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Private
Equity
Why only now Mr. Pessina?
We read with interest that an
'energetic' Stefano Pessina now 'puts spring in step at Boots'.
The question we would like to ask is why is it only after buying out the
public shareholders of Boots that the man in charge of the business is able to
manage the company the way he thinks is right. In the article he
even admits that Alliance Boots is still being run 'as if it were a UK-quoted
company'. We just cannot believe that it is beyond the capability of any
skilled top manager worth his salt to manage a listed company properly.
We suspect that MBO's and LBO's are mainly a way to divert the profits of a
company to a changed set of owners. If the incumbent management is a
beneficiary of a buy-out we urge shareholders - or their agents (the
institutional fund managers) to be extra vigilant and refuse to ratify a
sell-out. It will always be much cheaper to install new management if the
existing management is unable or unwilling to put in the effort to make the
business perform well.
11-Jun-08
Private Equity
Bashing Circus?
The quality of argument about the benefits of Private Equity
investment has reached a dangerously low level when a commentator in
a leading British Daily Newspaper can call the discussions a
'private equity bashing circus'.
We would like to point out, however, that two crucial points hardly
got mentioned so far.
One concerns the distributive effects the growing presence of
private equity. A narrow group of managers in the private equity
industry reaps the benefits of ever-growing buy-outs on the back on
a compensation structure that has originally been designed for
managers of (much smaller) venture capital funds. No one seems to
know how much the numbers involved are but the combination of
(over?) generous management fees of around 2 % p.a. and a profit
sharing of 20 % above (unspecified?) hurdle rates let the
compensation available to managers or public companies pale in
comparison.
Growing concentration of company ownership in a small number of
opaque management companies that are nothing but conglomerate
holding companies is also contrary to the aim of a wider spread of
company ownership that should be a focus in a democratic society.
11-Mar-07
Conflicts of
Interest in MBO's
A recent survey
found that 78 % agreed that company managements have lost sight of their
obligations to their shareholders.
We think it is incompatible with the
obligations of a Chief Executive of a Listed Company to be involved with
parties that are attempting to buy the business he is running in a fiduciary
capacity for the benefit of the shareholders. While not directly comparable
to Insider Trading, this practice - widely accepted today - does not pass
the smell test.
Only after a proper cooling off period of
between one and two years should a
Senior Management Member be allowed to be part of any scheme to bid for his
previous employer.
13-April-05
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