One World Market, baby / The Private Global Equity Order

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Record profits for merger bank

Postby Gouda » Wed Dec 13, 2006 8:56 am

When one sees "record profits" one must dig. Goldman Sachs springs to mind. (See IHT article posted below.)

For as Balzac wrote, “Behind every great fortune there is a great crime.”
Where is this crime heading?

Record Wall Street profits are indeed rolling in for the ultra-secretive globe-strangling (increasingly tight with Asia) Goldman Sachs, which just so happens to specialize in investment banking, ie. underwriting and advising/enabling mergers and acquisitions; and credit markets, where most of their profits are coming from now. GS provides a dual service in advancing a global, private market order: assisting in mergers & acquisitions while aiding and abetting the privatization of the world inside a $27 trillion credit market.

Now, just how do they do it? For starts, GS is one of the top operators here, and this elite society runs the government - hell, de facto they ARE the government.

Thus, more important to note than the profits these pigs are swilling in (set out in the IHT article below), is the long-term planning and the trends implied in the continuing sell-off of the USA they aide and the massive conflicts of interest (to put it nicely, as in: they have privatized the government onto themselves) inherent in Goldman-US Gov positions, with Hank Paulson now residing as honorary treasury secretary, Stephen Friedman fresh off a 3-year stint on Bush's National Economic Council, Robert Zoellick (in on Trade and State), and Josh Bolton as a Bush policy adviser (now his friggin' Chief of Staff) -- public service posts long since privatized in a tradition of Goldman-connected bankers and lawyers, like JF Dulles & R. Rubin (Clinton Administration) for example.

And GS works all sides of this New Market Order:

The Economist notes in admiring tone: "Indeed it has become harder to distinguish between who is a Goldman client and who is a Goldman competitor....In terms of its investment banking, Goldman now finds itself on so many sides of a deal simultaneously that the mind boggles."

http://www.economist.com/opinion/displa ... id=6850300

More on here's how they do it:
The most cited example is its role in the recently completed merger of the New York Stock Exchange and Archipelago, where it represented both sides while having an ownership stake in one, an ex-chief operating officer on the other, and an underlying business (trading) which had customers whose interests in competitive markets potentially diverged from Goldman's own interest in consolidation. In America this is considered banking nirvana—fees from all sides and clients who, mostly, do not recoil.


So here's the latest good news for Goldman, bad news for us:

Visions of bonus heaven in Goldman Sachs profit
http://www.iht.com/articles/2006/12/13/ ... oldman.php

Money is not supposed to grow on trees. Unless you happen to work at Goldman Sachs.

The investment bank reported earnings Tuesday that left jaws agape on Wall Street. Quarterly profits soared 93 percent. The bank earned nearly as much per share in 2006 as it had in the last two years combined, both of which were also record years. Immediately after the results were released, they were labeled the best ever by an American investment bank.

(...)

Investment banking earnings are often proxies for the health of the American and global economy [that is, the economy working for the top 1% of the population - Gouda]. And conditions have been ripe for Goldman and its competitors to mint money.

Stock markets have been on a tear for months, while credit markets — far bigger than the equity markets — have continued to be robust. Credit derivatives continue to grow at a geometric pace, with $27 trillion outstanding. Opportunities abound to invest in companies, trade securities or advise clients in markets around the world, including China, Russia and the Middle East.

Private equity firms continue to buy increasingly large companies — witness the Blackstone Group's $36 billion acquisition of Equity Office Properties Trust, the nation's largest office-building owner and manager, a deal Goldman advised on. And hedge funds, which account for 40 to 80 percent of trading in certain markets, represent significant profit-making potential for Wall Street — and, of course, for Wall Street's persistent leader.

(...)

Even David Viniar, Goldman Sach's cautious chief financial officer, sounded vaguely optimistic.

"Our economists' view is that we will continue to have good economic growth, somewhat slower in the U.S., somewhat better in Europe and very good in Asia," Viniar said. And "our business tends to be tied to economic growth more than anything else."

(...)

Like many universal and investment banks, Goldman Sachs has transformed its business to capitalize on sea changes in the capital markets, particularly new opportunities in far-flung markets and a shift from issuing and trading plain-vanilla stocks and bonds to building and trading complex derivative products. That shift is apparent in the makeup of Goldman's revenue.

(...)

And yet Goldman's size seems to insulate it from downturns in some of its businesses. For example, the firm has aggressively developed internal hedge funds for wealthy investors, which generate high fees for Goldman.



Big profits now, but GS did not coin the phrase "long-term greedy" for nothing.

On a final note, from The Economist article cited above:

"But it is also possible that Goldman's growth is a bit of Oz, a magical name obscuring something far more ordinary behind the curtain."

***

On edit: added Balzac quote; minor edits for clarity
Last edited by Gouda on Wed Jan 03, 2007 9:03 am, edited 2 times in total.
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Postby Gouda » Wed Dec 13, 2006 9:10 am

Now those are the guys alex jones and lou dobbs ought to go after.
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Chicago Board of Trade & Chicago Mercantile Exchange (CM

Postby Gouda » Thu Dec 14, 2006 7:10 am

I'll be darned, another proposed market merger. Keep 'em coming. I'll have to check which firm or firms are midwifing this one.

