Corporate Apology Tour: Wells Fargo, Facebook and Uber

Recent commercials for Wells Fargo, Facebook and Uber attempted to wipe egg off each company's corporate face.  Wells Fargo promised to get back to their roots.

Wells Fargo’s problems took root more than a decade ago, when the bank started pushing employees to sell as many products as possible to customers.  Since then, Wells Fargo has discovered other issues with auto loans, mortgages, frozen funds and improperly closed accounts and has faced a number of other regulatory probes and litigation. 

In PEU like fashion greedy management wanted more and more at Wells Fargo, Facebook and Uber. 

Facebook's issues, meanwhile, have also been well publicized, ranging from the spread of fake news within its walls, the mammoth Cambridge Analytica scandal and questions over how Russian bots used the platform to manipulate democracy. 

Facebook also made promises after monetizing customer information:

"Facebook will do more to keep you safe and protect your privacy." Spam, clickbait, fake news and "data misuse" are all cited specifically as things that are going to change.

Uber had problems of its own.

At the start of 2017, a scathing memo exposed a toxic workplace where sexual harassment and discrimination was openly ignored (leading to the abrupt exit of its former chief executive, Travis Kalanick, along with several other executives). It also attempted to cover up a massive data breach affecting over 50 million users.

In addition, the firm faced issues over its license in London, had an internal spy unit exposed, and has been the subject of government investigations on both sides of the Atlantic, as well as repeatedly fighting lawsuits to limit the rights of its drivers.

Uber's ads promise to do better.  Warren Buffett offered $3 billion for a stake in Uber but a deal could not be finalized.  Buffett's capital allocation focus has much in common with private equity underwriters. 

The three ethically dodgy companies have spent over $60 million to "earn back trust" from customers and the public.  Widespread mea culpas bodes ill for leadership.  The ethical version would prevent the intentional harm, financial or personal, of employees and customers.  Greed is pervasive in our world.  

Update 7-10-22:  Leaked files revealed how tech giant Uber flouted laws, duped police, exploited violence against drivers and secretly lobbied governments during its aggressive global expansion.  Corporate crimes mostly go unpunished in today's world where corporations and government are fused at the hip.

Rubenstein Launches Declaration Capital

Investment News reported:

When Mr. Rubenstein, 68, named his family office, he dubbed it Declaration Capital. He created the firm last year as he stepped back from his role as co-chief executive officer of Carlyle and became co-executive chairman.

The former White House staffer who became a leveraged-buyout legend will directly oversee Declaration Capital. He's also funded an affiliate called Declaration Partners, which has wider ambitions.

The staff includes Mr. Rubenstein's daughter, Alexa Rachlin.  Family offices are increasingly common for the ultra-wealthy to manage their fortunes and take care of their personal needs.

Declaration has completed about 10 deals, a person with knowledge of the matter said.

The former Mrs. Rubenstein said her husband only cared about money.  Since David Rubenstein signed the giving pledge I wonder what daughter Alexa Rachlin will do when more than half her father's money is given away to charity.  Maybe she'll share a little of the remainder with her mother.

People Throw Money at Carlyle Chief

Carlyle Group co-founder David Rubenstein remarked on the current fundraising environment, calling it the easiest in thirty years.  His comment echoed reports from earlier this year. 

Step right up folks, cheap debt, low taxes, management fees, dividend recaps, rising leverage...There's no end to the good times!  

Private equity underwriters run the greatest show on earth.  When the show ends ladies and gentlemen, this way to the great egress.

CPA Commits Medical Fraud for PEU like Returns

A Dallas area hospice owner committed medical fraud to the tune of $60 million according to a federal indictment.  Novus administrator Bradley Harris is a certified public accountant.  He did more than fraudulently bill for hospice services.  CPA Harris wrote physician orders for controlled substances and prescribed those at a level that caused patient deaths.  He did this in order to grow his company so he could flip it for a huge profit.

His nefarious means went toward a very familiar end, one Michael Milken, David Rubenstein and Stephen Schwarzman have pursued.  The Carlyle Group reached a number of settlements for untoward behavior, Synagro (bribe), Semgroup (fraud), LifeCare Hospitals (patient deaths), ARINC (lofty bribe) and was on the road to a federal fraud charge with ManorCare until the case was dropped.

PEU buyouts are now epidemic in healthcare.  Sponsors want to sell new affiliates at a profit after loading them with debt, charging annual management fees and pulling cash via dividends/special distributions.

The greed and leverage boys will not make our healthcare system more affordable.  They may not kill people directly like Mr. Harris, but they will prioritize returns over actual care, causing suffering and premature death. 

