cities all over the world have asked KKR to adopt corporate responsibility principles based on established global corporate social responsibility practices to strengthen our economy and improve the lives of millions of families across the globe.
1 - http://www.europesworld.org/EWSettings/Article/tabid/78/Id/4428baca-3fd9-47cc-9634-1e75abef187e/Default.aspx
2 - WSIB Ballot Initiative (Attached)
3 - http://www.thedeal.com/dealscape/2008/06/new_york_city_enters_private_equity_tax_debate.php
4 - Olivier Sarkozy & Randal Quarles Op-Ed in the WSJ, 6/26/08
5 - Source 2a is the OTS approval, dated 4/7/08. Source 2b is the application, which is also dated 4/7/08.
6 - WaMu and Friends", Forbes, 4/8/08
7 - SNL article, 4/15/08
8 - Reuters article, 6/2/08
9 - http://www.bloomberg.com/apps/news?pid=20601082&sid=aW9RsKsuPTw0
July 10, 2008
Private Equity Buyout Industry Gets Its Facts Wrong
With one week until July 17 global actions focused on KKR, industry trying to change the subject
WASHINGTON, D.C. – On July 17, in cities from New York to Tokyo to Paris, SEIU members will be joined by MoveOn.org and Avaaz, and activists from 25 countries to take aim at the special perks and tax loopholes that buyout firms like KKR (Kohlberg, Kravis, Roberts & Co.) depend on to make billions. Activists will hold demonstrations worldwide at KKR offices and KKR portfolio companies such as Toys “R” Us, and delegations of community leaders and workers will press their case with pension funds, legislators, and top KKR executives. For more information visit www.july17action.org
As anticipation grows for the actions of July 17, the buyout industry is doing what it always does: trying to change the subject. In a recent New York Sun opinion piece, the industry gets its facts wrong and illustrates why it needs to change its business practices. The piece was authored by a fellow at Hudson Institute, a right-wing group where Marie-Josée Kravis, the wife of Henry Kravis, KKR’s CEO and co-founder, sits on the board.
The SEIU pension statistics cited in the New York Sun opinion piece are wrong. As of January 1, 2008, SEIU’s national pension fund for rank and file members was 96% funded. In 2006, it was funded at 92%. The accurate funding level is calculated by using the funding measure required by the Pension Protection Act of 2006.
“One of the problems with big employers in America like KKR is they don’t like providing pensions anymore,” said John Adler, Private Equity Director of SEIU’s Capital Stewardship Program. “Instead of criticizing unions that ensure a good retirement for workers, big employers like KKR should provide more workers with pensions.”
To Read the full press release, click here.
Exploitation of Residents at Wasserstein and Lazard-linked Senior Care Facilities Exposed
NEW YORK, New York, / July 7/PRNewsire/--
Lazard CEO Bruce Wasserstein comes under fire as healthcare workers’ union informs residents, families that Atria senior care facilities value private equity gain over safety measures
See the new video by Robert Greenwald's Brave New Films that exposes how Wasserstein and Lazard are gouging seniors:
Members of the Service Employees International Union (SEIU) have also launched an online campaign to bring attention to ongoing safety concerns at leading assisted living provider Atria Senior Living, as well as the controversial business practices of its parent, Lazard Real Estate Partners, a private equity fund affiliated with Lazard Ltd. While costs have increased for Atria residents and some Lazard executives celebrate record compensation, problems with resident care persist. Beginning today, Web ads running on some of the world’s largest news sites will highlight Atria’s gouging of its elderly residents. View the ads online: web ad #1 and web ad #2. Read more.
WEDNESDAY, JULY 3
Major Union Questions PA Pension Fund, Calls On PSERS to Protect Workers, Retirees
HARRISBURG, Pennsylvania, / July 3/PRNewsire/--
Eileen Connelly, Executive Director of the Service Employees International Union’s Pennsylvania State Council, today called on the Pennsylvania School Employees’ Retirement System (PSERS) to protect retiree pension dollars and workers’ rights by steering clear of an investment management firm affiliated with Lazard, Ltd., a troubled firm whose affiliates have lost money for PSERS annuitants and whose past is replete with union-busting and scandals.
