Sunday, October 10, 2010

Columbia University's Kravis/KKR/TASC Connection--Part 3

(To help fund the construction of a new Columbia Business School on Columbia University's 21st-century landgrabbing, private university real estate development/campus expansion project in West Harlem, the co-founder, co-chairman and co-CEO of Kohlberg Kravis Roberts [KKR]--Henry Kravis--recently gave a $100 million "gift" to the Columbia Business School. Coincidentally, Kravis is also the co-chair of the Board of Overseers of Columbia Business School. And since 2009, Kravis's KKR investment firm has been a co-owner of the TASC firm which obtains 40 percent of its annual revenues from Pentagon military contracts.

The following article about Henry Kravis and KKR's pre-1992 hidden history first appeared in the July 22, 1992 issue of the now-defunct Lower East Side alternative newspaper weekly, Downtown, during the period when Kravis's KKR firm still owned New York magazine--prior to its sale to Bruce Wasserstein in 2003 for $55 million).

As long ago as the late 1980s, Henry Kravis’s KKR controlled one of the largest industrial empires in the world. As The Money Machine by Sarah Bartlett noted, “Not even J.P. Morgan in his heyday tried to amass an industrial empire on the scale of KKR’s.”

To acquire this economic empire between its founding in 1976 and 1989, the KKR investment banking partnership raised $62 billion from a variety of investor sources. Among the U.S. corporations gobbled up by Kravis’s KKR prior to its purchase of New York magazine in the early 1990s (in addition to Storer Broadcasting and Golden West Broadcasters) were the following: RJR Nabisco; Duracell; Stop & Shop; Safeway; Beatrice Foods; Owens-Illinois; Jim Walter; Union Texas Petroleum and Amstar.

A large proportion of the funds that KKR utilized after 1980 to acquire its privately-controlled economic empire came from the public funds of various state governments which were controlled by U.S. public officials, as well as from “nonprofit” institutional investors in KKR’s acquisition deals (like Harvard, Yale and the Salvation Army), from banks and from the sale of high-risk “junk-bonds.” In 1981, for example, KKR acquired the Fred Meyers company for $420 million “with a large slug of public pension money, courtesy of the State of Oregon,” according to The Money Machine. By 1986, KKR was using public money provided by the state pension funds of Washington, Oregon, New York, Wisconsin, Illinois, Iowa, Massachusetts, Montana, Michigan, Minnesota and Utah to secure the capital required to increase the size of its economic empire by additional “leveraged buy-outs.” One year later, public pension funds from the same 11 states provided 53 percent of the $5.6 billion which KKR used to take private control of RJR Nabisco, according to The Money Machine. The same book also noted that “Over the years…KKR and the state funds came to be more like partners.”

In the course of acquiring its economic empire during the 1980s, KKR executives made millions of dollars in super-profits in a variety of ways:

1. After going heavily into debt to acquire a company that was built up by other people’s labor, KKR usually laid off a significant number of employees of the acquired company and sold off portions of the company;

2. KKR charged an exorbitant management fee to those nonprofit institutions and state government pension funds who invested in its deal-making funds; and

3. KKR pocketed huge acquisition transaction fees. From its 1986 acquisition of Beatrice Food Companies, for example, “KKR earned $45 million in management fees alone and many times that in transaction fees and profits,” according to 1989 Current Biography Yearbook.

(end of part 3)

(Downtown 7/22/92)

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