After buyout, union workers get a lesson in modern economics (must read Bain economics!!!)

[Omaha Steve]

http://openchannel.nbcnews.com/_news/2012/12/27/16074805-after-buyout-union-workers-get-a-lesson-in-modern-economics?lite


Jeremiah Patterson / Investigative Reporting Workshop

The Momentive Performance Materials plant near Albany, N.Y.
By Kat Aaron

Investigative Reporting Workshop

Editors' note: This story has been updated to clarify Apollo CEO Leon Black's stock holdings. The company had declined to comment for this story before publication.

When Apollo Global Management bought Momentive Performance Materials, a chemical factory in upstate New York, in 2006, it administered a lesson in modern-day economics at what had long been one of the biggest and most stable employers in the Albany area.

Private equity companies like Apollo make money through debt. In a leveraged buyout, a firm hones in on a company, often one that is publicly traded, and struggling, and takes it private. The acquisition is financed by borrowing against the company itself. The goal is to take the company public again, ideally in three to five years, and net a profit for the investors and the firm. The debt remains with the company.

The debt load can translate to major belt-tightening at the acquired company. The buyer is looking to increase productivity, reduce inefficiencies and, as jargon would have it, create synergies. That often means a private equity firm will buy up a few companies in a particular industry, mash them together and eliminate the overlap. That often means eliminating jobs.

FULL story at link.

[Teamster Jeff]

1. This is a lesson in modern "redistribution of wealth"

[SharonAnn]

2. And it can even be much worse than this. Looting the pension fund, cutting benefits, etc.

Private equity firms extract every bit of "cash" they can get, sell every asset they can, "reduce costs" by lowering wages-laying off people,-offshoring the manufacturing, and load all the debt for purchasing the company on the company itself.

This has caused many good mid-sized companies with a reputation or excellent quality products to become shells of companies that sell low-quality products that are manufactured in China, Mexico, etc.

If you've shopped for appliances lately, you know this.

[xchrom]

3. Du rec. Nt

[Omaha Steve]

4. Kick