On June 23, PSERS’ Board of Trustees announced that it would entrust a Lazard affiliate with $350 million of PSERS participants’ retirement assets. The Board did so despite the poor performance of its Lazard-managed investments. PSERS’s sole investment with a Lazard-affiliated entity—as a investor in a real estate fund called “Lazard-Freres Strategic Realty Investors Fund II”—has consistently underperformed and failed to meet performance benchmarks. More
WEDNESDAY, JUNE 4
SEIU Launches Global Campaign to Close Tax Loopholes for the Ultra-Wealthy
SAN JUAN, Puerto Rico, June 4 /PRNewswire/ --
As the global economy worsens, the Service Employees International Union (SEIU) joined by union leaders from Europe, India, Africa, Asia, Australia and South America launched a global campaign directed at world leaders and legislators protesting the special treatment and tax loopholes for private equity firms like KKR, whose risky debt-laden deals have helped throw the economy into free fall.
SEIU announced that on July 17 outreach to more than 10 million people worldwide will include demonstrations in 100 cities and 25 countries and they will gather petitions directed to legislators that say, "Support the fight to take back the economy and pledge to close tax loopholes that feed the greed of the buyout industry." MoveOn.Org is also joining the campaign. Activists have already committed to staging actions in 100 cities in North America, Europe, Asia, and South America, including Tokyo, Paris, New York City, Washington, D.C., and Mexico City.
Comedian Lewis Black, of the Famed "Daily Show" on television, kicked off the campaign with the launch of a short video that takes on Henry Kravis and the special treatment and tax breaks that have helped to make him one of the richest people in the world while the income gap continues to grow. The video can be viewed at www.july17action.org.
To read the full press release, click here.To read the coverage, click here.
$2.54 Billion Deal Warrants Close Scrutiny, Heightened Standards for Review, Given “Critical Services” Involved
Carlyle’s acquisition of Booz-Allen’s government business, which held $1.2 billion in Department of Defense contracts last year, raises the question if foreign governments could potentially gain access to sensitive national security information through their stakes in private equity firms. The stakes are becoming alarmingly high, as the Carlyle Group announced its intention to invest billions in developing U.S. infrastructure such as toll roads, water and sewer systems, bridges, tunnels, highways and airports.
In a report released last month, “Sovereign Wealth Funds and Private Equity: Increased Access, Decreased Transparency,” the Service Employees International Union outlined issues that arise when opaque foreign funds team up with secretive buyout firms. SEIU is sharing its concerns about the proposed Booz Allen buyout with Senate and House committees on armed services.
To read the full press release, click here.
WEDNESDAY, APRIL 23rd
New SEIU Report on Sovereign Wealth Funds and Private Equity Calls for More Transparency of SWF Investment in U.S. Buyout Funds
“Sovereign Wealth Funds And Private Equity: Increased Access, Decreased Transparency,” a new report released today by the 1.9 million member Service Employees International Union (SEIU) to coincide with tomorrow’s (April 24) U.S. Senate Committee on Banking, Housing and Urban Affairs Hearing on sovereign investments, calls on Congress to equip itself and the public with the tools necessary to make informed decisions about sovereign wealth fund (SWF) investment in United States private equity firms.
Current U.S. rules exempting private equity from many disclosure requirements, coupled with gaps in laws concerning foreign ownership, have inadvertently left a door open for virtually unregulated foreign ownership of American assets, which could have a broad effect, according to the SEIU report.
“Families are working hard to make their house payments and to send their kids to college. When a private equity firm and its foreign government partners swoop in, the public should know who is making the decisions and what immediate and long-term impact these deals could have on their lives,” said Stephen Lerner, director of SEIU’s Private Equity Project.Find out more about sovereign wealth funds and private equity.
To read the full press release, click here.
To dowload the full report, click here.
