Columnist John MacIntosh talks to Mitt Romney about the "buyout" Romney and running mate Paul Ryan are planning.
STORY HIGHLIGHTS
- Imagine former private equity exec Mitt Romney approached election as corporate buyout
- MacIntosh says the buyout team would "run the numbers" on America
- MacIntosh: Since taxpayers are captive, there's a lot of potential to raise "prices"
- MacIntosh: But unlike most businesses, the customers with the most pay the lowest rates
Editor's note: John
MacIntosh was a partner at Warburg Pincus, a leading global private
equity firm, where he worked from 1994 to 2006 in New York, Tokyo and
London. He says he supports the Democrats as "the lesser of two evils."
(CNN) -- Buyout guys usually "run the numbers" on a
takeover target before spending too much time on it. As takeovers go,
the United States looks pretty good. Here's a tongue-in-cheek look at
how a private equity executive might sum them up for a former private
equity guy.
To: Mitt Romney
Re: Project November
From: The Buyout Nation Team
The team has finished running the numbers on Project November and they look really strong.
First, if we're
successful in the upcoming auction (they call it an election), we will
have bought in cheap and should make a killing since the economy is
improving and is likely to do so for the next four years even if we
don't do much after the takeover.
John MacIntosh
Second, it looks like we
have a lot, and I mean a lot, of room to increase sales. I've never seen
a business with so much ability to raise prices.
The customers (they call
them taxpayers) have little opportunity to leave, by law they have to
pay, and not many have the resources to take advantage of the
tax-minimizing options in Switzerland and the Caymans. But the pricing
structure is a total mess. While every other business charges premium
customers more, since they have the cash and benefit most from the
services, here it's backwards.
A lot of the premium
customers, the ones who've done really well for the last decade or two,
actually pay the lowest rates! So raising prices on these guys should be
a cinch. And we can also get some early revenue from one-time gimmicks
like drilling a million gas wells, selling non-core assets (Guam?),
sale-and-lease-backs on real estate (the Capitol?) and more aggressive
corporate partnerships (Exxon-Yellowstone National Park?)
Become a fan of CNNOpinion
Stay up to date on the latest opinion, analysis and conversations through social media. Join us at Facebook/CNNOpinion and follow us CNNOpinion on Twitter. We welcome your ideas and comments.
Third, on the expense side things look equally promising. As Larry Summers first discovered,
a lot of the value created in takeovers can come from promise breaking
and we've got great opportunities to do that with Medicare and Social
Security.
Even better, our modeling
shows that if we only break promises for younger people (say, under 54)
they won't feel any real pain until after 2016 or 2020 when we'll
already have exited the deal and been long gone.
Another easy option is
to cut expenses for the poor and for kids since it turns out that they
can't vote (too young), don't vote (those new ID rules), or won't vote
for you anyway. (By the way, where did you get that 47% from? Your
overall figure feels about right but the team wants to double-check the
calculation.) We also found big potential cost savings from outsourcing
not just jobs but entire government departments to India. This may be an
option for lower value-added departments like
Housing and Urban
Development, and Education.
Analyst: Candidates played up strengths
Different tone in foreign policy debate
Watch final debate between Obama, Romney
Micklethwait: Bashing China 'dangerous'
Another potential
expense-cutting option is the military, but this seems a bit tricky
given the whole military-industrial complex thing.
But a takeover of the nation also presents some unique challenges compared with the smaller companies we usually target.
First, if things get
tight, we can't save cash by slashing long-term investments because it
turns out that there aren't any. I know it's unbelievable, but there
just isn't much money going into the stuff that will pay off big time
for competitors in the long-run: education, public transport, bridges
and infrastructure, and clean/green technology.
Second, we're unlikely
to make money by restructuring or refinancing the debt. It's already
dirt-cheap (we could borrow for 30 years at 3%) and the experts I've
spoken with are convinced that the nation really is too big to fail. I
know you've been through a lot of tough restructurings, think the market
should be allowed to work things out, and were willing to let the auto
industry go to the wall. But I've pushed these guys hard and they remain
adamant that if we get too close to that fiscal cliff, really bad stuff
will start to happen: markets gyrating, interest rates rising, the
dollar plunging, rating downgrades, you name it.
While this type of chaos
might actually be a boon to some of our hedge fund supporters, I really
think we should try to avoid it. (And there's no guarantee that the
guys running your blind trust will have had time to bet against America
before things start to unravel.)
Finally, I reviewed the nation's shareholders agreement and bylaws (they call it the Constitution) and it's a catastrophe.
In fact, the bottom line
is that even after we take control, there will be real limits on what
we can do without the support of some really crazy people. People who
don't appear to believe in arithmetic or science, let alone rationality
and analysis. These guys are definitely not the McKinsey and Goldman
types we're used to dealing with so it's going to be a total nightmare.
It makes me wonder
whether this whole thing is really worth the hassle. Where's the upside?
Do we really have a special insight that makes us the natural owner or
are we just willing to spend more than the competition to win? I'm a
little bit worried that we may have a touch of deal fever for another
trophy on the wall.
Anyway, the model is
ready so just send me your plan so I can finalize the assumptions about
price hikes, expense reductions, investments and the like. I couldn't
find a copy on the server and everything in the public domain is vague
and contradictory. My daughter's got soccer tonight so I hope to leave
the office by 7 but call my cell if you need anything else.
Posts
