Investors3
2 years ago
Carlyle to Acquire, Expand Data Center Company Involta
December 22 2021 - 03:05PM
PR Newswire (US)
NEW YORK and CEDAR RAPIDS, Iowa, Dec. 22, 2021 /PRNewswire/ -- Global investment firm Carlyle (NASDAQ: CG) announced today that funds managed by Carlyle have agreed to acquire Involta, a data center company focused on hybrid IT and cloud infrastructure, including data center colocation, hybrid cloud, edge, fiber, and related products.
The Carlyle Group
Involta owns and operates 12 data center facilities and an in-house 12,000+ fiber-mile network. These assets, paired with strategic infrastructure services, provide mission-critical IT solutions to businesses across the United States. Carlyle's capital, resources, and expertise will help expand Involta's operations, which today are located primarily in the Midwest as well as the Pacific Northwest and Southwestern U.S., helping grow its capabilities for both new and existing customers.
Joshua Pang, Head of Digital Infrastructure for Carlyle's Infrastructure Group, said, "Involta has built a world-class platform with a demonstrated operating model for delivering high-quality service to customers in an increasingly complex, hybrid cloud-based world. We see significant opportunity for growth given the long-term secular demand drivers of data proliferation, digital connectivity, and the digitization of enterprise and institutional operating models. We look forward to a strong, long-term partnership and to leveraging Carlyle's scale, resources, and access to capital to drive sustainable growth at Involta."
Pooja Goyal, Chief Investment Officer of Carlyle's Infrastructure Group, said, "This investment is consistent with our strategy of partnering with best-in-class businesses positioned for continued growth in the digital infrastructure space. Digital infrastructure is a key sector focus for our platform and we will continue to grow our portfolio with both high growth opportunities as well as stabilized assets."
Bruce Lehrman, Founder and CEO of Involta, said, "We are thrilled to work with Carlyle's proven investment team as we build on our national market leadership and support our customers' growing digital infrastructure requirements. We see many logical opportunities to continue expanding Involta's footprint and infrastructure, and look forward to leveraging Carlyle's global resources and deep expertise to further accelerate our growth momentum."
This transaction supports Carlyle's growth in infrastructure investing, which includes investments in infrastructure companies supporting the digital economy. Earlier this year, Carlyle acquired Wyyerd Group, a leading regional fiber-to-home platform in the Southwestern United States, and recently completed an add-on fiber acquisition for that platform in December 2021.
Carlyle will acquire Involta from M/C Partners. The transaction is expected to close in the first quarter of 2022 and is subject to the satisfaction of customary closing conditions. Financial details were not disclosed.
Greenberg Traurig LLP, Bank Street Group, and TD Securities advised on this transaction.
About Carlyle
Carlyle (NASDAQ: CG) is a global investment firm with deep industry expertise that deploys private capital across three business segments: Global Private Equity, Global Credit and Global Investment Solutions. With $293 billion of assets under management as of September 30, 2021, Carlyle's purpose is to invest wisely and create value on behalf of its investors, portfolio companies and the communities in which we live and invest. Carlyle employs more than 1,800 people in 26 offices across five continents. Further information is available at www.carlyle.com. Follow Carlyle on Twitter @OneCarlyle.
About Involta
Involta is an award-winning hybrid IT and cloud-forward consulting firm orchestrating digital transformation for the nation's leading enterprises. Involta's ongoing mission is rooted in partnership. Its personalized approach identifies customers' requirements while earning their trust to ultimately deliver Superior Infrastructure and Services, Operational Excellence and People Who Deliver, keeping with the Involta brand promise.
Involta pairs strategic consulting with the unique ability to leverage owned data centers and infrastructure assets, empowering businesses with necessary security and reliability requirements. Its well-defined, rigorous process to deliver hybrid cloud, edge, consulting, and data center services have earned the company several designations, including a KLAS rating and review for partial healthcare IT outsourcing excellence. The company has also been recognized on several CRN lists and has been named one of the fastest-growing companies in America by Inc.5000 for nine consecutive years.
Involta enables customers with the power to transform their technology and the freedom to focus on their core business. To learn more about Involta, visit involta.com or follow them on LinkedIn, Twitter or Facebook.
About M/C Partners
M/C Partners is a private equity firm focused on small and mid-size businesses in the digital infrastructure and technology services sectors. For more than three decades M/C Partners has invested $2.4 billion of capital in over 140 companies, leveraging its deep industry expertise to understand long-term secular trends and identify growth opportunities. The firm is currently investing its eighth fund, partnering with promising companies and leadership teams to support, scale, and improve operations and maximize value. For more information, visit https://mcpartners.com.
