Do I understand this correctly?
northbeach wrote:Do I understand this correctly?
Bylo Selhi wrote:northbeach wrote:Do I understand this correctly?
See http://www.financialwisdomforum.org/forum/v ... 176#193176
marty123 wrote:If the financing is long-term and issued in the US or a foreign market, then there is tax leakage which can exist (depending on withholding rates and/or how the deal is structured).
martingale wrote:marty123 wrote:If the financing is long-term and issued in the US or a foreign market, then there is tax leakage which can exist (depending on withholding rates and/or how the deal is structured).
I don't even think there needs to be tax leakage. If a Canadian firm in Canada pays interest to a foreign firm, the foreign firm ought to pay Canadian tax on the interest it earned inside Canada. Furthermore, we could require the Canadian borrower to withhold and remit to CRA the taxes due, so that CRA doesn't have to chase after and/or audit a foreign firm. If that's not already true, that's the change to tax law that should be made to plug the leak.
marty123 wrote:I also am of the vague impression that the treaty is being changed to exclude interest income from withholding, but I can't recall where I saw that, and whether it was imminent or just a suggestion.
Private equity investment firms, which are buying up companies worldwide at a heady pace, haven't been charged with breaking any laws. But the bigger and richer these investment titans become, there's a natural suspicion that private equity's gains may come at the expense of others — average investors as well as workers, lenders and perhaps the economy as a whole.
The public-to-private movement has an inescapable aura of exclusivity to it, because, well, that's the point: Some of the most brilliant financiers on Wall Street take money from well-heeled investors, borrow on top of that, buy up businesses, remake them out of the public eye and eventually sell them for what all parties involved hope is far more than the purchase price.
As of last week, Standard & Poor's counted 12 companies within the blue-chip S&P 500 stock index that had buyout offers on the table from private investment groups. The list includes utility company TXU Corp., retailer Dollar General Corp. and eye-care company Bausch & Lomb Inc.
But here's the question that Jeffrey Bronchick, who helps oversee $3.7 billion at money manager Reed Conner & Birdwell in Los Angeles, wishes more of us would ask: What are we giving up in future returns by selling out today?.
When private equity seals a deal, Bronchick says, "they're buying my upside" — meaning what he might have earned if the company had remained public and prospered.
"If the bottom fell out, they'd still walk away with huge amounts of money," David Dreman, a veteran investor who heads Dreman Value Management in Jersey City, N.J., says of the private equity players. They're paid to watch out for their investors, not their creditors.
But Federal Reserve Chairman Ben S. Bernanke is paid to watch out for creditors, and last week he warned that financing for private equity deals posed "significant risks" for banks and that the central bank was taking a closer look.
Shareholders may feel that private equity investors are stealing their companies, and workers may believe they aren't fairly sharing in the wealth. But Bernanke raised the most serious risk of all: that the private equity mania could be sowing the seeds of the next major U.S. debt crisis.
...Private equity has become a byword for money-making skills. “Why are we here attending conferences when we should be setting up private-equity firms?” quipped Niall Ferguson, a historian, at a conference held at the London Business School on July 2nd. But the industry's wealth has also made it plenty of enemies, with trade unions and left-wing politicians calling for curbs on its activities and higher taxes on its earnings.
The promise behind private-equity firms like Apollo is that they can fix broken companies far from the bright glare of the public eye. No longer tied to meeting investors’ quarterly earnings expectations, company management can focus instead on improving operations.
Private-equity firms raise huge sums from investors like pension funds and endowments and then borrow more from banks and other lenders so they can put ever larger sums to work.
During the period when they own a company, private-equity firms pay out some of the company’s profits to their investors — and the buyout firm itself — sometimes recouping several times their original investment in dividends before they either sell the company or take it public again.
One of the longstanding criticisms of buyout firms is that they engorge targets with debt and skim the profits for themselves. That image was reinforced during the boom with stories about buyout executives’ over-the-top birthday parties and other lavish excesses.
The notion that buyout firms were only on the hunt for quick gains was further strengthened by actions of Apollo and some of its peers. Sometimes within just a year of acquiring a company, they issued debt that was used to pay fat dividends to the funds themselves.
Besides layering more debt onto the companies, the move effectively allowed Apollo and its competitors to handily recoup some, if not all, of their initial investments.
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