***

A Monopoly on Futures? - Corporations Control Your Dinner
http://www.counterpunch.com/eschmeyer12132006.html

By DEBRA ESCHMEYER

Most everyone has been told to not play with his or her food, yet somehow agribusiness is playing Monopoly with the nation's food supply.

When pouring your next glass of milk, consider who decided what the cow ate and who controls the distribution of profits. One would think the farmer and consumer take the lead roles in managing the supply of safe and healthy food. The farmer should control his or her business while mainly battling unpredictable weather --- expecting the price they receive for a quality product to be set by a fair and honest marketplace.

However, in today's market, the lack of competition is wielding just as much force as Mother Nature as witnessed by the recent proposed acquisition of the Chicago Board of Trade by the Chicago Mercantile Exchange (CME) to become the CME Group Inc. --- combining the two largest U.S. futures exchanges.

If you think this and similar mergers do not affect your freedom of choice and the quality of food you eat, think again. Food is not simply a commodity to produce at a larger and larger scale, squeezing the family farmer out along with the value of safe and healthy food.

The CME is already the world's largest commodity broker determining futures and cash prices for products such as cheese, butter, live cattle, timber, and fertilizer as they set the benchmark prices for farm country. Within seconds the coarse yelling on the trade floor is translated around the world, affecting farm gate prices and grocery bills of billions of people.

If this merger goes through, the newly formed CME Group will enjoy unprecedented power over global food markets to the detriment of producers and consumers and the glee of large agribusiness and traders --- lining their own pockets with money generated by destroying family farmers and the consumer value that exists in having diversity in the market.

The new CME Group could still end up with the Go to Jail card, as the U.S. Department of Justice must decide whether this merger violates federal anti-trust laws. The CME does not have a clean slate either. Last July six U.S. Senators including Clinton, Specter, and Feingold sent a letter calling on the Government Accountability Office to investigate whether cheese trading on the CME is susceptible to price manipulation.

The study was requested to fully evaluate the CME in light of the upcoming farm bill. The Commodity Futures Trading Commission (CFTC) is also currently investigating the nation's largest dairy cooperative, Dairy Farmers of America, for alleged racketeering and insider trading on the CME.

Family farmers already know from previous paychecks that this is not a good forecast. Because the CME is a privately owned corporation, it does not have to follow normal transparency and accountability rules. The CME is subject to nominal oversight by the CFTC over the trading of futures, but there is no external oversight for cash trading.

With market consolidation and little to no oversight, competition and economic fairplay are almost defunct in the U.S. food system. Consumers will pay more for fewer choices; farmers will get paid less --- don't pass go, and don't collect $200 --- that will go to the commodity trader living down on Park Place.

Lack of competition is not new to modern agriculture. The largest producer and processor of hogs in the U.S., Smithfield Foods, Inc., recently announced plans to purchase Premium Standard Farms, the second largest hog producer. On top of owning 20% of the nation's hogs, Smithfield would then envelope the ContiGroup, the largest cattle feeding entity in the world, and they control 40% interest in Premium Standard Farms. Pork or corporate profit for dinner?

In 2002 the late Senator Wellstone joined with Senators Daschle, Harkin, Feingold and Grassley to reinstate some degree of competition into agriculture and to reign in the excessive control of a few giants in the livestock sector.

Unfortunately, the measures to benefit farmers and consumers that were won in the Senate were negotiated away in the conference with the House. Let's hope following the 2006 election that Congress will listen to the public and restore democratic fairness to the markets that are critical to our nation's economy and diet.

The CME Group merger is yet another win for corporate agribusiness players and a loss for consumers and farmers in the game of food system Monopoly.

DEBRA ESCHMEYER is the project director of the National Family Farm Coalition, a non-profit that provides a voice for grassroots groups on farm, food, trade and rural economic issues to ensure fair prices for family farmers, safe and healthy food, and vibrant, environmentally sound rural communities here and around the world.
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"Risk capital of the world"

Postby Gouda » Thu Dec 14, 2006 7:35 am

This merger is about much more than beans and butter. It will create a disneyland market for insane derivatives and corporate risk (from pissed-off people tired of getting screwed.)

You will note in the article below that the total of $283.2 trillion is trotted out as the notional value of these markets, with a 40% increase since 2004. The Long War of Terror is off to a darn good start. 283 trillion dollars. Um. Yeah, population reduction ought to solve the problems of poverty and environmental degradation.

***

2 Exchanges in Chicago Will Merge

NYT Link

CHICAGO, Oct. 17 — The Chicago Mercantile Exchange and the Chicago Board of Trade, longtime fierce competitors, said Tuesday that they would merge in an $8 billion deal creating the largest market for financial derivatives contracts in the world.

The transaction would be the latest in a wave of mergers among the leading financial exchanges, as they transform themselves from member-owned clubs to for-profit companies competing in markets that have become increasingly global and electronic.

