NYT: Yet Another Tale for our Times

From the New York Time’s Gretchen Morgenson:

A once-healthy company that is Greece’s third-largest mobile phone operator, Wind Hellas was taken over in a 2005 buyout by two global private equity giants: Apax Partners out of London and the Texas Pacific Group, led by David Bonderman. The two firms larded Wind Hellas with debt before selling it off just two years after they bought it.

Wind Hellas filed for the British equivalent of bankruptcy protection last fall, and now some investors are trying to figure how such a promising enterprise went aground. Apax and T.P.G. officials declined to comment for this column.

But Bertrand des Pallières, the chief executive of SPQR Capital, a London investment firm, was one of the larger bondholders in Wind Hellas. He says the decision by Apax and T.P.G. to heap debt onto the company while simultaneously extracting so much cash from it ultimately contributed mightily to its woes.

“The private equity industry always pitches how constructive it is as an investor force to create jobs and growth,” says Mr. des Pallières. “But there are private equity funds that get rich by breaking companies and making others poor — whether they are creditors, states or employees.”

Read full story here.

According to the article Apax and T.P.G. paid 1.1 billion euros for 81 percent of the company; later that year, they paid 264 million euros more for the rest in 2005. Wind Hellas had little debt of 166 million euros.

In 2007 Apax and T.P.G. sold Wind (a.k.a) TIM Hellas for 3.4 billion euros in equity and debt, however the company was loaded with debt. However, just 10 days before selling it, the Sharholders had transferred around 974 million euro out.

Nice little tale about capitalism. Take a perfectly healthy company that is actually making a profit, gut it and leave the corpse to rot.

Last fall, the parent company for the mobile phone operator now known as Wind Hellas defaulted on some of its debts, an unhappy situation that has left Mr. des Pallières, the investor, shaking his head.

“Private equity and banking can be very constructive functions of the economy, but they will destroy this industry if the leading players do not regulate themselves,” he says.

Self regulation? Don’t make me laugh.