Media Contacts:
Christa Zipf
Carlyle
Christa.zipf@carlyle.com
347-621-8967
Sheetal Werneke
JSA for Involta
1.866.695.3629
jsa_involta@jsa.net
(PRNewsfoto/Involta, LLC)
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SOURCE Involta
Copyright 2021 PR Newswire
https://ih.advfn.com/stock-market/NASDAQ/carlyle-CG/stock-news/86878164/carlyle-to-acquire-expand-data-center-company-inv
Timothy Smith
11 years ago
Global alternative asset manager The Carlyle Group [NASDAQ: CG] said Dec. 20 that it has acquired a 47.5% revenue interest in NGP Energy Capital Management, an Irving, Texas-based energy investor with $12.1 billion in assets under management. Carlyle will pay, at closing, $424 million to acquire Barclays Natural Resource Investments’ (BNRI) 40% stake and 7.5% from NGP’s management. The transaction, which will be funded with cash and Carlyle Holdings partnership units, closed Dec. 20.
The transaction also includes: a right to purchase an incremental 7.5% revenue interest, which would bring Carlyle’s total revenue interest to 55%; 7.5% of the carried interest in all future funds; and options to acquire BNRI’s 40% interest in the carried interest in NGP’s current flagship fund (NGP Natural Resources X, LP) and all future NGP funds. Carlyle has also agreed to pay the sellers additional consideration during 2015 to 2018, contingent upon NGP achieving certain business performance goals.
Carlyle co-CEO and chief investment officer William E. Conway Jr. said, “Carlyle is systematically strengthening our global natural resources investing platform and NGP is an important part of this effort. NGP’s investing excellence in the US oil and gas, midstream, and oilfield services sector, coupled with our established capabilities in commodities, power generation, mezzanine financing, and most recently, refineries, allows us to take full advantage of the energy revolution sweeping America. This partnership enables our respective investors to pursue opportunities across the energy spectrum.”
NGP CEO and co-founder Kenneth Hersh said, “Our strategic partnership with Carlyle enhances our ability to serve current and future investors. Our current NGP investors will continue to be served tirelessly by NGP’s extensive energy expertise, but they will now also benefit from Carlyle’s global reach, knowledge of debt financing and capital markets, and its extensive network, which complements our own.”
Hersh continued, “This relationship has tremendous long-term benefits. With this transaction, we have facilitated the sale of Barclays’ minority interest in our firm to a strategic partner, and carefully structured the contingent future payouts to favor NGP’s next generation of leaders, thereby providing substantial incentives for everyone to achieve high levels of performance over very long periods of time. Importantly, we did this all without disrupting in any way our current operations or governance structure.”
Daniel A. D’Aniello, Carlyle’s chairman and co-founder, said, “NGP has a proven team, a strong 24-year track record of performance across cycles and is a great cultural match. Our respective teams complement each other in so many ways, positioning both NGP and Carlyle to deliver even better outcomes for our investors.”
Established in 1988 by Ken Hersh and his partners, NGP Energy Capital Management has successfully completed 220 transactions, resulting in cumulative invested capital of $6.6 billion with total enterprise value of $36.1 billion across a range of energy and natural resource assets, including oil and gas resources, oilfield services, pipelines, and processing. Other investment mandates include: food, agriculture, water resources and services, energy efficiency, power tech, and alternative energy. The firm’s 70 professionals in five offices manage $12.1 billion across eight funds.
NGP will serve as the cornerstone of Carlyle’s growing natural resources investing platform, which includes energy mezzanine financing, energy infrastructure, and power generation (Cogentrix), and commodities (Vermillion).
Among many others, certain of NGP’s current and recent former investments in companies that are now publicly-traded include Energy Transfer Equity, Energy Transfer Partners, Eagle Rock Energy, Memorial Production Partners, and Resolute Energy Corporation.
chris8sirhc
12 years ago
New negative blog post out on Focus Media Holdings, could this directly effect Carlyle since they are involved in the deal?
*highlights that seem to be directed at the people involved in the deal (Carlyle Group?)
"If you do the deal and it fails spectacularly (despite ample warnings) your limited partners and the regulators will believe something worse than hubris. Probably far worse.
My guess for what they will believe: that you did this deal knowing it to be fraudulent and that you got kick-backs for doing it. They will believe you looted your own funds. That belief may or may not be true - but that is what they will suspect.
