Brown hearts PE (still)
Has Gordon Brown turned against private equity? That's the conclusion drawn by a number of newspapers in explaining why Government attempts to sell have stalled close to the finishing line.
and have both reported that Brown is running scared of a Β£400m disposal of this famous state-run bookmaker to a racing-industry consortium that includes a private equity firm,
The suggestion is that the Chancellor does not want to be seen to be favouring the moneybags of private equity when his election as Labour's next leader is almost a racing certainty, for fear of inflaming anti-private-equity trade unions and leftish Labour MPs.
If Brown were spurning private equity, that would be a big deal. He has for years been a cheerleader for these purchasers of British businesses. He has a powerful conviction that when private-equity funds buy companies they frequently make them more efficient and enhance their long term prospects. And the way he slashed the rate of capital gains tax has been a particularly remunerative boon for the multi-millionaire partners in private-equity businesses.
But, for now, I don't think private-equity firms need to start looking for new premises in friendlier parts of Europe - because Brown has had no personal involvement in the Tote deal, or so I am told.
Treasury officials are frustrating the Tote disposal for the time-honoured reasons that they're not sure the proceeds are quite enough, and they're alarmed at the magnitude of potential rewards for managers.
Is this, however, a pernicious example of the politics of envy in Whitehall? On this occasion, I think not.
The consortium has benefited from a Government decision to sell the Tote without a proper competitive tendering process. For reasons best known to the Labour Party, the Government is committed to sell this famous betting business to the racing industry, rather than obtain the fattest possible price by allowing all-and-sundry to bid for the gem.
But since the racing-industry consortium is benefiting from a sweetheart deal, the Treasury is understandably concerned that management rewards and incentives should not be perceived to be excessive.
Had the Government allowed the Tote to be sold to the highest bidder, then it wouldn’t have mattered a bean what the executives at the winning team stood to earn, because there would have been a huge return to taxpayers. But in a one-horse race, it's probably reasonable to cap the prize money.
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Money from privatisations doesn't get returned to taxpayers. It simply gets added to the public sector pot.
The decision to sell the Tote without a proper competitive tender process highlights precisely the concerns of the FSA surrounding lack of transparency in the private equity industry.
If Gordon Brown really needs the money,it strikes me that the TOTE would be a slam dunk to float 100% of the equity on the London Stock Exchange. it has a strong brand and could easily stand alone as an independent business. Then if any consortium still wanted it they could bid for the company.no fee required for the advice Mr Brown.
The Tote was founded without government funding back in the 1920s, for the sole purpose of helping Horse Racing as a sport. It's never had a penny of public money put into it, and the only benefit it's ever had from the public is its license to operate a pool betting monopoly.
The profits of the Tote have always belonged to racing, and have never been returned to public funds.
The "reasons best known to the Labour party" for a sale to the racing industry are a) if they don't sell it at all then they'll never see a penny from this 'public' asset, b) if they do sell it with no obligation to support the racing industry they'll be putting thousands of people out of jobs, and c) there's a decent moral argument that - having been funded and managed entirely for and on behalf of the racing industry since its inception - to take it away from the industry would be (morally if not legally) an act of theft.
Presumably these points were beyond the remit of research of a Βι¶ΉΤΌΕΔ editor?
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