The following is an excerpt from the article, “Wall Street High-Flyers: having it their way at Burger King”
by Sam Pizzigati
Hundreds of migrant farmworkers marched through Miami this past Friday to protest a Florida tomato grower maneuver that will cut some tomato picker wages by 40 percent. The growers are refusing to honor deals the state’s top farmworker group has cut with McDonald’s and Taco Bell…
(why is this happening? Read on…)
…three American big-money powers — Wall Street’s Goldman Sachs, the Boston-based Bain Capital Group, and the Fort Worth-based Texas Pacific Group — partnered to shell out $1.5 billion to take the distressed Burger King off Diageo’s hands.
Actually, the three partners did a good bit more borrowing than shelling. Only $325 million of the Burger King sale price came from the partners’ own pockets. They borrowed the rest. That’s standard operating procedure in today’s big-time private equity deals.
Firms like Goldman, Texas Pacific, and Bain, typically buy up a hurting corporate property with borrowed money, then tap the company’s operating cash flow — fast food companies do generate plenty of cash — to pay off the resulting debt.
But, wait, if that cash is going to pay off the debt the new owners of a hurting company like Burger King ran up to buy the company, how are those new owners going to make the investments in marketing or research or customer service needed to make their dysfunctional company functional?
Now firms like Goldman, Bain, and Texas Pacific could always borrow still more money to pay for these needed corporate improvements. But those improvements could take years to show up in the bottom line of a company like Burger King.
Private equity wheeler-dealers don’t have much interest in waiting years for results. But they have nothing against borrowing. So they do borrow — but not to make lasting improvements in the companies they buy. They borrow to line their own pockets.
Last year, for instance, Burger King borrowed $350 million in February and then paid out $367 million in dividends to the company’s owners, the good people at Goldman, Bain, and Texas Pacific. Then those good people, who had been collecting a $9 million annual fee for managing Burger King, collected another $30 million for agreeing to cancel that “management” contract.
Four months later, Goldman, Bain, and Texas Pacific unloaded a quarter of their Burger King ownership stake in an initial public offering of company shares that brought in $425 million. The three partners, once the dust settled, had nearly doubled their original out-of-pocket outlay for Burger King in just four years.
Meanwhile, Burger King remains a troubled company, deeply indebted, with per-restaurant revenues, notes Business Week, “just a little more than half the sales of a typical McDonald’s.”
But Goldman, Bain, and Texas Pacific aren’t finished yet. They last month began selling even more of their Burger King shares, with none of the proceeds going back into the company. To make these sales as lucrative as possible, Burger King, naturally, needs to show top-notch, short-term profits. And that brings us back to Florida and Burger King’s hard-line against a penny-a-pound pay increase for the state’s tomato pickers.
The more pennies for those pickers, Burger King management clearly understands, the fewer millions for Goldman, Bain, and Texas Pacific.
Last year, analyst Eric Schlosser points out, the over $200 million in holiday bonuses that went to the top 12 executives at Goldman Sachs more than doubled the entire combined annual wages of southern Florida’s 10,000 tomato pickers.
This year, those top 12 Goldman executives will reportedly walk off with even more in their pay envelopes. Florida’s tomato pickers, courtesy of Burger King, can now look forward to a future with even less.”
Filed under: Tennessee | Tagged: Billionaires, Burger King, buyouts, flipping corporations, Goldman Sachs, Private Equity, private equity refuses one cent raises, raises for crop pickers, tax breaks, tomato pickers seek 1 cent raise |