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the twinkie
by pravalika nanda Sat Dec 10, 2016 4:59 pm
http://www.nytimes.com/2016/12/10/business/dealbook/how-the-twinkie-made-the-super-rich-even-richer.html?action=click&contentCollection=Politics&module=Trending&version=Full®ion=Marginalia&pgtype=article
For all the profits Apollo and Metropoulos squeezed out of the Hostess factories, a deal hatched in a hotel room on Fifth Avenue in New York shows how private equity can have its snack cake and eat it, too.
There, in the Versailles Room at the St. Regis, Apollo and Metropoulos began the process of extracting returns from the company, less than a year after shutting the Schiller Park plant.
Most investors seeking profit have to wait for the right moment to sell a company or take it public. But private equity uses a different playbook.
First, Apollo and Metropoulos arranged for Hostess to borrow money from the banking giant Credit Suisse. The two firms then pocketed about $900 million of that money for themselves and their investors. Hostess, meanwhile, is stuck repaying the debt.
This type of deal is known as a dividend recapitalization, and it is a staple of private equity’s money-making strategy. These deals provide private equity firms an opportunity to profit before they even sell a company, an added bonus to the firms and their investors, including public pensioners.
Private equity’s advantages don’t end there. Apollo’s share of the profits on Hostess or any deal ultimately flows to Mr. Black and his fellow shareholders in the company in ways that lower their tax burden.
The industry’s 20 percent cut of profits — also known as carried interest — is taxed at a long-term capital gains rate that is roughly half the 40 percent ordinary income rate for the nation’s highest earners. And since private equity executives receive much of their money from carried interest — or in the case of Mr. Black, distributions largely made up of carried interest — they enjoy a tax advantage over workers.
For all the profits Apollo and Metropoulos squeezed out of the Hostess factories, a deal hatched in a hotel room on Fifth Avenue in New York shows how private equity can have its snack cake and eat it, too.
There, in the Versailles Room at the St. Regis, Apollo and Metropoulos began the process of extracting returns from the company, less than a year after shutting the Schiller Park plant.
Most investors seeking profit have to wait for the right moment to sell a company or take it public. But private equity uses a different playbook.
First, Apollo and Metropoulos arranged for Hostess to borrow money from the banking giant Credit Suisse. The two firms then pocketed about $900 million of that money for themselves and their investors. Hostess, meanwhile, is stuck repaying the debt.
This type of deal is known as a dividend recapitalization, and it is a staple of private equity’s money-making strategy. These deals provide private equity firms an opportunity to profit before they even sell a company, an added bonus to the firms and their investors, including public pensioners.
Private equity’s advantages don’t end there. Apollo’s share of the profits on Hostess or any deal ultimately flows to Mr. Black and his fellow shareholders in the company in ways that lower their tax burden.
The industry’s 20 percent cut of profits — also known as carried interest — is taxed at a long-term capital gains rate that is roughly half the 40 percent ordinary income rate for the nation’s highest earners. And since private equity executives receive much of their money from carried interest — or in the case of Mr. Black, distributions largely made up of carried interest — they enjoy a tax advantage over workers.
pravalika nanda- Posts : 2372
Join date : 2011-07-14
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