ASSOCIATED PRESS
As buyouts of public companies by private-equity firms come bigger and faster — Chrysler for $7.4 billion, Bausch & Lomb Inc. for $3.7 billion yesterday the latest — Congress is putting the booming private-equity business under scrutiny, and unions say the mega-deals may be hurting workers and widening economic inequality in the country.
A cavalcade of big private buyout deals in recent months has sharpened attention on the impact on workers and whether they are being put at risk. At a hearing yesterday by the House Financial Services Committee, Chairman Barney Frank, Massachusetts Democrat, suggested that Congress may “have to act” to protect employees.
Yesterday, Bausch & Lomb, struggling to recover from the global recall of a contact-lens cleaner blamed for severe eye infections, agreed to a $3.67 billion buyout by Warburg Pincus.
Warburg said it would pay stockholders of the 154-year-old eye-care company $65 a share, which represents a 26 percent premium to the average price of the stock over the 30-day period when rumors began circulating about a possible buyout. The New York buyout and venture capital firm also would take on about $830 million of debt from Bausch.
Rep. Spencer Bachus of Alabama, the panel’s senior Republican, said “it is not yet clear that privately managed companies act any differently with respect to worker retention or compensation than publicly traded companies.”
The AFL-CIO labor federation, meanwhile, appealed to the Securities and Exchange Commission to hold off approving the proposed $4 billion public stock offering by one of the world’s biggest private equity firms, Blackstone Group LP, and require it to be regulated by the agency as an investment company.
The Service Employees International Union (SEIU) has mounted a campaign urging the private-equity business to give workers a say in buyout deals.
“The story of private equity is the incredible wealth being created for the small number of individuals at the top,” SEIU President Andy Stern testified at the hearing. Workers should be able to “share in the economic opportunities” created by the takeovers, he said, but “the manner in which these [company] restructurings are often undertaken raises serious concerns for workers and the companies themselves.”
Regarding the sale of a majority stake in money-losing Chrysler Group, labor leaders in the United States and Canada are split over whether the sale to private-equity firm Cerberus Capital Management LP will protect the jobs of auto workers and their retirement benefits. German parent DaimlerChrysler AG’s supervisory board approved the buyout plan yesterday, and United Auto Workers leaders said they have received assurances that Chrysler pensions will be protected.
The private-equity buying frenzy in recent months also has touched student lender Sallie Mae, Clear Channel Communications Inc., utility TXU Corp., Equity Office Properties and others — atop deals totaling $406 billion last year.
Jon Luther, the chief executive of Dunkin’ Brands Inc., told the House panel that his company — owner of Dunkin’ Donuts, Baskin-Robbins and the Togo’s sandwich chain — reaped “enormous” benefits from being acquired by private equity firms in March 2006.
The buyout “liberated our company,” Mr. Luther said. “Our new owners … have opened the door to opportunities that were previously beyond our reach.”
Douglas Lowenstein, president of a new lobbying organization representing 10 major private-equity firms, acknowledged that income inequality is a problem in the United States. However, he said, “the forces contributing to this go far beyond private equity, as do the solutions.”
“Private equity is not the reason American companies are being pressured to lower costs, restructure and employ new strategies to better compete with China, India and other emerging economies,” Mr. Lowenstein testified.
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