State of the Same

It seems both political parties like to be seen with their high dollar supporters. Bob Johnson, BET founder, made the headlines recently with his dig on Barack Obama and subsequent apology. Bob attempted to support Hillary Clinton, but got carried away.

The news failed to mention billionaire Bob's joint venture deal with The Carlyle Group. It neglected to call him a "small business owner and community banker", like President George W. Bush did in fall of 2006.

Given his strong defense of Hillary, what is Mrs. Clinton's position on taxing private equity carried interest?

As for The Carlyle Group, co-founder David Rubenstein had to deal with protests during today's speech at Wharton. He defended allegations of layoffs at ManorCare by saying "we've only owned the company two weeks." Let's see what other healthcare companies had Carlyle owned two weeks when something catastrophic happened? That would be LifeCare, the hospital with the largest number of patient deaths from Hurricane Katrina.

David must be good at using that "only two week" excuse. One might expect failures at other Carlyle healthcare affiliates to be pertinent in considering future buyouts, but not in ManorCare's case. Even a reporter from the Toledo Blade said the 24 LifeCare deaths were out of bounds. The feds went 0 for 9 in responding to my concerns.

David's other defense was no one ever talks about the good private equity does, especially in growing jobs. The Private Equity Council is working hard to justify PEU managers keeping their preferred tax status on carried interest. They published a study showing the positive economic impact of private equity underwriters. Be sure to read the comment at the bottom of the Reuter's article on that very topic. So Mrs. Clinton, where do you stand on taxing carried interest as income?

Carlyle Pays Through the Nose for Sequa Corp.

With all those overflowing bank vaults of cash, The Carlyle Group decided to put some of it to work. They announced an agreement to purchase Sequa Corp for a 50% premium driving the stock up some $60 a share to $172 per share.

After a quick review of the company's 2006 annual report, it's clear Sequa will pay no taxes in the future should Carlyle use debt to finance even a small part of the $1.99 billion acquisition price. Their relatively small bottom line could disappear quickly under a pile of interest charges.

The diversified company occupies several Carlyle niches, aircraft and automotive parts and technology. One doesn't have to read far to find the U.S. military is a key customer. That should make Chairman Emeritus, ex. Defense Chief Frank Carlucci happy.

However, one division should bring a unique business to the Carlyle fold. Tuxedos! So the next time President Bush invites all his high dollar, big donor friends to dine with the Queen of England, After Six can handle the gentlemen's formal dress.

The Carlyle Group & Bush's White House

Two weeks before Hurricane Katrina made landfall on the Gulf Coast, The Carlyle Group purchased LifeCare Hospitals, a long term acute care hospital company. After Katrina struck, LifeCare's New Orleans facility had the highest patient death toll. Patients suffered in horrific conditions for up to five days waiting for rescue.

In front of cameras President Bush asked FEMA Chief Mike Brown about hospital patients the day Katrina struck. The nation watched in horror as words turned into inaction. After the federal government's botched response the President commissioned Frances Townsend to investigate with the intention of performing "an honest" assessment and doing better next time.

The White House Lessons Learned report released in early 2006 had several glaring omissions. First it failed to mention the hospital organizations with the highest patient death toll. Carlyle's LifeCare and Tenet's Memorial Hospital shared the same facility. Second, it made no mention of the trade group that coordinated hospital patient evacuations while FEMA stumbled. The Louisiana Hospital Association worked frantically to mobilize resources to evacuate patients suffering in dead facilities. However, the White House report's most glaring error is it never said whose responsibility it was to evacuate patients in the first place, much less evaluate how they performed their duties. Without this critical information, how can we do better next time?

Fast forward to 2007 as Carlyle's LifeCare tries to defend itself in wrongful death civil lawsuits. How does the federal silence help their case? This comes from LifeCare's annual report to shareholders:

"The company is currently defending itself against a variety of Katrina related lawsuits... We intend to vigorously defend ourselves in these lawsuits"

The same LifeCare annual report says this about their services. "A long term acute care hospital serves patients with serious and complicated illnesses or injuries requiring extended hospitalization. Long term acute care hospitals are specifically designed to accommodate such patients and provide them with a higher level of care than a skilled nursing facility or inpatient rehabilitation facility, each of which is often incapable of treating and delivering the same outcome as a long term acute care hospital."