Leverage Up to 7x in PEU Deals

Bloomberg reported:

Debt in leveraged buyouts is creeping above the six times level that regulators said in 2013 was potentially too risky, after commitments to private equity deals scorched banks during and after the crisis. The average company in an LBO had borrowings equal to 6.4 times earnings before interest, taxes depreciation and amortization in 2018, according to Fitch Ratings. Last year it was 6.2 times Ebitda and in 2016, it was 5.9 times.

Federal Reserve Chairman Jerome Powell, separately said that the guidelines they offered before, including the six times level, were just guidance, and not hard-and-fast rules.

“Leverage above seven times is somewhat of a recent phenomenon.” In certain cases, like if a company is strong, there may be room for that much leverage, he added.

Frothiness up, thanks to non-economist and ex-Carlyle Group partner Jerome Powell,  now Fed Chair.  

Investor Sues BAH Management for Fraud in Carlyle Buyout

Military Technologies.net reported:

An investor, who sold or exchanged BAH securities in connection with the sale of Booz Allen Hamilton Holding Corporation (NYSE:BAH)’s Government Division to The Carlyle Group in 2008, filed a lawsuit in the U.S. District Court for the Southern District of New York against Booz Allen Hamilton and certain former BAH executives over alleged violations of Federal Securities Laws.

More specifically, the plaintiff claims that defendants engaged in a fraudulent plan to sell the Government Division to the Carlyle Group at a significant discount.

The plaintiff says that to implement this scheme, Defendants made false and misleading statements to Booz Allen Hamilton Holding Corporation (NYSE:BAH) shareholders about the sales process and the value of the Government Division, many of which were included in an Information Circular distributed to Booz Allen Hamilton Holding Corporation (NYSE:BAH) shareholders on May 22, 2008. Defendants intended to deceive Booz Allen Hamilton Holding Corporation (NYSE:BAH)’s shareholders so that they would vote to tender their stock at $763 per share, far below its actual value.

The sale to the Carlyle Group closed on July 31, 2008. Nearly two years later, on June 21, 2010, the Carlyle Group published a Form S-1 filing in connection with its planned initial public offering (“IPO”) of the Government Division, which disclosed new information demonstrating that certain of the statements contained in the Information Circular were false and misleading, that Booz Allen Hamilton Holding Corporation (NYSE:BAH) shareholders received consideration for their shares that Defendants knew was insufficient, and that Defendants personally benefited from the sale at the expense of Booz Allen Hamilton Holding Corporation (NYSE:BAH)’s shareholders.

Management partners with its new private equity underwriter (PEU) owners.  It took Carlyle's flipping of BAH for an investor to see inconsistencies between the go private solicitation and subsequent IPO documents. 

While The Carlyle Group is not the subject of the lawsuit it used a puffery defense in one investor suit.  Carlyle's recent earnings call produced the following statement:

Carlyle assumes no obligation to update any forward-looking statements at any time.

Once it is said it is done.  Carlyle is not responsible for what it says or does.  Should the BAH investor suit proceed management wishing to be PEU sponsored should pay attention.   Your words may come back to haunt you.  Unlike Carlyle management in publicly traded companies have an obligation to speak truth, not fraud. 

Carlyle's Supreme Holds Explosive Auction

The Carlyle Group bear hugged skater culture when it purchased a chunk of retailer Supreme in 2017.  Who knew urban teen skaters had $1 million to spend on collectables?

A Bloomberg story characterized the crowd:

as “very young and urban” and mostly brand new to auction experience. Reached after the sale, Naudan characterized the excitement from this “new generation of collectors” as evidence of a new cultural moment.

“The prices obtained for both Supreme branded objects, but also the works of artists from the same generation who accompanied this unprecedented global movement, confirm the international interest in urban culture.”

The greed and leverage boys, now the Fu-K clan, are both international and multi-generational. 

The Supreme logo could have come off the side of a 1970's gas pump.  Customers once got green stamps for buying supreme gas.  I don't recall their prizes having four letter words in bold display.

Bloomberg ran the picture on the Supreme auction run by a French auction house.  It was truly a PEU event.

Update 11-25-18:   Netflix comedy show takes on Supreme and The Carlyle Group.

Update 10-24-19:  PEU Supreme landed in San Francisco.  “Why can’t the tech-heads come check us out? Why can’t the artists come check us out?”

PEU Golden Age of Carlyle

Forbes reported:

The Carlyle Group is investing billions in United States infrastructure the government can no longer afford, with particular interest in electric microgrids, a Carlyle executive said in Chicago Monday. 

"We think that actually we're in sort of the golden age of infrastructure in the United States," Andrew Marino, managing director of the Carlyle Group, said at the Microgrid 2018 conference in Chicago.

