Protesters Disrupt Private Equity Conference at Waldorf-Astoria

Two Dozen Burst Into Ballroom Before Speech By Carlyle Group Founder David Rubenstein

Protestors Drop Banner Asking: "Why does David Rubenstein pay taxes at a lower rate than an NYPD officer?"

September 19, 2007 – Angered by the trillion-dollar buyout industry’s treatment of workers and inequitable tax breaks corporate takeover giants receive, two dozen protestors from the Working Families Party and the New York chapter of the national community organizing group ACORN burst into the 3rd floor ballroom of the Waldorf-Astoria this afternoon where more than 1,000 analysts and investors were gathered awaiting remarks from Carlyle Group cofounder David Rubenstein.

Chanting, “It’s Not Fair, Pay Your Share”, protestors entered the ballroom while two protest leaders dropped a banner from the balcony above the ballroom that read "Why does David Rubenstein pay taxes at a lower rate than an NYPD officer?" After being hustled out by security the banner remained on view above the crowd - tied to the balcony above the audience.

The action follows the announcement earlier this morning of a new coalition of New York labor and community organizations angered at buyout industry executives for saddling regular New Yorkers with an unfair tax burden while engaging in risky debt-fueled investments that have put New Yorkers’ retirement funds at risk.

Armed with signs depicting a hotel doorman that asked, “Why does Carlyle Group founder David Rubenstein pay taxes at a lower rate than this guy?” and “Why do New York state pensioners see risk while David Rubenstein sees profits?” protestors demanded that the buyout industry and key players like Carlyle’s Rubinstein change their business practices and pay their fair share.

“The Carlyle Group is the poster child for an industry that has made billions by fleecing taxpayers and loading up companies with unsustainable levels of debt,” said Dan Cantor, Executive Director of the Working Families Party. The Carlyle Group is one of the five biggest buyout firms in the nation. Carlyle partner Bruce Rosenblum chairs the buyout industry’s lobbying arm, the Private Equity Council—Washington, D.C.’s most outspoken defender of tax breaks enjoyed by buyout firms and their partners.

“David Rubenstein made $260 million last year, yet he paid taxes at a lower rate than the doorman at this hotel. Not only that, companies like Carlyle don’t pay their fair share in corporate taxes.” said Pat Boone, President of NY ACORN.

“What does this mean to your average New Yorker?” asked Boone. “Plenty. The takeover industry’s tax dodges increase the tax burden on the rest of us while undercutting vital public services like schools, healthcare and affordable housing.”

The coalition noted that regular New Yorkers have less to spend on taxes these days. Between 2002 and 2005, median rents increased almost 10 percent across the city, while the average household income actually dropped by more than 6 percent.

Labor leaders blasted Carlyle and other takeover titans for engaging in investment strategies that have caused instability in the credit market and put the retirement savings of small investors at risk. A number of huge takeover deals negotiated during rosier market conditions are pending, with tens of billions of dollars in debt awaiting financing. The collapse of even one of these mega-deals could spook the market, triggering a potential downturn.

Leaders of the new coalition also took the buyout industry to task for its poor treatment of workers.

”For years, companies like Carlyle have profited by cutting wages and benefits and laying off workers,” said Adrianne Shropshire, Executive Director of the New York chapter of Jobs With Justice, a national coalition of labor unions, clergy and community groups. Shropshire noted that 6,000 workers have been laid off at businesses acquired by Carlyle in the past year alone.

Leaders of the coalition plan to call on New York’s Congressional delegation as well as local and state elected officials to enact reforms that will ensure that the buyout industry treats their workers fairly and plays by the same rules as other tax-paying Americans.

The coalition includes community groups from across New York, including Coalition for the Homeless, Housing Here & Now, Jobs With Justice and Northwest Bronx Community and Clergy Coalition, among others.

Hamptons "Residents" Concerned Buyout Billionaire Neighbors Pay Too Much Tax

Members of SHAME visit the home of buyout billionaire Henry Kravis.

August 29, 2007 – Southampton “residents” took to the streets today to demand more tax relief for buyout billionaires, including longtime Southamptonite billionaire Henry R. Kravis, inventor of the leveraged buyout and pioneer of the trillion-dollar private equity buyout industry.

“Hardworking buyout billionaires like Henry Kravis need our continued help to expand their fortunes and buy bigger and better mansions,” said Southampton activist Rob N. Steel. “The market is slumping, and we have to act now if we are going to protect those like Kravis who pioneered the revolutionary concept of buying companies, and making billions by laying off workers and cutting pension and health benefits. Even the magnificent, giant tax loopholes that buyout firms have been enjoying could be at risk! We have to save the billionaires from paying as much tax as everybody else!”

Kohlberg Kravis Roberts & Co. (KKR) along with other leveraged buyout giants such as the Carlyle Group, have made billions of dollars by buying big companies, squeezing out profits (often accomplished with layoffs and cuts in pension and health benefits), and by taking advantage of tax loopholes that allowed them to pay less than half the tax rate of their chauffeurs. But now, as Kravis and Carlyle’s David Rubenstein contemplate taking their companies public and cash in on their mega-deals—their firms are crashing head-first into the credit crunch, as the massive amounts of debt they for their deals is hard to come by.