The New York Stock Exchange, the Nasdaq Stock Market and smaller exchanges have announced mergers, and the New York exchange’s recent pursuit of Euronext, operator of four European stock markets, is driven in large part by Euronext’s derivatives exchange in London.

A combination of the two Chicago markets, which were founded in the 19th century to trade agricultural futures, would trumpet the spectacular rise of derivatives — financial contracts whose value is tied to or derived from currencies, interest rates, commodities or other things of value.

Derivatives have made risk more manageable for many businesses, including oil companies seeking to insure themselves against storms and banks trying to protect themselves against home mortgage defaults. Yet they have also fueled trading blow-ups, as in the near-collapse in 1998 of the hedge fund Long-Term Capital Management that shook the financial markets.

The business of trading such financial contracts has generated huge fortunes that have led many exchanges to begin looking for merger partners. They seek to create greater efficiency and more liquid markets where buyers and sellers more easily find what they want for the right price, much as on eBay.

By combining, the Chicago exchanges, to be named the CME Group, will have average daily trading volume of close to nine million contracts a day, representing $4.2 trillion in notional value, or the amount of the underlying assets, not the value of the contracts themselves. By a comparison of sorts, some 1.8 billion shares, or $87.2 billion, are traded on average on the New York Stock Exchange, the world’s biggest stock market, every day, although those shares, unlike derivatives, represent direct ownership stakes.

“That makes us the risk capital of the world,” said Terrence A. Duffy, the mercantile exchange’s chairman.


The combination of the two exchanges also signals the growing importance of Chicago as a center of global finance. The board of trade pioneered the concept of a futures contract — the delivery of a specific commodity by a certain date — in the 1860’s, originally for grains like corn and wheat. The mercantile exchange led the push into electronic trading in the early 1990’s.

Since then, these Chicago markets have been pressing further into the ever-growing world of trading derivatives contracts.

Derivatives can refer to a futures contract that is tied to the price of a commodity, like soybeans, and it can refer to arcane financial products not traded on any exchange, like credit default swaps, which can be negotiated between two hedge funds.

Often, the bet is not central to the underlying asset’s role; a bet on the coin toss in a football game rather than the outcome of the game itself would be a derivative bet, for example. Or a contract to hedge the weather risks affecting crop prices, rather than the future prices of those crops, would also be considered a derivative.

Driven by companies’ increasing desire to hedge risks, the derivatives markets have been growing rapidly. Since 2004, the notional value of interest rate, equity and credit derivatives has risen 44 percent, to $283.2 trillion, according to the International Swaps and Derivatives Association.

“The notional amounts are eye-popping,” said Janet Tavakoli, president of Tavakoli Structured Finance in Chicago.

The two exchanges, situated a few blocks from each other in Chicago’s downtown Loop, have storied histories. The board of trade once financed the formation of three regiments and an artillery battery for the union army during the Civil War, and the exchange’s first building was torched in the Chicago Fire of 1871. The mercantile exchange began as the Chicago Butter and Egg Board, later branching out to frozen pork-belly futures and live-cattle futures contracts.

While a half-century older, the board of trade was slower to move to electronic trading and to issue public stock, causing it to lose ground to the mercantile exchange. The move to electronic trading, led by the Chicago Merc, has made the board of trade’s clubby floor-trading world less relevant.

“The C.B.O.T. had to be dragged into the 21st century kicking and screaming,” Ms. Tavakoli said.

Tuesday’s announcement took some in the financial world here by surprise because the two exchanges, despite their intense rivalry, had discussed combining off and on for more than three decades. The ice began to thaw between them after they struck an agreement in 2003 for both to use the Chicago Merc’s clearinghouse, the board of trade’s chairman, Charles P. Carey, said in an interview.

After his exchange finally went public last year, the newly issued stock provided a currency to consider such a deal. “When we had member organizations,” Mr. Carey said, “the hurdles were insurmountable.”

Last December, over dinner at Gene & Georgetti’s, a popular steakhouse here, Mr. Duffy and Mr. Carey began to discuss a deal seriously. The talks accelerated over the last eight weeks, Mr. Duffy said.

The combination is expected to save $125 million annually in the second year after the deal closes, mostly through cuts in administrative and technology areas, the companies said. The exchanges will combine their trading operations into one trading floor at the board of trade.

But the mercantile exchange clearly prevailed over its rival. Mr. Duffy will become chairman of the combined organization, with Mr. Carey, vice chairman. Craig S. Donohue, chief executive of the mercantile exchange, will head the CME Group. The mercantile exchange will have 20 of the 29 board seats.

The deal faces regulatory scrutiny and a stiff breakup fee of $240 million if either exchange walks away. Regulators are expected to examine whether the combined entity can leverage its share of the futures and derivatives market into pricing power.

The merger “will create a mammoth enterprise with extraordinary pricing power,” said Meyer Frucher, the chairman and chief executive of the Philadelphia Stock Exchange. “Ironically, it may create more opportunities for others.”

Mr. Duffy and Mr. Donohue said that with an increased focus on electronic trading, the merged exchanges will make markets more transparent and more liquid for investors.

Mr. Donohue said the CME Group would compete more aggressively to build the exchanges’ derivatives market in Europe and Asia. Some traders said it would face tough sledding against Euronext’s London-based derivatives business and the Deutsche Börse’s Eurex derivatives market.