So what is LifeCare's defense? They contend that as soon as FEMA and the Coast Guard began evacuating people from New Orleans their patients became wards of the federal government. If the evacuation began in earnest on Tuesday, then LifeCare had no obligation to their patients for how many hours or days? Who was responsible for providing that higher level of care LifeCare's patients needed?

This defense is laughable as the feds didn't make evacuating patients from dead hospitals and nursing homes a high priority. The Louisiana Hospital Association and HCA are proof of that. HCA hired medical helicopters to transfer patients from its dead facilities. Why couldn't The Carlyle Group? One might expect a private equity firm with over $50 billion under management to pull off such a feat while the Charity Hospitals of the region have to wait.

Why did the White House Lessons Learned report omit the information needed to paint a clear picture of the evacuation of hospital patients post Katrina? Did they do so as a favor to their private equity friends just down Pennsylvania Avenue? How does the blank slate of the White House Lessons Learned report help them defend their "variety of Katrina related lawsuits."

Just as the little folks suffered after the Exxon Valdez oil spill, the little person will take it on the chin courtesy of the government's incompetence and hand holding of major corporate interests. There's a plan here somewhere. What does it portend for Bush's widespread privitization strategies? The Carlyle Group just announced it intends to gobble up Manor Care, a nursing home chain. Will they do any better with those patients post disaster, man made or natural? Want to bet the Bush Justice Department doesn't even ask the question?

Bush Commutes Scooter's Sentence

BBC's news ticker says "President Bush commutes jail sentence for ex-White House official Lewis Libby". The NY Times reported more details on Bush's effort to "free Scooter". Apparently crime does pay in America.

Now that he's a free man, which private equity firm will employ Scooter? One is badly in need of a White House insider to defend its wrongful death civil lawsuits post Hurricane Katrina. Could Scooter help the Carlyle Group's LifeCare Hospitals with the highest death toll post landfall? Might he help Carlyle's planned acquisition of Manor Care avoid legal levee failures?

Scooter's a hard worker. His only rap is you never know who he's really working for...

Justice Department Should Look Closely at Carlyle, Manor Care Deal

I wrote the Justice Department with my concerns about the Carlyle Group's just announced acquisition of Manor Care, Inc. The text is below:

Dear Justice Department Representative,

My background is hospital administration. Having been through several mergers I have some understanding of what you can and cannot consider. If a sale would jeopardize patient safety, can it be held up?

My concern is The Carlyle Group's acquisition of Manor Care in light of their poor performance keeping patients in another health care subsidiary safe after Hurricane Katrina. Carlyle closed the LifeCare Hospitals deal just weeks before the category 3 storm made landfall.

The news is full of reports of the poor management of patients in both the LifeCare Hospital and Tenet's Memorial Hospital as they shared a building.

Both a doctor and a number of nurses have been charged criminally in the case and numerous civil cases have been brought against Tenet and LifeCare. The Carlyle sub's defense is why serious thought should be given to approving the Manor Care acquisition.

LifeCare claims the federal government became responsible for their patients when President Bush declared the federal disaster. While they may be free to claim this in court in an effort to discard any liability, this should be considered as Carlyle tries to acquire other health care companies housing large numbers of patients.

They proved their inability to keep non credentialed providers away from their patients in Memorial Hospital to the detriment of those in their care. Your office should give this serious thought if it has any review responsibility for the Carlyle Group/Manor Care deal.

A Conspiracy Theorist Couldn't Make This Up

Hospital patients suffered mightily for 5 days in Memorial Hospital's LifeCare Unit after Hurricane Katrina's landfall. As a separate hospital organization LifeCare employed doctors and nurses to care for patients while contracting with Tenet's Memorial for other services. Doctors were credentialed and given specific privileges to provide care for LifeCare's long term acute care patients. Nurses had to meet basic competencies for hire and needed to show on an ongoing basis their ability to perform their duties. None of this went away after Hurricane Katrina struck as both LifeCare and Memorial implemented their disaster plans.

