News

The news that three private equity groups are working together on a bid for the UK grocery chain J Sainsbury is a clear sign of just how big and ambitious these corporate raiders have become.

A buyout of Sainsbury - the UK’s third largest supermarket retailer - would be an £8-10bn record for Europe while in the United Sates private equity group Blackstone wants to buy the country’s biggest office owner Vornado Realty for $38bn, a world record.

UNI and affiliate the TGWU are already on record questioning the rise and rise of private equity and the dangers they pose to workers, to corporate governance and to the long-term financial stability of pension funds.

It’s the pension funds that provide the huge sums required to finance a buyout - leaving the target company burdened with paying for its own takeover and under pressure to cut costs.

After years of sluggish stock market returns, funds are looking for bigger - and quicker - returns by helping to buy companies outright.

The sums are big and if the debt gets too much the bought up company could go bust and the pension funds involved - and pensioners - could take a big hit.

UNI General Secretary Philip Jennings told journalists at the World Economic Forum in Davos last month that private equity companies are “hovering up assets at any price, anywhere, any time and we want to bring them out of the shadows”.

Today he warned Guardian readers* in the UK that these funds “have a global war chest of $500bn and seem set to break last’s year’s merger and acquisition record. But private equity acquisitions often burden the businesses they buy with too much debt and drive down working conditions to pay for the takeovers. Their philosophy is buy it, strip it and flip it. It is time that governments sought ways to bring these runaway funds back under public scrutiny and safeguard before too many people, including workers and pensioners, get hurt.”

Usdaw General Secretary John Hannett said: "Our Sainsbury's members have played a central role in the massive turnabout in the company's fortunes and this sort of speculation about takeovers is very unsettling for them. We can see no evidence that a takeover funded by private equity will produce any extra benefits for our members in a company that is already performing well thanks to a positive working relationship between Usdaw and the Sainsbury's management team."

The TGWU’s Brian Revell told the Guardian that a Sainsbury takeover “would be based on borrowed money followed by extracting as much wealth as possible from the company; they extract it for their shareholders”.

The same newspaper quotes one chief investment officer - Michael Gordon - as warning that pension funds may be seeing private equity deals as a “panacea” and that they are taking on bigger risks because of leveraged debt. He confirmed that “employees are a little further down the pecking order in private equity”.

The UK’s regulatory Financial Services Authority has already warned that it is “inevitable” that a large private equity-backed firm will default on its debt and has registered concern at the potential for insider dealing in the industry.

To meet concerns over corporate governance Sir Derek Higgs has suggested that private equity firms comply with the corporate governance standards he devised for stock market listed companies.



* For the full text of Philip Jennings’ letter to the Guardian newspaper click here: