Friday, December 11, 2009

Where the Stimulus has the Biggest Bang

A world full of distressed corporate sellers is utopia for the huge global private equity companies. In the dying days of the unpopular Howard government the tax rules were changed. Foreigners no longer have to pay capital gains tax in Australia unless the bulk of their dealing is in property.
"At the time, the rationale for the change was that most of our major trading partners have the same rule in place. It was generally agreed by all international parties that it would be best if corporations and individuals paid tax in their home countries rather than in the country where the profits were made." [1]

But the huge profits made by the Texas Pacific Group didn't go back to the US.

"The cash went to a tax haven in the Cayman Islands and then on to a tax-effective structure in Luxembourg via the use of a Dutch company to take advantage of a tax treaty with the Netherlands."

TPG stands out as one of a small group of winners from the global financial crisis. They're hunting the world for as many assets (public utlitilies (water, forests, electricity, finance etc) to grab up at bargain-basement prices as quickly as they possibly can.

2009 – December 7th. Former Tasmanian Premier, Robin Gray, has a son who is head of the huge global private equity company TPG. TPG is involved in the creation of shell companies using offshore tax havens. This strategy has allowed TPG to avoid paying hundreds of millions of dollars in tax on just one transaction.

2009 – December 4th. TPG and American Airlines to invest $1.1bn in Japan Airlines. “Debt-laden JAL faces bankruptcy unless it undergoes a major restructuring to cut costs and is seeking a government bail-out as well as any capital from American Airlines or Delta (and other SkyTeam members). Japan Airlines is no stranger to hard times having been bailed out by the Japanese government three times since 2001, and currently seeking more state support. The company is struggling with a $15bn debt load and a pension deficit.”

2009 – November 24th. TPG and Carlyle considering a bid for Chinese autoparts maker Asimco (set up by Wall Street veteran Jack Perkowski 15 years ago).

2009 – November 21st. Australian Tax Office launched a legal action to stop Texas Pacific Group taking billions of dollars out of the economy (from the sale of Myer).

2009 – July 16th. Carlyle, Providence Equity Partners and TPG retender for Springer Science and Business Media

2009 – June 8th. TPG and Carlyle bid for Asciano (it has a duopoly on ports in Australia). Credit Suisse and General Electric are other bidders.

2006 – March. Newbridge (part of Texas Pacific private equity firm) acquired the Australian Myer Department Stores.

2009 – January 16th. Carlyle, TPG, KKR are bidding for AIG’s Aircraft-Leasing Unit and also Los Angeles-based International Lease Finance. (A shortage of buyers for a broad range of corporate debt has crippled the leasing companies’ ability to buy planes, leading to an “incipient crisis in the large civil aircraft market”). The world’s buyout firms are looking for ways to put their estimated $400 billion of committed capital to work after the global credit crisis restricted leveraged lending and reduced LBOs by about 70 percent last year. Forced sales by financial companies may provide some of the best opportunities. “You have a situation where there’s a distressed seller and these are the times when private-equity funds get their best returns.”

It was reported that such a debt-financed takeover binge came to a halt with the eruption of the sub-prime securitisation crisis in September 2007. In March 2008 Carlyle Group was, for instance, was reported to have failed to meet margin calls with four banks. What has changed the fortunes of these takeover merchants since that time?

[1] Day of the locusts as private equity rms bend the rules
November 21, 2009. Ian Verrender

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