Yet, somehow in the aftermath LifeCare administrators couldn't keep Memorial clinicians away from their patients. A number of patients were reported euthanized and both a doctor and nurses have been criminally charged.

The company would have us believe their legal duty to patients evaporated upon the disaster decree of President Bush and the arrival of FEMA reps in New Orleans. However this unusual defense follows other strange happenings in this case. The most notable is the White House Lessons Learned report's failure to mention the hospital with the highest number of patient deaths post Katrina. Such an obvious omission raised questions in my mind over a year ago, including what benefit might Carlyle get in those wrongful death civil lawsuits from federal silence?

The public heard nothing from crackerjack White House "investigators"on hospital patient evacuations other than a few hero stories. This lack of information grew when a court sealed a settled civil suit between the two hospital companies, LifeCare and Tenet. The two firms divided up responsibility for the aftermath, but the public remains in the dark.

Now Carlyle's ace legal team is trying to move the case to federal court away from any sympathetic jurors. If approved, appeals would lead to the newly business friendly Supreme Court. Are patients like class action shareholders or taxpayers?

If the White House and Carlyle are in cahoots over this case how might it run? First, the feds don't weigh in at all on the Carlyle sub's actions. Check, done that. Second, blame it on the federal government thus increasing the chances of going through friendlier federal courts. Check, done that. Third, have the feds blame state and local authorities for not evacuating patients as required by FEMA. Ditto, completed. Fourth, the federal court throws out the cases or rules against plaintiffs because the federal government is not liable. Fifth, let the process run long enough that all statutes of limitations run.

Three down, two to go. I'm sure a more astute legal mind could add or detract from this scenario. As a hospital administrator who endured for days in a river flooded 725 bed hospital in Virginia and evacuated a Texas Gulf Coast 150 bed facility before then record Hurricane Gilbert, I may empathize with patients and staff enduring in such horrific conditions. I find it hard to round up any compassion for the bureaucrats writing drivel in the Lessons Learned report or for Carlyle's attorneys making up patently ridiculous defenses.

For those watching today's business news, do you want The Carlyle Group owning one of the largest long term care chains in the U.S.? They just signed a deal to acquire Manor Care. Will they do any better post disaster with Manor Care patients than they did with LifeCare's? We already know they claim no liability for the later. Someone should challenge the acquisition on this basis alone...

Carlyle Says Hospitals Don't Need Disaster Plans

In a stunningly bizarre legal defense, Carlyle Group affiliate LifeCare Hospitals blames the federal government for patient deaths after Hurricane Katrina. This follows the similarly stunning White House Lessons Learned report omitting any mention of the hospital with the largest number of patient deaths post hurricane, the LifeCare Unit within Memorial Hospital.

LifeCare argues that once the Federal Emergency Management Agency and the U.S. Coast Guard assumed control of evacuations and other emergency procedures in New Orleans during the flood, it was no longer responsible for the patients at Memorial. The patients essentially became wards of the federal government, not LifeCare, the company's attorneys argue.

To bolster their chances of using their political influence and avoiding sympathetic juries LifeCare wants the cases heard in federal court. LifeCare's attorneys filed motions to transfer the proceedings to federal court, and the case is frozen while the parties await a ruling on that matter.

If LifeCare prevails with this argument then no hospital or nursing home needs a disaster plan, it's all the federal government's responsibility. This sounds the kind of corporate coddling that leads to underperformance. But then we're used to that, recall Exxon's foot dragging after the Exxon Valdez...

Carlyle Goes on Spending Spree

The politically connected private equity firm opened its fat wallet this past week to acquire more companies, Manor Care, Virgin Media, and Telephia Inc. The cost of the three purchases total over $30 billion. Manor Care is in the long term care business while Virgin Media is a British cable company and Telephia measures consumer behavior and media use in the telecom and mobile device markets. Calryle sub, The Nielsen Company is buying Telephia for an undisclosed sum, otherwise the total would be higher.

After the way Carlyle took care of patients in New Orleans LifeCare facilities post Hurricane Kartina, I'm not sure I want to be a Manor Care patient anytime soon. As for the media acquisitions, Carlyle wants to control the information shared with the masses. So does their major client, the U.S. government. Will the British government soon sign on? Carlyle and the stiff upper lips were partners in QinetiQ...

