From In These Times :
Features > October 29, 2007
Pirates of Private Equity
An insanely lucrative investment strategy finally faces public scrutiny
By Adam Doster
Employees knew that Hastings Manufacturing Co., a family-owned auto-parts supplier 30 miles south of Grand Rapids, Mich., was in deep water. Facing financial pressure, 375 employees—two-thirds of whom were in the United Auto Workers’ (UAW) bargaining unit—conceded $1 million in benefits to save their company, relinquishing newly negotiated pay raises and agreeing to cover part of their own health care costs.
But according to UAW Local 138 Chief Steward Kim Townsend, who testified before the House Commercial and Administrative Law subcommittee in September, when Hastings’ management declared bankruptcy and was taken over by the private equity firm Anderson Group in December 2005, the slicing didn’t stop there. Sick days were cut in half, an existing two-tier wage system with a top rate of $13.49 an hour was maintained and the allotment for bargaining time was limited to two hours a month on company time. For retirees, the consequences were more dire, with pensions and health care coverage all but severed.
To market analysts, Hastings appears more profitable today. But its value stems not from innovation but from breaking obligations to the company’s employees and retirees. “We make the same products,” Townsend said at the hearing, “in the same building, with the same equipment, for the same customers as we did before the asset sale.”
As the Hastings case exemplifies, mysterious financial entities known as private equity funds are laying waste to economies around the world. The firms that manage these funds grab up companies, strip them of their assets, gobble up the profits, and leave workers and local communities to pick over the detritus.
http://www.inthesetimes.com/article/3378/pirates_of_private_equity/
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