Explaining Southern California's economy

Dodgers sale: Rick Caruso and Joe Torre yank bid over parking lots

Dodger Stadium Bleachers

pvsbond/Flickr (cc by-nc-nd)

The bleachers stand empty at Dodger Stadium in Los Angeles, California.

Parking lots? Yes, parking lots. The Dream Team of bidders for the bankrupt Los Angeles Dodgers, developer Rick Caruso and former Dodgers manager Joe Torre, has dropped out of the final rounds of bidding because current owner Frank McCourt insists on keeping the parking lots that surround Dodger Stadium.

The Los Angeles Times has obtained a copy of the letter that Caruso and Torre sent to Major League Baseball on Feb. 17. In it, they leave open the possibility of re-entering the fray. But in retrospect, we should have seen this coming. The parking lots aren't part of the bankruptcy proceeding. But it was widely assumed that McCourt would let them go to sweeten the deal. 

Of course, McCourt is, down deep, a parking lot guy. This is where he made his money, back in Boston before he came west to try his hand an running a storied MLB franchise. Caruso is also a parking lot guy, in a manner of speaking. If he and Torre had been able to buy the Dodgers, he would have let Joe run the team while he set about remaking Chavez Ravine in the manner of the Grove and the Americana at Brand, his beloved, Vegasized shopping meccas in L.A. 

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Los Angeles' Gores Group spends heavily to acquire Pep Boys

Pep Boys Store

Dwight Burdette/Wikimedia Commons

Pep Boys has been purchased by The Gores Group, a private-equity firm in Los Angeles.

Pep Boys, the auto parts and service chain, is leaving the public markets and leaping into the arms of private equity firm The Gores Group, based in Los Angeles. This is from the LA Times:

Manny, Moe & Jack are going private: Aftermarket auto parts chain Pep Boys is selling itself to Los Angeles investment firm Gores Group for $791 million in cash.

Expansion-minded Pep Boys executives say the total enterprise value of the deal is about $1 billion. The $15-per-share price reflects a 24% premium on Pep Boys’ Friday closing price of $12.08.

Philadelphia-based Pep Boys, which has benefitted from a trend of drivers holding on to their existing cars rather than buying new ones, watched its stock jump 23% to nearly $15 during midday trading Monday.

This is both interesting and worrying. First the interesting. The Gores Group has been around since 1987 and has made, as may private-equity firms have, many millions if not billions of dollars between now and then. The firm closed a third fund early last year, amounting to $2 billion. Now it's buying Pep Boys, all in cash (debt brings the value of the deal up to $1 billion). As the Wall Street Journal points out, the purchase price amounts to $15 per share, but it's been more than two years since Pep Boys closed at that level.

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Should we be afraid of Mitt Romney?

GOP Presidential Candidate Mitt Romney Campaigns In Florida

Chip Somodevilla/Getty Images

TAMPA, FL - JANUARY 24: Republican presidential candidate and former Massachusetts Gov. Mitt Romney greets supporters and gives autographs after a speech at the National Gypsum Company January 24, 2012 in Tampa, Florida. Romney's speech was billed as a "prebuttal" to tonight's State of the Union speech by President Barack Obama (Photo by Chip Somodevilla/Getty Images)

That's what Michael Keating, formerly of the Boston Consulting Group, thinks. A president who comes from the brutal world of private equity? Terrifying. Keating outlines the fear in the LA Times:

Private equity consultants are not real business people, if real business people can be defined as entrepreneurs who want to build something of lasting value that can employ members of their community and make profits for their shareholders, whether public or private. A private equity consultant is more like an Excel spreadsheet with legs that looks at the "target" company through the lens of return-on-investment and cutting costs to the bone. If those costs are people, well, that's just capitalism in action. If an opportunity exists to expand a product line and it becomes necessary to hire some engineers and sales people, then welcome aboard. It's all a very finely tuned calculation that has nothing to do with what most people recognize as doing business. It is an abstract exercise, at best, that most of these ladies and gentleman have learned at places like the Harvard Business School, the University of Pennsylvania's Wharton School or wherever business is taught as warfare rather than as a contributor to the social good. 

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Will his background in private equity undermine Austin Beutner's LA mayoral race message?

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Mark Sullivan/Getty Images for The Broad Stage

File: Austin Beutner on stage during the preview of The Broad Stage 2010-2011 schedule at The Broad Stage on April 22, 2010 in Santa Monica.

Los Angeles mayoral candidate Austen Beutner gave a Town Hall Los Angeles speech yesterday at Center for the Preservation of Democracy in Downtown LA. The core topic? Getting "Los Angeles back to work."

In the speech, Beutner rolled out a kind of plan for a plan, highlighting areas he intends to focus on to rebuild the city's economy, which is currently facing a budget deficit of something like $200-$250 million and unemployment in LA County of 11.5 percent, three points higher than the national rate of 8.5 percent.

It's just an outline, although Beutner characterized it as an "ambitious agenda." The candidate — who came to city government as a "jobs czar" from a very successful career in banking and private equity, as well as in the Clinton Administration — zeroed in on six key job-creating areas: trade; technology and education; tourism; manufacturing; transportation; and small business.

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Private-equity champion says attacks on Romney have 'tinge of McCarthyism'

Republican presidential hopeful Mitt Rom

Emmanuel Dunand/AFP/Getty Images

Republican presidential hopeful Mitt Romney greets supporters after addressing a primary night victory rally in Manchester, New Hampshire, January 10, 2012.

At DealBook, Andrew Ross Sorkin talks to Paul Levy of JLL Partners and a self-confessed small-fry among the big fish of the private-equity world. As you probably know, in recent weeks, private-equity — the practice of buying struggling companies, usually with debt, taking them private, turning them around, and re-selling them — has taken a drubbing, based on the notion that successful PE guys, like GOP presidential candidate Mitt Romney, are Gordon Gekko-esque in their commitment to greed.

Levy thinks this is terrible. How terrible? It's nearing red-scare levels:

...Mr. Levy has been dismayed that the industry’s heavyweights have not sought to publicly defend their industry in recent days. Private equity came under attack when Mitt Romney’s political rivals put his career at Bain Capital in the spotlight as part of the Republican primary.

“There’s a tinge of McCarthyism here,” Mr. Levy said in an interview. “I think it’s a pretty honorable industry, and I don’t know why people aren’t stepping up and defending the careers that define their lives. That’s a sad thing. What do they fear it will cost them?”

Mr. Levy, who voted for President Obama in 2008, is right. Virtually none of the big names in private equity have spoken up to defend the industry. Over the past several weeks, anytime my colleagues or I have sought comment about attacks on the industry, private equity’s kingpins have declined. (The industry’s lobbying group, the Private Equity Growth Capital Council, has been working behind the scenes to shore up support and plans a more public campaign in the coming weeks, but with none of the leading private equity executives playing a significant role.)

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