Microgrid Knowledge reported:

“We established a platform to own and operate microgrids and distributed energy resources (DER) to serve organizations and institutions – from campuses to hospitals and the military – that demand predictable pricing and efficient, reliable energy,” said DEN CEO Karen Morgan. “Working together with Schneider Electric and The Carlyle Group, we aim to transform the market to deliver holistic Energy-as-a-Service with innovative financial and technology solutions.” 

Funding and equity for future moves and investments for the new strategic alliance will stem in part from Carlyle Global Infrastructure Opportunity Fund—a Carlyle fund that makes infrastructure investments.

Carlyle's first target for electric microgrids?  It's Puerto Rico, America's private equity underwriter (PEU) friendly commonwealth.

"We're going to get some lights on down in Puerto Rico together," added Mark Feasel, vice president of utility and smart grids for Schneider.

This isn't Carlyle's first deal with Schneider Electric.  In April 2014 Carlyle purchased Custom Sensors and Technology from Schneider.  Carlyle flipped CST in July 2015 to Sensata Technologies.  No word on how much Carlyle made from that deal.

Carlyle plans to put hundreds of millions into owning and operating microgrids.  Typical PEU move picking off profitable customers from public electric utilities.  Now how can Carlyle and company get federal subsidies for their strategy?  They will find a way.

Carlyle Sells Korean Security Firm for $800 Million Profit

The Carlyle Group will monetize ADT Caps, a South Korean security services provider.  Carlyle purchased ADT from Tyco International in March 2014 for $1.93 billion.  Sources say Carlyle will garner $2.78 billion for ADT Caps.  Three years ago Carlyle highlighted its long term commitment to South Korea.  Those words resonated in a country that values interdependence and long term thinking.

The United States is a near polar opposite on those two parameters.  Individualistic, short term thinking is personified by private equity underwriters (PEU). 

The greed and leverage boys are never satisfied. It appears Carlyle will make over $800 million from flipping ADT Caps.  Between deal fees, management fees, dividends, and/or dividend recaps Carlyle could've appropriated even more cash from ADT during its ownership.  News reports had Carlyle willing to arrange deal financing so it could make huge returns.

The Carlyle Group is known for its ability to read tea leaves and influence world events.

What makes this a good time for a PEU to sell a South Korean security firm?

Carlyle Closes ManorCare Bankruptcy Chapter: Morocco to Read?

ToledoBlade reported:

HCR ManorCare has filed another amended bankruptcy plan to reflect last week’s decision by Toledo firms ProMedica and Welltower Inc. to purchase the skilled nursing home operator from real estate investment trust Quality Care Properties Inc.

On March 4, ManorCare had filed a 41-page prepackaged bankruptcy plan that had been agreed upon by all the parties involved at that time — ManorCare; its landlord, QCP, and chief investor private-equity firm The Carlyle Group.

The filings showed ManorCare with $7.1 billion in debts and $4.3 million in assets.  Carlyle bought ManorCare for $6.3 billion in 2007 then sold the nursing home facilities for $6.1 billion to HCP in 2011.  HCP later spun the toxic assets off to QCP.

On August 6, 2017 the  International Swaps and Derivative Association declared a "failure to pay credit event occurred in respect of Manor Care Inc."  That happened as a direct result of Carlyle's ownership. 

At the time of the bankruptcy ManorCare owed QCP $446 million in rent.  That's more than Carlyle lost when Moroccan oil refiner SAMIR went bankrupt.  The bankruptcy burned Carlyle's $400 million in oil held at the refinery.  Carlyle wants the Moroccan government to make it whole.

Moroccan lawyers should mine the ManorCare train wreck for bankruptcy statements it can hold up as a mirror to The Carlyle Group.  They can also search court testimony and records in Guernsey, where Carlyle successfully defended its $16.6 billion implosion of Carlyle Capital Corporation.

Below is a partial list of Carlyle bankruptcies:

When Carlyle fails it's not their fault.  Morocco would be wise to dig deep into Carlyle's bankrupt affiliates, especially oil refiner Philadelphia Energy Solutions, which declared bankruptcy in January 2018.

The material could be explosive.

TPG, Carlyle Group Go After Chinese Microlending and Mobile Payments

Crowdfund Insider reported:

Chinese search behemoth Baidu Inc, (NASDAQ:BIDU) has nabbed a $1.9 billion investment from firms including TPG, the Carlyle Group, Agricultural Bank of China Ltd. and Taikang Group, to ready itself to compete in the financial-services space, according to the WSJ. The transaction will reportedly value the unit at $4B, one investor told FT.

Carlyle and company will use big data analytics, artificial intelligence and target wealth management through this deal.   Next up for Du Xiaoman Financial?  It's bound to be a crypto-currency.  That might enable a quicker flip for the China PEU consortium.