Contact: Renee Asher, 202-255-4251

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.

“We are at a crossroads,” said Stephen Lerner, Director of SEIU’s Private Equity Project, “The economy is sinking faster than the Titanic. The buyout industry can meet just to discuss how to make even more money, or they can do something incredible, and figure out to change their model so that they turn a profit while raising standards for workers, and instituting green policies that protect the environment and consumers from harm.”

The report was released as part of a news conference hosted by Union Network International (UNI), the global union with 15 million members worldwide, and ver.di, the largest union in Germany and one of the largest service workers unions in the world, about the growing fear that buyout firms such as Kohlberg, Kravis & Roberts (KKR) are exporting a worrisome business model of sky-high debt, high fees, exorbitant executive pay, and potentially harmful business practices to Europe.

The report focuses on KKR, one of the largest buyout firms in the United States. KKR portfolio companies employ more than 800,000 workers, a private workforce second only to Wal-Mart’s in size for U.S.-based companies. According to the report, KKR’s portfolio companies have been accused of employment discrimination, have had to pull lead-tainted children’s toys from store shelves, have emitted potentially dangerous chemicals into community environments, and have been cited for workplace safety violations. Highlights include:

• DEBT RISK. Debt lies at the very core of the highly profitable buyout game. KKR has the companies it is going to buy borrow a large portion of the money necessary to finance the purchase, frequently tripling the debt of the companies it buys. The tax code allows those companies to then deduct the interest on that debt off their taxes, frequently reducing their income tax obligation to almost nothing. According to a recent Wall Street Journal report, corporate loans such as those used to finance buyouts, together with other types of debt issued in recent years, collectively “threaten to deepen the financial system’s wounds and create a growing pileup of shaky assets on the books of banks.”[1]
• INDUSTRIAL POLLUTION. While going “green” is the latest fad for many U.S. corporations, KKR portfolio companies have bucked the trend and instead stand accused of industrial pollution and a lack of transparency when it comes to environmental impact.
• DANGEROUS WORKPLACES. KKR portfolio company Toys “R” Us has repeatedly been inspected and cited for safety and health standard violations, and at least one worker reportedly died at a Toys “R” Us facility.
• THE KKR WORKFORCE. KKR portfolio firms have repeatedly faced claims of race and sex discrimination against their own employees.
• CONSUMERS PAY THE PRICE. According to news reports and the Consumer Product Safety Commission Web site, nearly 400,000 products intended for sale exclusively at Toys “R” Us and Babies “R” Us have been recalled in the two and a half years since the KKR-led private equity buyout—more than five times as many as were recalled in the two and a half years prior to the buyout. Products sold at KKR portfolio company stores have been recalled due to safety concerns; another product was improperly and illegally marketed, with potentially dangerous consequences; and a KKR portfolio company has even gone so far as to use a youth-friendly cartoon in a marketing campaign for cigarettes. KKR portfolio companies Toys “R” Us and Dollar General had to pull hundreds of thousands of lead-contaminated children’s products from store shelves in 2007.

The full report can be obtained on http://www.behindthebuyouts.org

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[1] Rappaport, Liz, Carrick Mollenkamp and Karen Richardson, “New Hitches in Markets May Widen Credit Woes,” The Wall Street Journal, February 11, 2008, p. A1.