Jay Feuerstein, who heads Xenon Capital Management in Chicago, a hedge fund that focuses on trading futures contracts, said: “It will be tough for the mercantile exchange to take on the European exchanges and beat them. If they decide to offer some of the products that the Chicago exchanges offer, they have some built-in competitive advantages.”

Mr. Feuerstein added, “I am going to trade where there is the deepest liquidity, the cheapest transaction costs and the least credit risk.”

Still, while the deal could increase the CME Group’s reach overseas, the combination could stifle plans by Euronext and the New York Stock Exchange to increase its derivatives business in the United States. Euronext agreed to merge with the Big Board this summer, explaining in part that the move could create revenue opportunities related to derivative operations, some of which included plans to grow in the United States.

The combination of the two exchanges “makes them into a very, very big competitor indeed," said Lynton Jones, a founder of Bourse Consult in London. “Euronext has been trying to get into U.S. markets without much success. They thought with the clout of the N.Y.S.E. behind them, they might do something. But I don’t see what that could be now.”
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Postby Gouda » Fri Dec 15, 2006 5:10 am

Investment banks post record 2006 profit
http://hosted.ap.org/dynamic/stories/E/ ... TE=DEFAULT

Surging stock and bond markets, coupled with an unprecedented level of takeover activity, has turned the big investment houses into corporate cash machines.


So where is all this leading? How does all this relate to a worthless dollar, the US economy defaulting, all those hedges and derivatives, and the all-but-conceded reality (you've now heard it from none other than Maurice Strong) that China shall take over as global economic hegemon? I don't know, but I think we can be reasonably sure that the "long-term greedy" folks are gaming all this in and positioning themselves and probably using the short-term greedy folks to their advantage. And/Or they realize they are on a sunken ship and are basically groveling with China for a seat at the next bacchanalia. Or, even more likely, as in true Goldman Sachs style - they are hedging their bets, playing all sides.
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Postby Gouda » Mon Dec 18, 2006 6:02 am

Bilking 300 million americans is just not satiating enough. There's got to be more more more elsewhere...

Citigroup expands presence in Asia
http://edition.cnn.com/2006/BUSINESS/12 ... index.html

HONG KONG, China (Reuters) -- Citigroup, the world's largest bank by market value, plans to expand its staff serving small- to medium-enterprises (SME) in Asia by more than 20 percent next year to bolster its position in a lucrative but increasingly competitive market.


***

Atomic renaissance; One result of the recent Fed/Goldman Sachs - China summit:

Westinghouse wins China nuclear deal
http://edition.cnn.com/2006/BUSINESS/12 ... index.html

The deal, estimated in the past at some $8 billion, should warm relations between the world's top two energy consumers, who have clashed lately over a range of issues from the yuan currency to the Chinese bid for U.S. independent oil firm Unocal.

It will also reaffirm China -- now a laggard in the nuclear sector -- at the forefront of a global trend towards increased use of atomic power, touted by many nations as the cleanest, cheapest solution to the world's strained energy industry.
(...)

and get this:

Westinghouse, based in Pittsburgh but now owned by Japan's Toshiba Corp.
(...)

Given Toshiba's presence, the deal may have also been eased by a thaw in ties with Japan after Shinzo Abe took over as Prime Minister
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Postby Gouda » Mon Dec 18, 2006 7:30 am

More good news for Wall Street and the new merging world marketorder, as squeezed out by its representatives posing as US Gov officials at the recently concluded "Dialogue" in China:

China allows Nasdaq, NYSE to set up shop
http://www.businessweek.com/ap/financia ... 1D3KG0.htm

By the way, NYSE chief, John Thain, was a former Goldman Sachs Chief Operating Officer. Quite a group they sent over there to represent 'american interests.'

Reminder, the NYSE also looking to merge with the major stock markets in Japan. See post # 1. in this thread.

And from the article in question here:


Thain has targeted Asia as the next stop in expanding the exchange, after it closes its $13.7 billion acquisition of Paris-based Euronext NV. Shareholders from both exchange operators will vote on the deal next week.

"NYSE Group is very pleased that both countries have agreed that NYSE Group can proceed with opening a business office in China," Thain said in a statement. "We are also encouraged by the constructive and in-depth discussions on overarching and long-term strategic economic issues by China's Vice Premier Wu Yi and U.S. Treasury Secretary Henry N. Paulson.
"
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Postby Gouda » Fri Dec 22, 2006 1:39 pm

Meanwhile, NASDAQ is having a bitch of time reeling in the London Stock Exchange. Attempt # 3 or 4?

LSE rejects Nasdaq approach
Dec. 19, 2006
http://www.msnbc.msn.com/id/16277497/

The US exchange has framed its offer as "final" and says it will not raise it unless there is a competing bid or the LSE board agrees to a deal. However, Nasdaq is understood to be warning shareholders privately that even if the board agrees to talks, it believes its existing offer already represents a full price.