If interpretation (c) proves correct and you close this deal your career (and possibly your whole life) will get very difficult indeed.
"
FULL TRANSCRIPT BELOW
link to original:
http://brontecapital.blogspot.com/2012/09/focus-media-three-interpretations-which.html
"Monday, September 17, 2012
Focus Media: Three interpretations - which one is right
This blog has demonstrated a bunch of bizarre transactions in Focus Media's accounts. In particular I have focussed on transactions during 2009 in which vast sums appear to have been lost in businesses that were acquired from companies formed only months before acquisition. In each of these cases the business was sold or mostly given back to the original owner.
Here is the disclosure I focussed on (but there are other strange disclosures I could pick):
2009 Disposition
In 2009, we aborted a contemplated initial public offering for its Internet advertising segment due to the economic recession in late 2008. As a result, between August and December 2009, we disposed of six underperforming subsidiaries in that segment through a series of individual transactions with their respective original owners. Each of the subsidiaries was considered a component of our company, and their results have been included in discontinued operations in the consolidated statements of operations. The results of discontinued operations include net revenues and pretax losses of $127.6 million and $45.4 million, respectively, related to these subsidiaries. We recorded a loss on disposal of $44.1 million.
The following table summarizes the acquired subsidiaries in the mobile handset advertising services segment and Internet advertising segment that were sold back to their original owners in 2009:
Acquisitions
Date of
acquisition
Business segment
Proceeds paid Date of
Disposal Loss on
disposal
1.
Catchstone(1)
2007-4-16
Internet advertising
$ 14,489,647 2009-12-22 $ 11,560,617
2.
WonderAd(2)
2007-9-15
Internet advertising
$ 14,926,003 2009-11-30 $ 14,926,003
3.
Jiahua(3)
2007-8-15
Internet advertising
$ 7,659,158 2009-12-1 $ 7,659,158
4.
Wangmai(4)
2007-9-1
Internet advertising
$ 2,749,158 2009-12-14 $ 2,749,158
5.
Jichuang(5)
2007-12-1
Internet advertising
$ 366,032 2009-8-24 $ 366,032
6.
1024(6)
2008-3-1
Internet advertising
$ 3,397,124 2009-12-18 $ 3,397,124
7.
Dongguan Yaya(7)
2007-10-1
Mobile handset advertising services
$ 1,540,612 2009-2-28 $ 1,588,110
(1) The original sellers which subsequently repurchased Catchstone were Only Education Holding Limited and Maxnew Holdings Limited, BVI companies owned by a single PRC individual unrelated to our company.
(2) The original seller which subsequently repurchased WonderAd was Megajoy Pacific Limited, a BVI company ultimately owned by seven PRC individuals unrelated to our company.
(3) The original sellers which subsequently repurchased Jiahua were two PRC individuals unrelated to our company.
(4) The original seller which subsequently repurchased Jichuang was Richcom International Limited, a BVI company owned by a single PRC individual unrelated to our company.
(5) The original sellers which subsequently repurchased Keylink Global Limited were four PRC individuals unrelated to our company.
(6) The original sellers which subsequently repurchased 1024 were two PRC individuals unrelated to our company.
(7) The original sellers which subsequently repurchased Dongguan Yaya were Sinoalpha Limited and Max Planet Limited, BVI companies each of which is owned by a separate single PRC individual unrelated to our company.
The main thing demonstrated was that all the British Virgin Island (BVI) companies above:
* had the same address despite being explicitly unrelated parties,
* had the same phone number despite their non-related status,
* in all cases except one had been formed only a few months before they sold a business for millions of dollars to Focus Media
* in the exception had been formed after they sold the business to Focus Media
* had in all but one case later been struck off the register for non-payment of a fee.
Moreover the companies given back in 2009 were given back with a lot of cash (some 27 million dollars) embedded in the companies as they were given away. Focus Media on the disclosed accounts appear to have given away cash.
Three interpretations
I originally had three interpretations of this disclosure. These were
(a). The accounting statements absolutely straight, Focus Media really did buy all these businesses, lose a huge sum of money on them and gave them back to their original owners,
(b). Focus Media used these transactions facilitate the mass looting of the company. That is the money was not really lost, but rather the business were purchased and given back to their original owner as part of some scheme to steal from the company.
(c). That the losses were fake - a form of profit washing. In this interpretation Focus Media reports fake earnings (say inflated revenue or deflated cost, most likely inflated revenue) and this loads the balance sheet with fake cash. The fake cash needs to be removed (or the auditors will find it or shareholders demand it) so the fake cash gets removed from the balance sheet with fake losses on rubbery transactions.
