Wednesday, March 07, 2007

Britain to Put Private Equity in the Hotseat

Even as a collection of private equity firms are circling the United Kingdom’s largest supermarket chain — and perhaps partly because they are circling it — Britain’s Parliament is preparing to conduct an inquiry into the private equity business. At issue: asset-stripping, “short-termism” and complaints that there is a general lack of accountability for private equity funds, which usually buy public companies in debt-financed deals in hopes of selling them or taking them public later at a profit.
The Parliamentary Treasury Select Committee, headed by Labour Party M.P. John McFall, will take up the issue. M.P.s will cross-examine private equity chiefs and will scrutinize the industry’s attempts at self-regulation.
Private equity chiefs are becoming increasingly concerned about how public criticism could affect their bottom lines. At a recent private equity conference in Frankfurt, Stephen Schwarzman, the chairman of buyout behemoth Blackstone Group, said his greatest worry related to the private equity business centered on the groups that are attacking private equity and what they consider to be its harmful effects.
“Those groups of people appear not to recognize any facts that are laid out for job creation, increased sales growth, the idea that pensioners are getting better benefits or, if they’re not getting better benefits, that the pension funds are more stable,” Mr. Schwarzman said.
British labor unions have been especially critical of buyout firms. The possibility of a takeover of the J. Sainsbury grocery chain, which would be Europe’s largest leveraged buyout ever, turned up the volume of complaints.
“With buyout firms embarking on ever bigger deals, critics have moved beyond simply balking at job cuts to calling for an end to the tax breaks that make their leveraged takeovers possible,” Reuters reported Wednesday.
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