Oh that "Private Equity"

Well, well, well nothing like private equity. Anyone who knows me has heard me say, "By 2010 there will be 1/2 a dozen "private equity" groups with revenues exceeding $100 Billion per year. These mega "companies" will flourish without answering to anyone."

The term "private equity" obviously means they are "private" (In the US this means owned by individuals unlike in the UK were "private" means owned by the government.) which means no stockholders. This means unrestrained salaries at the top, whatever "corporate governance" they please, ravish raiding of corporate coffers to pay fat “dividends” to their investors, very high leverage to consummate ever larger buy out deals, fat payoffs when worthless “brand names” are floated back on the markets by the “investment bankers” that will dump these newly re-floated companies on unwitting individual investors and last but NOT least NO SARBANES OXLEY COMPLIANCE... You get the picture.

I thought I would post this little blurb for you so you can consume all of what I just stated in ONE FLEETING EXAMPLE. Case study, Burger King. Note,

• borrowing $350 million to pay a special cash dividend of $367 million to its “investors”,
• $33 million to “pay off” management,
• another $30 million to “terminate a management contract to the private equity investors”. Like HELLO! Who do you think created the management contract? Pay off again, only this time it is to make the private equity owners richer. Remember, this is just ONE deal we are talking about here.
• Oh don’t forget the bottom where after being floated the stockholders will have negative equity if the company were liquidated after the float. Does this remind you of anything, Refco maybe? Milken leveraged buyout deals of the 80's?
  
  Here we go...

Of DOW JONES NEWSWIRES
Fast food chain Burger King Holdings Inc. plans to sell as much as $480 million of its stock by the middle of this month for $15 to $17 a share, implying a total value for the company of about $2 billion.

Miami-based Burger King said in an updated prospectus filed with the Securities and Exchange Commission Tuesday that it plans to sell 25 million shares to the public in the IPO; an additional 3.75 million shares could also be sold at the IPO price if the company's underwriters, led by JP Morgan Chase & Co. (JPM), opt to exercise an over-allotment clause.

At the midpoint of its price range, Burger King's underwriters are valuing the company at $2.1 billion. In 2002, a private equity group that includes Texas Pacific Group, Bain Capital Partners and Goldman Sachs Funds, bought Burger King from Diageo PLC for $1.5 billion at a time the burger chain's sales were in a decline.

The company's IPO is expected to price and sell some time in the third week of May; the stock will trade on the New York Stock Exchange under the symbol BKC.

Whether Burger King's performance will line up in the Chipotle or the Morton's camp is open to debate. The company's former chief executive, Greg Brenneman, departed suddenly last month, and received a generous severance package just as the company reported a net loss for its fiscal third quarter.

But there's no denying that the private equity group that purchased Burger King in 2002 has made improvements to the chain, producing eight consecutive quarters of comparable sales growth in the U.S. Those owners will continue to hold 74% of Burger King's stock if all shares are sold in the offering and over-allotment.

Burger King also has a strong brand name, which is sure to drive retail investor interest in the deal, says Sal Morreale, who tracks IPOs for Cantor Fitzgerald LP in Los Angeles.

"It's a brand name, a big brand name. How many of those moms and pops are going to go to their discount broker and say I want to buy this stock?" says Morreale.

The company borrowed $350 million in February to help finance a special cash dividend of $367 million to its private equity owners; it will not pay any dividends to common stockholders once it goes public.

Burger King also paid $33 million to members of senior management after the February financing and the dividend decreased the value of their restricted stock and options. In addition, a $30 million management termination fee was paid in February to the private equity owners.

Burger King plans to use all the proceeds from its IPO to pay down its debt; as of March 31, its total debt was $1.35 billion.

Even if the IPO had taken place in March and some of the debt had been paid off, Burger King would have had a net tangible book deficit of negative $623 million - meaning that investors would receive nothing if the company were liquidated.

- By Lynn Cowan, Dow Jones Newswires; 202-862-3548; lynn.cowan@dowjones.com
(END) Dow Jones Newswires May 03, 2006 11:42 ET (15:42 GMT)