Faced with the bleak news, and concerned that their neighbor may have to sell one of his many lavish homes or dip into his billion-dollar bank account, the neighbors of Kravis and other buyout executives with homes in the Hamptons have begun a campaign – Southampton Alliance for Monied Estates (SHAME) – to call on Congress to keep the tax breaks enjoyed by buyout billionaires like Kravis and Carlyle’s Rubenstein. The takeover industry’s leveraged buyout model relies on multiple tax dodges that increase the tax burden of working Americans, and undercut vital public services. SHAME will call Wednesday for a takeover tax holiday to relieve buyout billionaires of the property taxes they pay on their Hamptons’ estates. Kravis, for example, pays an estimated $66,000-a-year in property tax his $16 million Southampton compound.

An Introduction to Private Equity

An Introduction to Private Equity

Largely unknown outside the financial world, an industry called “private equity” is reshaping the American economy, with huge new deals announced almost daily.

“Private equity” is a broad term that encompasses a range of strategies for investing in industrial and service companies whose common stock is not traded on public stock exchanges. While private equity runs the gamut from small venture capital investments in brand-new start-up companies to multibillion-dollar buyouts of well-known public companies, the focus of this report is on corporate buyouts.

With ownership of brand name companies such as Burger King, AMC movie theaters, Dunkin’ Donuts, Michaels Arts and Crafts, Hertz, and Linens n’ Things, the private equity industry controls a large and growing swath of U.S. industry, including the market leaders in major industries. In the last year alone, private equity buyout firms have taken ownership of the nation’s largest office building landlord, Equity Office Properties, the nation’s largest hospital chain, HCA, the world’s largest casino company, Harrah’s Entertainment, and one of the nation’s largest providers of cleaning and food services, Aramark.

Consider these facts:
  • The biggest five private equity deals together are larger than the annual budgets of all but 16 of the world’s largest nations. The five biggest deals involved more money than the annual budgets of Russia and India.
  • The annual revenue of the largest private equity firms and their portfolio companies would give private equity four of the top 25 spots in the Fortune 500. One firm, Kohlberg Kravis Roberts & Co. would crack the top 10. These private equity firms have more annual revenue than companies such as Bank of America, JP Morgan Chase, and Berkshire Hathaway.
  • The top 20 private equity firms alone control companies that employ nearly 4 million workers.
  • There were a record $197 billion worth of private equity mergers in first quarter of 2007 alone.
  • Industry analysts say a $100 billion private equity buyout deal is not out of the question—putting huge companies such as Dell, Boeing, and Apple Computer within range of the buyout industry.

This financial juggernaut is generating hefty returns to investors, and extraordinary riches for the top executives of private equity firms.

And while the industry is not a new one, private equity’s acquisitions and influence are growing exponentially, raising newly relevant questions about the impact of its business practices on American workers, businesses, communities, and the nation.

Incredible Wealth, Incredible Disparity

Though exact figures are hard to come by, the hallmark of the private equity industry is the incredible wealth being created for the small number of individuals who drive the buyout business.

The key principals at the largest private equity firms are billionaires. Using money from banks, insurance companies, pension funds, and other wealthy individual investors, they continue to launch corporate buyouts worth billions, even tens of billions of dollars, extracting fees of hundreds of millions of dollars from the companies they buy and often generating profits of 20 percent or more.

These profits come during a period of historic income inequality in America, at a time when millions of Americans are working harder and harder for less, with less health care, less retirement security, and less time to spend with their children. According to a report released in March 2007 by two leading economists, the top 1 percent of Americans—those with incomes above $350,000—received the largest share of national income since 1928.

The top 300,000 Americans enjoyed almost as much income as the bottom 150 million Americans combined. The top group received 440 times as much as people in the bottom half, doubling the gap from the 80s. And experts say the data may actually understate the income disparity.

The American public and leading experts alike are voicing concerns over the rising inequality. In a December 2006 Los Angeles Times/Bloomberg national poll, 75 percent of respondents said the income gap is a “serious problem.” And former Federal Reserve Chairman Alan Greenspan recently said, “ This (growing inequality) is not the type of thing which a democratic society can really accept without addressing .”

There is no doubt the income being accumulated in the buyout business is a major contributor to the concentration of wealth among the top one percent of Americans. Yet questions about the role the private equity industry could play in addressing this national challenge remain—until now—unasked, and unanswered.

Limited Public Information

Unlike publicly traded companies that are subject to federal securities laws and regulations as well as to daily scrutiny by financial analysts and the business media, private equity buyout firms operate virtually free of oversight and public accountability, their profits and practices largely hidden from view. Far from a coincidence, this lack of transparency is built into their business model, providing buyout firms with investment advantages that publicly traded companies do not enjoy.

Utilizing the limited information available to the public, this report provides a snapshot for everyday investors, workers, community members, and the public about the private equity buyout industry and its practices, spotlighting the leading firms, and examining the inner workings of five private equity buyout deals for their impact on workers. The report is provided as a resource for people and organizations who may not be business or financial experts, but whose lives, jobs, investments, or communities are or could be affected by private equity buyouts.