Let the haggling over the old dame continue as the stakes get higher and the testosterone-fueled capital machismo revs up.
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Postby Gouda » Fri Dec 22, 2006 1:54 pm

Private equity also buying up our brave, independent and failed 4th Estate. Will the NYT, Clear Channel Communications & Tribune follow Knight-Ridder and Pulitzer into the shadows of private corporatism? CNN Money illuminates, in typical capitalist male press hack style:

Selling out: Media's 'private' affair
Expect more big media companies to sell out to investment firms in the coming months. Who's most likely to get taken over?
http://money.cnn.com/2006/11/01/comment ... /index.htm

And now it's starting to look like the next big thing in media may be going private...

Everybody's doing it. And it's not going to end any time soon, especially since companies like Blackstone, Texas Pacific and Kohlberg Kravis Roberts are still sitting on a ton of cash...

But rather than look to buy a small division of a company, M&A experts say that private equity firms are increasingly interested in gobbling up corporations as a whole...


All the Times that's fit to sell
The New York Times Co. has lots of history, but its future isn't promising. Now might be time to succumb to the publishing industry's urge to merge.
http://money.cnn.com/2006/06/21/comment ... /index.htm
NEW YORK (CNNMoney.com) - The Gray Lady needs to get hitched soon, or else she might wind up an old maid.

(...)

But it's becoming increasingly clear that as the publishing business becomes more challenging over the next few years, only a handful of traditional publishers are likely to survive.

Some day, hopefully sooner rather than later for New York Times investors, the controlling shareholders will figure out that it would be better off swallowing family pride and selling out.
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Postby Gouda » Fri Dec 22, 2006 2:19 pm

Fortune/CNN Money team up to propagandize Private Equity. Ah, the graces of going private.

Why is it bad for all of us? Many, many reasons. Here's one hint from the article below:

"Being private, AZ doesn't get much media attention, and of course it doesn't release financial data."

***

Private equity, private lives
The private equity boom is breathtaking. It's not just making investors rich - the wave of deals is changing the mindset of corporate managers everywhere. Fortune reports.
http://money.cnn.com/magazines/fortune/ ... 2006112713
By Geoffrey Colvin and Ram Charan
November 27 2006: 1:07 PM EST


(Fortune Magazine) -- If you want to get to the bottom of today's historic boom in private equity, just follow Tom von Krannichfeldt around.

You've probably never heard of him or the company he leads, AZ Electronic Materials. Carlyle Group, one of the major private-equity firms, bought AZ from Swiss chemical company Clariant a couple of years ago for $415 million and brought von Krannichfeldt out of retirement to run it; he'd spent his career in big public chemical companies.

Being private, AZ doesn't get much media attention, and of course it doesn't release financial data. But industry experts say it seems to be doing extremely well. More important, the way von Krannichfeldt and his team manage AZ from offices around the world - and the way other CEOs run their newly private outfits - holds the real key to how private equity is reshaping business.

(...)

With investors pouring in money and firms joining forces in club deals, only a handful of giant companies are now out of reach of a private-equity buyout. Wall Streeters speculate that other elephants like Texas Instruments (Charts), Dell (Charts), and even Home Depot (Charts) (market capitalization: $77 billion) could be targets.

(...)

Inside private equity

Yet there is another side to this story. The little-discussed heart of the matter: There are management strategies and techniques that enable PE-owned firms to produce stunning results that others can't match. These successful practices have long seemed shrouded by the "private" in private equity. But they needn't be.

Look inside the companies owned by major private-equity firms, talk to the executives who run them, and you'll find a distinctive way of managing that's sharply different from what goes on in most publicly traded companies or most private companies under conventional ownership. Investigation shows why privately held firms - at least if they're owned by one of the major buyout shops - have important advantages over competitors, and why they're regrading the playing field in several industries. Many of the lessons apply to virtually any organization.

The differences begin at the most fundamental level, with new objectives. Private-equity firms want to buy companies for their portfolio, fix them, grow them and sell them in three to five years. The eventual buyer could be another company in the portfolio company's industry, another private-equity firm or the public, through an IPO. The holding period is occasionally less than a year or as long as ten years. But always the goal from day one is to sell the company at a profit.

Facing a goal like that changes a manager's mindset - usually in positive ways. No longer seeing a corporate future that stretches indefinitely into the distance, executives realize that they gain nothing by resisting change: With the exit looming, driving change is their only hope.

"Everybody in the company knows you're on a sprint to do well," says von Krannichfeldt. "It's not this mindset of working for a company that's been there for 100 years and will continue for another 100 years. I find this much more intense than a public company."

Pay is a whole different concept in PE-owned companies. Don't come to play unless you're prepared to put significant skin in the game. While public companies talk a lot about aligning executive pay with performance, they typically award stock options and restricted stock on top of already substantial pay packages, giving executives lots to gain but little to lose.

And in big companies those options reflect the fortunes of the overall corporation, not the specific business a manager is running. By contrast, private-equity firms make the game much more serious. Not only is a far larger share of executive pay tied to the performance of an executive's business, but top managers may also be required to put a major chunk of their own money into the deal.