Two interpretations left
On the information as discovered so far interpretation (a) above requires one to believe that all these seemingly unrelated parties found the same lawyer to register their BVI entities and that these businesses generated millions of dollars in net worth in a few months before they were sold to Focus Media.
Indeed you need to believe that Richcom, which was not even in existence, had a business that Focus Media was happy to buy for millions of dollars.
There are scenarios where interpretation (a) remains possible. For instance if all the Chinese entrepreneurs had the same lawyer and hence all the addresses are the same, and that lawyer was sloppy and forgot to actually register Richcom. They might have the same lawyer because they socialize at the same Karaoke bar.
However interpretation (a) requires this unlikely combination of circumstances.
This leaves two remaining interpretations (b) and (c) above. Either the company was being looted or there were fake profits and the losses described above were fake losses whose accounting function was to make the books balance when there were fake profits elsewhere.
These two interpretations have wildly different implications for the future of Focus Media
The main response to my posts is to say that all I have demonstrated was that Focus Media prior to 2009 was a very dodgy company. Bill Bishop - one of the more sophisticated China watchers - tweeted as much:
10 SepBill Bishop ?@niubi
@LongShortTrader @John_Hempton Pre crash fmcn had lots of the crap you and muddy waters have documented, post crash fmcn cleaned up
Expand
Reply
Retweet
Favorite
Indeed this was also the response to Muddy Waters who alleged fraud at Focus Media about a year ago. There were just a bunch of dodgy transactions.
But my interpretations (b) and (c) above have wildly different outcomes for the stock.
If the company was being looted - as say Bill Bishop and many others imply - then there was something there to loot.
Something there to loot suggests the company really is valuable.
Once the looting stops (and you would presume it would stop after being taken private) then the cash flow is real and can service lots of debt and make the PE buyers rich.
If however (c) is true then the losses recorded in 2009 were fake losses - then the profits recorded were fake profits. If this is the case then the company can't service lots of debt (the profits were fake and you can't service real debt with fake profits) and the PE deal will collapse.
Indeed if the profits were not real then there is nothing there to loot, nothing of any real value - and an end value for the stock is below $2 (and I think probably below $1).
The accounts since 2009
The accounts since 2009 have shown a fairly steady build up of cash and financial assets. The two interpretations have something to say about that.
In interpretation (b) the company was heavily looted in 2009. However it is a valuable company and since then that value has accumulated as cash on the balance sheet. To believe this you have to assume that the management were evil but they somehow turned good.
In interpretation (c) the company was not looted in 2009, just a huge pile of accumulated fake cash was removed from the balance sheet by having fake losses. Since 2009 the company has continued to accumulate fake cash. Eventually that fake cash will also need to be removed from the balance sheet. This situation is just like at the end of 2008 where this interpretation would imply the company had also accumulated a bunch of fake cash only to have it removed by fake losses in 2009. To believe this you have to believe the company is currently accumulating fake assets (including some fake cash).
It is of critical importance to the stock to work out which is true. If (b) is true this deal will close and you will get $27 a share. If (c) is true the deal is likely to fail - and the downside is to maybe a dollar or two a share. [There are reasonable scenarios where the downside is to zero...]
Indications that it might be C and the shares are nearly worthless
There are several things that indicate that it is more likely to be (c) than (b). Here are a few.
The company had a Renminbi shortage in 2006
I know it is a long time ago - but this is a startling disclosure:
In March 2006, Weiqiang Jiang, the father of Jason Nanchun Jiang (the CEO/controller of Focus Media), provided a short-term loan to the Group of approximately $2.5 million to relieve a temporary shortage of Renminbi the Group experienced at that time. The loan is unsecured and was provided to us at no interest. The loan will become due and payable in full on June 30, 2006.
The company disclosed a "temporary shortage of Renminbi". At the time the balance sheet showed plenty of cash and cash generation. The only way that there could have been a Renminbi shortage is if the cash was fake. And the cash was only fake if the earnings were fake. Moreover a Renminbi shortage implies almost no net cash generation - consistent with a worthless or nearly worthless share.
The disclosure of a Renminbi shortage is consistent with interpretation C.
The company appeared to pay cash to a company that did not yet exist
In August 2007 Focus Media purchased a business from Richcom International for over $2 million. The only problem is that Richcom International was not formed until October 2007. In other words it appeared to pay cash to a company that did not exist.
A company that does not exist has a very hard time opening a bank account and hence has a hard time receiving cash.