Carlyle Authenticates IPO Cash Register Ringing

The Carlyle Group invested in AuthenTec Inc., a computer security fingerprint identification company with a number of partners in 2004. The investment totalled $15 million with Carlyle taking the lead position. As "the lead investor" Carlyle stands to do well in AuthenTec's just announced independent public offering of 8.625 million shares, 7.5 million to the public and 1.125 million in optional shares for firms bringing the company to market. At $11 apiece, proceeds could total nearly $95 million.

However, the company would only get $70 million as some shares are offered by shareholders. Also the cost of underwriting fees reduces the take. What's even more amazing is the IPO is offering only about 25% of the company's stock according to the prospectus. Some 19 million shares remain in the kitty to be offered to the public later. Twenty six million shares at $11 each equates to nearly $300 million.

How much will Carlyle net on this company when it's said and done? TGC Holdings currently owns 2.6 million shares of common stock. This is not expected to change via the public offering. In addition, Carlyle's nearly 10 million shares of preferred stock will convert into 2.5 million shares of common stock. The prospectus guarantees the Series D preferred stock holders will at least double their initial investment. If the stock price holds, they'll do much better than that. Carlyle stands to own about 5 million shares of AuthenTec. At $11 a share, that equates to $55 million. Their initial investment in 2004 stood at $10 million. A $45 million or 350% profit sounds big enough to share.

President Bush's 15% capital gains tax rate will save Carlyle and partners millions in taxes from this one transaction. The federal government contributed even further to AuthenTec's success as the Census Bureau will use their technology to conduct the 2010 census.

This pattern of buying companies, increasing their federal book of business and spinning them back off at a huge profit is looking familiar, United Defense Industries, Horizon Lines, U.S. Investigations Services, and QinetiQ to name a few. When will the public wise up?

Carlyle Flips Another for Huge Returns

The Carlyle Group announced an initial public offering for affiliate Transics N.V., a fleet/transport management solutions company. The politically connected private equity firm purchased 80% of Transics just over a year ago for 5.4 million Euro's.

Today's IPO offered 2.6 million shares at 17.50 apiece for a total take of 46 million Euro's. Carlyle's stake works out to a cool 36.8 million, a profit of over 31 million in one year! Who else wants a 580% return? I bet those Mafia loan sharks are jealous.

Private equity firms also take 20% of profits from asset sales, a cool 6 million Euro's in one pop. The boys on Pennsylvania Avenue must be proud. For those who prefer U.S. Dollars, Carlyle's profit is $41 million and their fee equates to $8.5 million.

Of course their 20% used to be the same rate as the capital gains tax. Bush cut it to 15% and Carlyle's Charles Rossotti testified on Capital Hill of the advantages to cutting it to 8%. On this transaction alone $425,000 less will go into the federal kitty. Does anyone else find it funny that Carlyle deserves 20% but the federal government should get basically a sales tax rate on millions in profits?

Carlyle to Buy Out Banks and Insurance Companies

The latest version of money changers will soon acquire its predecessors. Private equity firm The Carlyle Group plans on targeting global banks and insurance companies in addition to aerospace and defense, energy & power, telecom and media, automotive & transportation, health care, real estate, consumer and retail, industrial and tech & business services.

Nearly two years ago the politically connected firm announced a division targeting public infrastructure investments. Just yesterday it announced the establishment of its Financial Institutions Group targeting banks and insurance companies.

With over $58.5 billion in assets managed, Carlyle has grown like crazy during Bush's term in office. In 2001 The Guardian suggested the firm was "unofficially valued" at $3.5 billion. If that's true during Bush's time in office the private equity company rose by $55 billion, a nearly 1600% increase. The Guardian piece called Carlyle the "ex-President's club". Is it a coincidence they lived at 1600 Pennsylvania Avenue or that they located their corporate office just down that same street?

Rather than throw them out of the hallowed halls of government, the Bush administration regularly invites them in and sends millions to billions of contracts their way. The most recent version of modern day money changers have their eye set on their predecessors. Will some things ever change?