At Dunkin' Brands (home of Dunkin' Donuts), which is co-owned by private-equity firms Bain Capital, Carlyle, and Thomas H. Lee Partners, CEO Jon Luther says, "I insisted that all officers invest personally. Management has a substantial amount of their personal money in this. It makes a huge difference in the 40 officers of the company when they show up for work" they have an ownership mentality rather than a corporate mentality." Luther says the resulting difference in behavior is clear: "There's now a very different discipline in how you spend money," he explains. "If it doesn't grow the business, why would you do it?"

Another effect: People just try harder. At Genpact, an outsourcing company that had been part of General Electric (Charts) and is now owned by General Atlantic, Oak Hill Capital Partners, and GE, CEO Pramod Bhasin sees the difference every day: "We are owners, so you fight harder for targets, fight harder to see where else you can go, stretch yourself more" - even more, he says, than at GE, where he spent 25 years.

Freedom to pay

Private-equity firms don't always bring in star outside managers to run the companies they buy. In fact, they much prefer to buy a company with strong management in place, as Luther was at Dunkin' and Bhasin was at Genpact. "The strong preference is to use the talent in the company," says General Atlantic chairman Steven Denning. "You want to back a superb management team and liberate them."

But if PE owners decide that they need to bring in an outsider, they hold a valuable advantage over public companies: No one will know how much they've paid. Public companies have to report executive pay in SEC filings. Private companies don't.

In this era of outrage at grossly overpaid executives, any public company that paid, say, a $20 million signing bonus or offered a package with a potential nine-figure payout would be pilloried by governance activists and the press. But the reality is that some executives are worth that kind of money, and when private-equity firms offer it - as they do - no one knows.

As a result, they can raid companies that are legendary executive-training academies, using mammoth pay packages to lure away their most valuable assets in today's economy: their best managers. Exhibit A is General Electric superstar David Calhoun, who quit to head newly private VNU for a package that could be worth more than $100 million. (A person close to VNU says Calhoun "put a substantial part of his own net worth" into the company as part of the deal.)

Another GE star, Paul Bossidy, recently left the company to join Cerberus, a major private-equity firm. Procter & Gamble chief A.G. Lafley says, "We've lost a half-dozen people" to private equity. Home Depot has also lost a couple.

The trend has changed the high-stakes game of executive recruiting. "Top candidates are no longer waiting around to be recruited to a public company," explains über-headhunter Gerard Roche of Heidrick & Struggles. "Instead they're jumping to a private-equity firm and watching for the right opportunity to become a CEO. It wasn't like this ten years ago."

Fewer restraints

Freedom to pay is just one example of an advantage that many PE veterans consider critical: general freedom from the pressures of the stock market, media and Wall Street analysts. Remember, these companies have strong incentives to act quickly - but acting quickly often produces volatile quarterly earnings, which Wall Street doesn't like.

Making a big new investment or taking a write-off for a plant closing may be the best thing for the business, but many public companies hesitate because such actions could cause the stock to tank. PE-owned firms don't have to worry about it. "In private equity, you don't need to go from quarter to quarter," says von Krannichfeldt. "You can take write-offs, you can make investments that aren't accretive in year one or year two. It's a very different dynamic."

One often hears that freedom from public markets carries another boon for privately held companies - no more compliance with Sarbanes-Oxley or the many other regulations on public firms.

But PE executives say that supposed advantage isn't such a big deal. After all, the companies may be reentering the public markets in just a few years. "It's not about accounting compliance," says Luther. "We treat ourselves like we're public."

What makes a huge difference is the release of managerial time from trying to placate and massage the public markets. Talking to shareholders, analysts and the media may be important jobs for a public-company CEO, but they're massive distractions from the company's operations. In practice, a public-company CEO is lucky if he spends 60 percent of his time actually running the place. In a PE-owned firm those distractions disappear, and the CEO is free to spend close to 100 percent of his time focused on the business.

Increased managerial attention comes to many PE-owned companies in another way as well. Several of these companies were initially parts of much larger outfits where they were not central to the mission. The parent firm focused top-management time and corporate resources elsewhere, which not only was bad for the stepchildren financially but also demoralized the managers.

"I used to joke that I had to fly to London to beg for attention," says CEO Luther, recalling when Dunkin' was part of giant Allied Domecq, which Pernod Ricard later bought. "Now it's just a 20-minute ride downtown" to Bain Capital's office in Boston. Genpact's Pramod Bhasin adds, "We weren't a strategic business for GE. Our whole intention was to be able to offer our services to the broad market."

(...)

But the boards of PE-owned companies are fundamentally different from the public boards that are the focus of governance activists. They're typically smaller and consist only of representatives of the PE owners plus industry experts whose explicit job is to help management create and execute strategy; many directors fulfill both roles. "The board is far more involved in assisting the company," says General Atlantic's Denning.

Besides furnishing heavy-hitting directors, large PE firms also bring a world of connections to the companies they own. "Our three partners are able to connect us with people we otherwise couldn't meet," says Luther of Dunkin'. "For example, the Carlyle folks introduced us to one of their investors in Taiwan, and we soon had an agreement for 100 Dunkin' Donuts stores there."