The War On Greed
Tuesday, February 26 New Report: KKR Portfolio Companies Could Put Consumers, Workers and the Environment at Risk
MUNICH, Germany – A new report released by the 1.9 million-member Service Employees International Union (SEIU) during the buyout industry’s conference in Munich—where until a last minute change participants were set to party to a 1920s/Titanic theme—raises serious questions about the long-term effects of the buyout industry on our nation’s economic health, the environment, the safety of the products we use every day, and employees’ basic civil rights.
Read more »
Download the report »
Tuesday, February 12
Protesters Blast Lazard's Billionaire Boss for $100+ Million Payday at Lazard New York City Headquarters 
I live in a basement apartment in Queens and couldn't afford health care when I was working at Atria. I brought home $300 a week after 10 years at Atria, and this Wasserstein guy is making over $100 million? If he invested just a little of that in Atria facilities, they could increase staffing for residents, offer affordable healthcare and a living wage to hardworking employees," said Radika Munna, former employee of Atria Lynbrook on Long Island.
With one protester dressed as a "fat cat CEO", protesters handed out fliers and fake money to the crowd. Participants also played "Billionaire CEO Bruce Wasserstein or Underpaid Atria Worker?," highlighting the glaring differences between Lazard CEO Wasserstein and the average Atria worker in New York City. |
Protesters then attempted to deliver bags of fake money to Wasserstein's 30-Rockefeller Center offices.
Read Press Release »
See photos from the protest »
The announcement on January 30 by Lazard Ltd. that Bruce Wasserstein, CEO of Lazard Ltd. and a principal of the Lazard group of companies, has signed a new contract worth more than $100 million and will be paid more than $41 million for 2007 is leaving low-wage workers in shock at Lazard-affiliated Atria Senior Living.
"How can they give this guy so much money?" »
What industry insiders are saying:
Portfolio.com 2/5/08 (“Are You Overpaid? Your Board Thinks So.”)
BreakingViews.com 1/30/08 ("Bid'himself up Bruce")
BloggingStocks.com 1/30/08 ("Lazard: Bruce Almighty")
Striking workers TUESDAY, JANUARY 29
Striking Aramark workers to march on Private Equity annual industry meeting in New York
More than a dozen striking workers from Aramark, a private equity owned company that serves and prepares food in New York’s corporate dining rooms, will march on the conference to draw a stark comparison between the workers –some of whom are expected to raise their families on as little as $400 a week—and the excessive bonus, wages, and fees paid to private equity managers and their consultants.
Get the story »FRIDAY, JANUARY 25
SEIU statement on the World Economic Forum Study on the economic impact of private equity
"The buyout business remains at its core a vehicle for the spectacular accumulation of wealth by the few without regard for the impact on others."
— Stephen Lerner, Director of SEIU's Private Equity Project
Could the Carlyle Group buyout of Booz Allen government consulting arm be a threat to national security? Carlyle Group sewer sludge business may increase health risks to communities
People who live near the operations of a Carlyle Group sewer sludge business could be at an increased health risk if Carlyle does not provide information to those communities about toxins and other hazards associated with its business.
Recent news features
Carlyle Exposed: A new web site about the Carlyle Group
Jump to CarlyleExposed.org » | Carlyle Group embrace of Abu Dhabi undermining respect for human rights »
SEIU President Andy Stern calls on states and pension funds to ensure investments support respect for human rights
Press release »
Australian and US unions team up to hold the Carlyle Group accountable for treatment of workers
Go to the article » | Australian Financial Review coverage »
SEIU REPORT
Behind the Buyouts: Inside the World of Private Equity
Workers, communities, and the nation as a whole should share in the economic opportunities being created by the booming private equity buyout industry, according to a new report released by SEIU.
DOWNLOAD THE REPORT (PDF) » | WHAT EXPERTS ARE SAYING (pdf) »
PRIVATE EQUITY PULSE
What financial leaders and experts are saying about the Private Equity Economy
"We are totally conflicted — get used to it."
-- Morgan Stanley Vice Chairman of Investment Banking Robert Kindler [2]
“Their success has put pressure on many public companies to adopt their strategies and tactics -- whether it's being ruthless in reducing costs or taking on more leverage or giving big pay packages to top managers.”
-- Washington Post Columnist Steven Pearlstein [8]