He's Just Not That Into You

Let’s extend a formal welcome to Stephen A. Schwarzman of The Blackstone Group, a newcomer to Proxyland.

Hi, Steve. Slumming? According to several blue-ribbon commissions (here and here and here), Proxyland is nowhere near as nice as Privateland, from whence you hail - where Sarbanes-Oxley is merely a scary story told around the campfire.

Actually, while Steve is crossing the border to hit us up for some cash he's still going to run Blackstone mostly by the rules of Privateland. Best of both worlds. The S-1 he filed late last week says it all:

Listen up, public investors:

1. As you know, here at Blackstone we have gobs of money. But we’d like some more. This is where you come in, though only for a measly 10%.

2. We like you OK but we like the investors in our funds a lot better, so don’t get stars in your eyes, bub.

3. Your voting rights as a common unit holder will be similar to those of a convicted felon trying to participate in a Presidential election in Florida.

4. You find our organizational chart confusing? Don’t worry your pretty little heads about that. Here’s what you need to know: We will do our thing - which if we must say so ourselves we do quite well - and the more we pay ourselves the better your investment will fare. Cool, huh? So just run along and let us handle everything. But remember, our earnings tend to bounce up and down in the short term so don’t go all jelly-legged on us.

5. If you see us giving ourselves huge equity-based awards, you are instructed to go back to watching Grey’s Anatomy and leave us alone. There’s not a damn thing you can do about it anyway. (See #3 above.)

6. Our Starbucks venti-sized cup is about to runneth over so we’re going to use a little of what’s sloshing over the sides ($150 million, to be exact) to start a charitable foundation. You wouldn’t understand, but being this rich is almost embarrassing and also some Senators think we should pay more taxes.

Should I ever bump into Steve I have a conversational ice-breaker prepared because I once worked in the same building where Blackstone is now located: “Nice elevators, huh?” Hope he doesn't ask me about that organizational chart.

Eat Our Dust, SEC

The Major Automotive Companies, Inc., a holding company for car dealerships, is driving off into the sunset, i.e., going private. So says their recently filed proxy.

Why leave beautiful Proxyland? Well, there's the expense of being a public company (1.3 million last year, Major estimates). But Major's departure looks to be less about cost than it is about lack of benefit. Several years ago the company was on an acquisition bent, using its stock to snap up underperforming dealerships. Then the stock rolled downhill. Cue the violins: "The Company has not been able to take advantage of the benefits of being a public company, such as enhanced shareholder value, stock liquidity, business credibility and the ability to use Company stock as currency for acquisitions, due to the limited liquidity and low market price of our Common Stock."

So it doesn't look like Major Automotive's decision was a product of Post-Traumatic SOX Disorder, or at least that wasn't the driving force (ouch) .

Do Not Disturb

They're here and they're huge! On Friday the SEC proposed new rules on compensation disclosure. The pdf was so big it froze my laptop, so I guess I'll have fun reading it.

As the previous post notes, the SEC's earnest attempts to make things better will no doubt have unintended consequences; let the betting begin on what the fallout will be. One thought, inspired by today's NY Times article on private equity, is that execs might simply pack up their golf clubs and relocate from Proxyland to Privateland. The article quotes a public company executive who says: "If I were paid what Steve Schwarzman [of Blackstone Group] would pay me if he owned my company and it was still public, someone would find a way to put me in jail." Too many hypotheticals in that sentence, but you get the guy's point: Privateland is a place where corporate officers can collect pharaoh-like riches without the nuisance of public exposure.

The Times piece also notes that private equity deals are getting bigger: "The conversation has turned to whether there will be a day when a $100 billion fund arrives, fundamentally changing the landscape between public and private businesses." If companies can meet their capital needs without turning to the public market, Proxyland could become a ghost town. And if Schwarzman and the other rulers of Privateland are as smart as everyone thinks they are, they will annex only quality companies with competent managers, leaving hapless public shareholders to throw their money at the losers who remain.