Carlyle Gets Doubled!

The Carlyle Group is known for buying companies on the cheap, growing business via government contracts and then doubling their money usually in less than 2 years. CSX Lines which became Horizon Lines is such an example. However, Carlyle's latest acquisition of PQ Corporation provided the seller with a near similar return.

Two private equity firms purchased PQ Corporation in 2005 for $879 million. They announced the deal to sell it for $1.5 billion just over 2 years later. That's a $621 million or 70% profit.

So what does Carlyle see in the company? It's glass engineered products are used in road building and updating. They make reflectors, so keep an eye out for any huge federal purchases in this area.

Another product provides shielding from electromagnetic interference. With electronic pulse weapons not far away, protecting critical electronics will be important. Carlyle has long had the ability to read the federal tea leaves and buy accordingly. Why doubt them now on this transaction?

"Greed Has Taken Over"

Who said the following quote?

"Greed has taken over. Nobody fears failure."

a. Rep. William Jefferson and the rest of America's elected Legislative Representatives who sell their votes and souls for a round of gorging at the campaign money trough. Watch out here comes Congrezzilla at an obese 100 million pounds!

b. Presidential Candidate Mitt Romney who offered to work for free, donating all of his $400,000 in Chief Executive salary cause it "ain't piss in a bucket for someone as rich as me. I've served on numerous corporate boards, been the chief of a private equity firm. Plus, I don't need to be beholden to the American people if elected President! If I don't do their will, what can they do, fire me? Not a chance if the current boob in the office still has his job!"

c. Carlyle Group co-founder David Rubenstein on the shoddy practices of private equity firms racing to take companies private. Apparently the free market isn't perfect after all, but wait, GREED is the free market!

d. President Bush before thanking greed for taking over from stupidity, flat footedness and incompetence. Nero fiddled while Rome burned, Bush strummed while New Orleans drowned. Now he moves the real life RISK pieces around the Middle East, only the dice aren't falling his way.

e. As usual President Bush strayed from his prepared remarks. He said he thought greed had taken over, but needed to conduct an internal investigation to find out if that were really true. He was pretty sure he'd never met "a nobody" so he didn't know if they feared failure or not. President Bush said he only meets with important people who donate huge sums of money to his political party. While still pontificating he decided greed had taken over. "Did you see the guest list for the White Tie with the Queen?" Those rich sons of bitches and their bitches got to eat fish with royalty. Who pays millions for a dinner at Long John Silver's? My friends who raid the U.S. Treasury...


The correct answer is "C", the rest is only partially true!

Carlyle Flips Another Government Services Company for Big $

The Carlyle Group announced the sale of U.S. Investigations Service Inc. to another private equity group for $1.5 billion. Providence Equity Partners is acquiring the leading provider of pre-employment screening solutions, the largest provider of security investigations for the federal government, and a global supplier of cleared personnel supporting critical federal programs. Welsh, Carson, Anderson and Stowe also owns a big chunk of USIS and will benefit mightily from the sale.

Did you know USIS used to be a government agency, the office of Federal Investigations? In a similar move to student loan vendor Sallie Mae, privatization turned it into a corporation in the 1996.

So how much did the boys from WCAS and Carlyle make on the deal? In January 2003 WCAS paid $545 million for the company, already partly owned by Carlyle since 1999. Carlyle reinvested $172 million in the transaction. The deal turned many ex-government employees into millionaires.

In four years USIS at least doubled, possibly nearly tripling in value to $1.5 billion. For conservativism I'll call the 2003 buyout at $717 million, the total investment of both WCAS and Carlyle. The private equity underwriters, PEU's made $787 million on their four year investment, nearly $200 million a year. In a move reminiscent of the Gipper, USIS gave 110% return to its investors.

How much will the sellers save in capital gains taxes as their assets were held for more than one year? WCAS and Carlyle save nearly $40 million from this transaction alone. Next time you hear Republicans or Democrats talk about the magic of privatization recall USIS and Sallie Mae.

Individuals, especially rich board members with significant stock holdings make out like bandits from what used to be a government services organization. Then after making millions, they don't share with their original benefactor! Sallie Mae's board members will save nearly $50 million with the Bush tax giveaway.