But it has no problem receiving fake cash (you don't need a bank account for that).
This is consistent with interpretation C. Fake cash paid comes from fake profits.
In 2009 the company essentially gave away almost all the subsidiaries it disposed of, but the accounts showed that those subsidiaries had 27 million in embedded cash
Above there is a list of companies disposed of in 2009. All of those were given back to their original owners. In some cases a small consideration was paid.
However the cash flow statement for the year shows that in excess of 27 million dollars was embedded in the companies that were given back to their owners in 2009.
This could be looting - but is particularly blatant - just giving away cash.
The alternative hypothesis is that the cash embedded was fake. This appears more reasonable to me than actually blatantly just giving away cash.
The company used to overstate its number of movie screens
Overstating things like numbers of movie screens is consistent with overstating revenue. Overstating revenue will give you fake cash as per (c) above.
The company used to say that it had 27,164 theatres on which it displayed averts. There were less than 1600 in all of China at the time. This sort of overstatement leads one to question whether other things are being overstated - and hence fake cash is being produced.
That is supportive of interpretation (c) above.
The company claims extremely high revenue per movie screen
The company later restated down the number of movie theatres it displayed in - but it never restated down the revenue from those theatres. Revenue per theatre ran at over $27 thousand average last year - above the average and near the high-end of US revenue per theatre.
Moreover it was running at roughly a $40 thousand per theatre run-rate in the fourth quarter of last year. That is above the peak in the US.
Advertising rates in China are substantially lower than the US. Moreover my independent inquiries suggest the revenue per screen in China is closer to $7,500 per year.
Overstated revenues means fake earnings and fake cash as per interpretation (c) above.
The company overstated and restated down the number of LCD screens it has
The company recently reclassified a whole lot of screens in the LCD business to the poster-frame business. The reason given was that they were originated by the LCD business and hence counted as LCDs. Perhaps plausible but also consistent with generally overstating things and hence overstating revenue.
Overstated revenue leads to fake cash as per explanation (c) above.
The company claims to make huge margins from a business that nobody finds profitable elsewhere in the world
How many 17 inch displays showing adverts have you seen in residential buildings in countries other than China? They do not exist in Australia. I have not seen them in New York. Sometimes in office buildings or hotels (usually advertising the facilities of the hotel). Never in residential buildings.
That is because nobody can make them profitable in residential buildings outside China.
However they claim over $3000 per screen of revenue in China. If you could get that much revenue in China (where advertising rates are low) you could get more elsewhere and the screens would grow like mushrooms in dark elevator lobbies all over the planet.
They are not.
Either China is really different or the revenue and profits are overstated in China as per interpretation (c) above.
Summary
Most of the evidence is consistent with (c) above. The strange transactions are not looting as the bulls in the stock would suggest. Interpretation (c) is that these transactions are the washing of fake profits by producing offsetting fake losses.
In that case the business earnings are not real and the business cannot support all the debt that the PE firms will laden it with. The private equity deal will fail as the debt defaults.
It is hard to tell what the stock is worth absent a PE bid. However as nobody can make an LCD business substantially profitable in (say) America what is it worth in China where advertising rates are lower?
John
PS. There is someone associated with this deal who has been arrogantly telling friends that they love this blog. They say I am keeping the pricing pressure down and making this deal easier.
If interpretation (c) is right this deal will collapse spectacularly after it closes (the debt will default, the PE buyers will get nothing). And you were warned and continued regardless.
The explanation for your recent arrogance is probably "deal fever". But as I said at the beginning of this sequence of posts private equity has the ability to due diligence and your limited partners will be expecting rigour over hubris.
If you do the deal and it fails spectacularly (despite ample warnings) your limited partners and the regulators will believe something worse than hubris. Probably far worse.
My guess for what they will believe: that you did this deal knowing it to be fraudulent and that you got kick-backs for doing it. They will believe you looted your own funds. That belief may or may not be true - but that is what they will suspect.
If interpretation (c) proves correct and you close this deal your career (and possibly your whole life) will get very difficult indeed.
Of course if I am wrong and interpretation (a) or (b) is true this will be a great deal. Go for it."
bob smith
12 years ago
Agree with the symbolism
Of your comment, but don't let the love kick you in the a@@ on the way out.
Check out the article that should temper your love, but not affect your pocket book:
The private equity powerhouse’s proposed IPO is an affront on shareholder rights and any sense of corporate accountability.
By Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance
Carlyle Group founders (left to right) William Conway, Daniel D'Aniello, and David Rubenstein
FORTUNE — We’ve seen companies like News Corp (NWS), Blackstone (BX), and LinkedIn (LNKD) chip away at shareholder rights by limiting the voting rights of shareholders. Now Carlyle is adding insult to injury.
In its recent proposed initial public offering (IPO), Carlyle will have no requirements for an independent board, virtually no voting rights for owners, and no ability for owners to sue. As an added bonus, owners will be paying its tax liabilities without any surety that they will receive cash distributions sufficient to cover those costs.
So, what would happen if every company did a Carlyle-style IPO? The private equity firm’s IPO proposal, which is brought to you by the clever folks at J.P. Morgan (JPM), Citigroup (C), and Credit Suisse (CS), with some help from law firms Simpson Thacher and Skadden Arps begs us to ask the question.
For example, on the tax front, what if all large companies were to adopt Carlyle’s approach where the owners (called unit-holders, which is analogous to shareholders) pay the corporation’s taxes? What impact would eliminating corporate income taxes (which is required of C-corporations) have on our economy and budget deficit?
It’s not an unreasonable question, Bob Monks, founder of LENS Investment Management, told me. “Companies are already moving offshore to avoid taxes, fiduciary duties, and regulatory responsibilities. It is astounding how much business is already transacted in offshore tax-havens,” he says.
According to Carlyle documents filed with the SEC, the proposed IPO “involves complex provisions of U.S. federal income tax for which no clear precedent or authority may be available.” Owners will be subject to that risk. Congress could act to preclude the Carlyle tax structure, but it has not passed anything so far, the documents state.
In addition to the tax risk, with no real shareholder rights in place, there is no accountability by Carlyle to those who buy their units/shares. What if every corporation adopted such a stance?
Money managers (who are hired to invest the monies of institutions or mutual funds, pension plans, or individuals’ savings or retirement accounts) at least have fiduciary obligations to their clients and should not be able to invest in such draconian offerings as a matter of prudence.
“I’d go one step further,” Monks told me. “They are barred from investing in offerings like Carlyle’s as a matter of both law and ethics.”
Former SEC chair and current Carlyle senior advisor Arthur Levitt recently told Bloomberg that taking away investors’ right to sue “could diminish the public appetite for Carlyle stock” and “companies that consider going down this road take a perceptual risk which, in terms of an IPO, is probably not a risk worth taking.”
But will money managers follow their obligations and avoid this offering? And if they don’t, will regulators enforce the fiduciary obligations money managers owe their clients?
As the IPO is currently designed, the SEC could block the IPO outright. But Lynn Turner, former chief accountant at the SEC, told me “Given the level of regulatory capture and close ties to the securities industry at the current SEC, it is quite possible, if not likely, the SEC will allow the Carlyle IPO to move forward, to disastrous effect.”
Perhaps Carlyle, which did not respond to a request for comment, would back down if money managers refused to invest. That would be a welcome repetition of history.
Former Goldman Sachs (GS) chairman John Whitehead spoke to me several years ago about how he fought offerings that diminished shareholder rights. “When I was chairman … there began to grow up a practice of managements deciding to sell non-voting stock to the public…. And I immediately thought that that was a bad idea. That people’s capitalism, the system that we have, depends on the age-old system of one-share-one-vote…. So Goldman Sachs decided that it would not underwrite non-voting stock, and that was a surprise because we lost some business when companies came to us and asked us.”
Once Goldman stopped underwriting non-voting stock, others began to reconsider. “And gradually, it fell out of practice,” Whitehead said. “And gradually, companies that had those kinds of shares eliminated their non-voting shares and then replaced them with full voting rights.”
Giving shareholders a say is “a self-cleansing process” and encourages companies to institute good practices, he said.
The health of capitalism itself depends on basic shareholder rights and money managers should be willing to fight for those rights. But will they? Will they remember who their customers are?
If Carlyle’s IPO moves forward with any measure of success, other companies may indeed follow suit. Corporate history is replete with examples of financial services firms creating major crises (including our most recent crisis) by acting like lemmings. Former Citi CEO Sandy Weill‘s Travelers-Citi merger pushed legislators to repeal the Glass-Steagall Act. Many large banks jumped on that bandwagon and began to sell financial instruments even they did not understand. We know the result for taxpayers and the economy.
Carlyle’s IPO raises a fundamental question about our future: we know capitalism was never perfect — but are we really ready for the end of capitalism as we once knew it, when it worked?
Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://thevaluealliance.com), a board advisory firm.
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