Pramod Bhasin says Genpact has received similar benefits from its new owners: "Their access to markets, to people, to the right headhunters, the right lawyers - that's a huge help to companies that are newly independent, because without it, we'd have to swim for it ourselves."

Private vs. public

Combine all those factors and here's what private-equity firms have figured out how to do: Attract and keep the world's best managers, focus them extraordinarily well, provide strong incentives, free them from distractions, give them all the help they can use and let them do what they can do. No wonder these companies tend to be outstanding performers

(...)

For now, private-equity firms probably have many years of big opportunities ahead of them. Capital will continue to be abundant. "The No. 1 reason" private equity is on such a tear, says Carlyle Group's Allan Holt, "is the availability of capital. It opens up a universe of possibilities."


and to close:
Continued abuses could attract federal regulation; the Justice Department is already investigating possible collusion in bidding for companies. This industry is filled with some of the world's smartest people; now it needs leadership to start self-policing to make such intrusions unnecessary.


Yes, right! - Gouda
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Postby Gouda » Fri Dec 22, 2006 2:24 pm

deleted duplicate post. - Gouda
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Postby Gouda » Fri Dec 22, 2006 2:48 pm

I just can't stop. Maybe I need a break to digest all this, how it goes together, what it means, what's coming next...and then start to dig into the covert entanglements behind these overt moves.

A big year for buyouts
The smart money and smart people behind the private-equity boom.
http://money.cnn.com/magazines/fortune/ ... /index.htm

And then there's the flood of human capital into the world of private equity. Former Treasury Secretary Paul O'Neill, former SEC head Arthur Levitt, Jack Welch, Mickey Drexler, Jacques Nasser, Lou Gerstner and my old boss, former Time Inc. editor-in-chief Norm Pearlstine, are all in the swim.

(...)

It got me wondering where all this was headed. Seems like buyout firms are creating a private-company parallel universe - one that is beholden to an altogether separate body of law, and conceivably a distinct code of conduct.
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Postby Gouda » Wed Jan 10, 2007 10:45 am

Some more on the Private Equity trend, led by the goodfella's at Carlyle, Bain Capital, Texas Pacific Group, Blackstone and others. (Yet, as noted earlier in this thread, investment banks and hedge funds are also getting into private equity, as private equity groups diversify into investment banking and hedge funds.)

A) The pressure to go from semi-accountable public to occult private is a no brainer for big greedy - and the private equity group gets to tightly control management and direction of the privatized company - kinda like what they do for whole countries when administrations and parties are privatized:

Private equity firms luring CEOs with huge pay offers
http://www.iht.com/articles/2007/01/08/business/pay.php

Robert Nardelli's unceremonious departure from Home Depot may spell the end of the era of supersized pay packages for chief executives of public companies, but a new refuge for lavish compensation and private jets is emerging elsewhere.

Flush with hundreds of billions of dollars, private equity firms are beginning to offer compensation on a previously unimaginable scale to the chief executives who run the once-public companies that the firms have bought out. A crucial difference seems to lie in the ownership positions that the executives can secure at the businesses owned by private firms — which can turn into particularly bountiful riches when these businesses are sold or go public again.

(...)

While executives like Nardelli are being deposed, other public company chieftains are deciding that they no long want to be judged by their shareholders, as well as regulators, politicians and the media, and are going to work for businesses owned by private equity.

(...)

"You regularly hear public company CEOs talk about how they can make two or three times the money in what they feel is half the effort because they don't have the same degree of scrutiny," Sonnenfeld said.

(...)

"They will spend the money to get the right person," he said, because, he explained, they are "not under pressure to reform the same way big public companies are."

(...)

It is probably not surprising that some of the best known examples of imperial chief executives of the recent past — Jack Welch of General Electric, Louis Gerstner of IBM and Lawrence Bossidy of Honeywell International — have all since ventured into private equity after their retirement as advisors.

(...)

"He will wind up making a lot more money with a lot less grief in the private equity world," Leon Cooperman, one of Home Depot's largest shareholders, said on CNBC about an hour after news of Nardelli's departure. "I think it will be a long time before Bob Nardelli gets involved in a public company again."


B) Seems to me, reading between the lines of the following, that as private equity and the credit boom piles more and more debt onto companies, 3 things are hoped to happen: one, companies carrying more debt means more interest income for the lenders; two, the companies that are destined for bankruptcy are the ones not quite fitting the new market order anyway, so good riddance; and three, should a wave of corporate bankruptcies happen, more mergers and consolidations would be the result. More restructuring, more little people getting the bill.

These private equity groups, and the greater financial elite, probably have a special vision for the future of The Corporation, and so the time is ripe to tailor them now under occult private tutelage. They'll try to get The Nine global-controlling Corps one way or another.

Buyouts mean higher debt, more pressure (Las Vegas Review-Journal)
http://www.hotel-online.com/Neo/News/20 ... 33286.html
(...)

Private-equity investors -- which make money by buying control of companies in the hopes of cashing out through a stock offering or outright sale -- have been emboldened by low interest rates and generous credit markets. They are pushing companies further out on a limb in the process. In some cases, this gives their newly private companies little breathing room to execute growth plans and stay afloat were economic and market conditions to turn sour.