How much will the President's friend Tom Scully (ex-Medicare chief) make off this deal as a General Partner for Welsh, Carson, Anderson and Stowe? Will he voluntarily pay extra taxes as Tom is intimately aware of Republican efforts to throw people off Medicaid via increased cost sharing and proof of citizenship requirements? I'm not holding my breath.

Next time you hear your Congress person cite the need to throw people off Medicaid, nutrition assistance, or housing help, remember who can more than afford healthcare, a decent meal and fine accomodations. Then vote them out of office.

How Much Did Matteo Fontana Make on His Education Learning Stock?

The news revealed a federal employee in charge of the student loan database owned 10,500 shares of Education Lending Group as of September 2003. It traded at $9.50 a share at the time giving it a value of over $100,000. The question is when did Matteo sell his shares? Did he hold them until February 2005 when ELG was acquired by CIT Group? If so, Mr. Fontana grossed $200,000 on his holdings given CIT's cash purchase price of $19.05 per ELG share.

That's a heckuva investment return for a federal bureaucrat managing a computer database. Now how did he get those shares to begin with? And did the company get preferrential access to potential customers from this arrangement?

Don't count on the Bush administration to come clean or conduct even a cursory examination into the matter. I'm still waiting on why the Bush team completely omitted the hospital with the largest number of patient deaths from its post Hurricane Katrina "Lessons Learned" report. The Carlyle Group likely is most appreciative that Frances Townsend left their newly purchased LifeCare Hospital out of her post mortem on the Bush performance. It's easier to defend their wrongful death civil suits with the feds silent on the matter...

New Recess Appointed Belgium Ambassador is PEU

President Bush picked up his Maxwell Smart shoe phone to call an old “Ranger” buddy for help with international affairs. No, not a Texas Ranger but a Bush/Cheney fundraising Ranger, the label given to those who raise over $200,000 for the campaign. Using the old recess appointment trick, Bush slid Sam Fox, private equity underwriter into the ambassadorship of Belgium.

How did the President do this? In a move worthy of a brutally fought 3 am Yale RISK game, Bush feinted by withdrawing Fox from Senate consideration of the Belgium ambassadorship. Then while abusing the Congress for being gone 2 weeks (while a Republican controlled Congress took a break over 3 times as long last fall to the President’s silence), Bush used the double secret recess appointment trick to lodge a multimillion dollar Republican fundraiser into positions career diplomats used to occupy.

For what is Belgium famous? It’s known for diamond trading which has a distinctly Jewish flavor. The U.S. government has a distinctly pro-Israel stance as evidenced by the recent AIPAC meeting attended by “rock stars” from both major parties. Future Presidential candidates competed for the “who loves Israel” prize.

Belgium also serves as a financial center for the European continent. From this base the United States monitors world wide financial transactions for evidence of terrorism. The SWIFT program is based in Brussels, Belgium. In an eerie coincidence another private equity firm, The Carlyle Group purchased a financial software and services company that very country last fall. FRS Global markets unique products that help banks and financial institutions with “regulatory compliance”. Does that include helping Uncle Sam root around in our financial drawers?

For what is Sam Fox famous? Besides taking over distressed companies and turning them around for massive gains, Sam likes to fund a political winner at any cost. Remember the “Swift boat veterans for truth” negative ads against John Kerry? Sam kicked in a yacht load of money to run the ads. This act held up Fox’s nomination in the Senate.

Sam Fox might the perfect ambassador for a dirty playing, heavy handed, Israeli loving government that wants to contract almost any government service to its buddies. The international monitoring program SWIFT should be broadened to include U.S. politicians, their fundraising and legislative voting patterns. But the Bush “open and transparent” government wouldn’t have such a thing.

One would think in America, the freest country on earth, citizens would have easy access to such information to make informed votes. In this case the people’s representatives didn’t even get to vote as King George used a procedural move to get his way.

Don't worry America is still the finest democracy on Earth, with the freest people? Would you believe we're a pretty good democracy, with mostly free people? How about an average country with obedient citizens? OK, a country run by rich landowners who send business to their friends and don't trust the people to select a President by majority vote, thus the Electoral College...