Friday, August 31, 2007

Carlyle Doesn't Need Tax Breaks

Which level of The Carlyle Group doesn't need a tax break? We can start at the top where investment fund managers make huge incomes. According to Bloomberg News, top fund managers make more in ten minutes than the average worker does in a year. At $210,700 an hour they don't have to work long hours, unless they want to make a lot of money, which they do at $657 million a year.

Yet, Carlyle is worried about taxes going up for both the company as it is taxed at the lower capital gains rate and for fund managers who get the same break on any company returns they personally receive.

The private equity firm on Pennsylvania Avenue just closed another sale, this time a German human resources software company. How did they make out? They purchased 4.7 million shares or 61.3% of the firm for 7.40 Euros in 2004. While the story didn't indicate a selling price per share, it did show Carlyle got 4 Euros in dividends last year and this year. That means they only needed to sell for 3.40 to break even. Reading between the lines, Carlyle cashed out at 22 Euros or as Michael Wand said "a three-fold increase in share value to all public shareholders."

It looks like Carlyle got nearly 18 million Euros in dividends and 100 million in sale proceeds for a profit of 98 million. Converted to our currency that equals a $160 million take with $133 million in profits. How much did the Bush capital gains tax save them, assuming they repatriated the profits? It kept another $6.6 million out of the Federal Treasury, but Carlyle needs all the returns they can get.

Their European IPO, intended to let the smaller investor get a taste of big private equity returns, is faltering. Carlyle just injected a second round of $100 million into the investment vehicle. If they piss off the small guy, the big wigs just might lose their preferred tax breaks. We already heard the PEU's position on that, raising taxes could hurt! How about paying the same freight as other corporations and non PEU employees? Not under Bush's watch...