In many cases, companies will need to devote at least half their yearly cash flow to meeting interest payments on their debt.


(...)

As buyouts become more prevalent, shareholders are demanding higher prices for their shares before they will allow their companies to be taken private. To meet those demands, private-equity investors are borrowing more to finance their acquisitions, and banks and credit markets that are flush with cash are more than willing to lend money to them.

(...)

At some point, many firms that were bought out may seek to borrow more money to refinance their debt or cover their expenses, and there is no guarantee the credit markets will be as hospitable as they are now.

(...)

Private-equity buyers also have the option of selling assets to raise cash to pay down debt, or to trim costs and operating expenses to improve profit and cash flow.


Which means, bad for the worker, bad for the consumer, bad for the environment, bad for just about everything but their bottom line and offshore accounts.
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India

Postby Gouda » Wed Jan 10, 2007 11:03 am

And back to Market Unifications around the world. Well, in this case, it is not an outright merger or buyout; rather, an insemination. NYSE and Goldman, again.
Yesterday it was China. Today, in India, 2nd fastest growing world economy and home to 1 billion economy-overheating people, we see this:

NYSE, Goldman Invest in India's National Stock Market
http://www.bloomberg.com/apps/news?pid= ... refer=home

NYSE Group will pay $115 million for 5 percent of the National exchange, India's largest by value of shares traded. The investment values the closely held NSE at $2.3 billion. Goldman, General Atlantic and Softbank Asian Infrastructure Fund will also purchase 5 percent stakes, the Mumbai-based exchange said in a statement that didn't disclose a price.

The New York Stock Exchange, the world's biggest, is buying into a market where the combined value of stocks rose 50 percent in the past two years to $820 billion. The Indian government lifted a ban on foreign ownership three weeks ago at a time when mergers among global stock exchanges are increasing.

"Goldman and NYSE are clearly investing in India's long- term growth story,''
said Navneet Munot, who helps manage the equivalent of $4 billion of Indian stocks and bonds at Birla Sunlife Asset Management Co. in Mumbai. "For NSE, a tie-up with the NYSE would mean technology, visibility and access to new financial products.''

India's government on Dec. 22 allowed international investors to buy as much as a combined 49 percent in any of the nation's 22 stock exchanges. The investment limit for a single investor was set at 5 percent by the Securities and Exchange Board of India.

National Stock Exchange

The National Stock Exchange, home to companies such as Reliance Industries Ltd. and Infosys Technologies Ltd., handled a daily average of 72.3 billion rupees ($1.6 billion) in the past six months. That's more than twice the value of its closest competitor, the Bombay Stock Exchange.

The 14-year-old National exchange also trades futures on equities and owns stakes in India's National Commodity Derivatives Exchange and the Multi-Commodity Exchange.

India's gross domestic product grew 9.2 percent in the three months through September, second only to China among the world's major economies. India may overtake China in growth this year, Credit Suisse Group economists estimated in December.

The 20 percent stake will be sold by companies including ICICI Bank Ltd., IFCI Ltd., IL&FS Trust Company Ltd., Punjab National Bank Ltd. and General Insurance Corp. of India Ltd., the National exchange said in its statement.

Growth Prospects

"In markets like India as well as China you need to make bets and have a longer term horizon,'' NYSE Group Chief Financial Officer Nelson Chai said in a conference call from Delhi. "We do believe there are long-term growth prospects here, and we're closer to participating in that growth.''

NYSE Chief Executive Officer John Thain said on Dec. 20 the New York exchange was looking to invest in Japan, China or India after shareholders approved the NYSE's $14.6 billion purchase of Euronext NV. Thain joined the NYSE in 2004 from Goldman.

Nasdaq Stock Market Inc. this week urged shareholders of the London Stock Exchange Plc to accept its takeover bid that values the company at 2.7 billion pounds ($5.2 billion).


India's government today said it will set rules within six weeks opening up the nation's $600 billion commodities markets to international investors, clearing the way for the world's third- largest gold exchange to sell shares.

``We hope to announce norms related to exchange ownership soon,'' Yashwant Bhave, secretary at the department of Consumer Affairs, said today in Mumbai. ``Norms on foreign investors' participation in the market will also be announced.''

Most Profitable

Goldman, the most profitable brokerage in Wall Street history, already owns a 7 percent stake in India's National Commodity & Derivatives Exchange Ltd. Fidelity International Ltd., a unit of the world's largest mutual fund company, owns 9 percent in the Multi Commodity Exchange of India Ltd.

Monthly inflows of direct investment doubled to $731 million in the first half of the current fiscal year, which ends March 31, from the same period a year earlier, according to government data.

Vodafone Group Plc Chief Executive Officer Arun Sarin said he's close to making an offer for India's Hutchison Essar Ltd. to gain a 16 percent share of the world's fastest-growing mobile- phone market.
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Postby Gouda » Wed Jan 10, 2007 11:28 am

OK, time for an echo:

"Yodel ayyyy...

Yodel ayyyyyyyyyyy...

ayyyyyyy


ayyyy


ayy"
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