How many anti-private-equity talking points have we been subjected to since it was clear Romney was going to be GOP candidate last February? President Obama’s campaign team and the Democratic Party have been pounding Romney as a private-equity executive throughout the campaign. The president’s re-election political action committee has gone as far as to claim Romney was indirectly responsible for the death of a woman due to the actions of Bain Capital, even though Romney had left the company years before the woman’s death.
The Private-Equity Double-Standard
While all that trashing of private-equity was going on, the Obama Administration was deep in the process of wooing a private-equity firm to save a Pennsylvania oil refinery that was tabbed for closure by the current owner Sunoco.
The head of Obama’s National Economic Council, Gene Sperling, led the discussions to convince the Carlyle Group, a private-equity firm, to invest in the Sunoco refinery. Sperling spoke to Carlyle executives on numerous occasions bringing in unnamed government officials and union leaders to press for Carlyle’s investment.
Last month Carlyle agreed to take a two-thirds stake in the refinery plus an investment of at least $200 million in improvements. The move is estimated to save 850 union jobs in Pennsylvania.
Pennsylvania is a battleground state that Obama cannot afford to lose and have any chance of re-election. If the refinery had closed further increases in gasoline prices were near certain and the timing could not have been worse for Mr. Obama. Apparently private-equity investment is okay with the president as long as it works to his benefit.
Locking in the deal required the Obama administration loosen the environmental restrictions and Pennsylvania kicked in $25 million in state subsidies and other incentives to make the deal palatable for Carlyle.
As we close in on the 2012 election it’s humorous to know that while the administration was demagoging the evils of the private-equity industry they were quietly working in the background with the evil capitalists and demonstrating precisely how and why private-equity is critical to a stable economy.
When information of the deal was revealed in the Philadelphia Inquirer it met with great fanfare but you can be sure that the Obama Administration would rather that its involvement with a private-equity firm be kept quiet to all but his union buddies until after the election.
Private-Equity is Private-Equity
Tom Corbett, the governor of Pennsylvania, hailed the deal as an example that “private-equity firms are not evil. Even though campaigns may say that, administrations understand they’re necessary to get deals done.” There were no other realistic buyers for the refinery, Corbett said, and if Carlyle didn’t invest, a deal to save it “just wouldn’t have happened.”
Obama supporter and president of the United Steelworkers union, Leo Gerard said the union wouldn’t have agreed to the deal if the private-equity firm Bain had been across the table. “Our experience with Bain is that they strip and flip and walk out with as much as they can while the union’s experience with Carlyle is the opposite.”
“During a campaign, some may distort our record for political purposes, but the truth is that revenues have grown in 80% of the more than 350 companies in which we have invested,” a Bain spokesman said.
Ben LaBolt, press secretary for the Obama campaign, said, “You would have to engage in quite the verbal gymnastics to suggest there is an equivalence between the administration working to save jobs and keep gas prices down and Gov. Romney claiming he was a job creator when he profited off of bankrupting companies and outsourcing jobs.”
LaBolt is in full spin-control. All private-equity firms operate in precisely the same manner; their first obligation is to their investors and they won’t invest unless some protections for their investors are in place. Carlyle is no different. Then again, LaBolt, like the rest of the Obama-kins can’t tie Romney to Carlyle, so that makes them “different.”
In February the federal Energy Information Administration warned that if the Sunoco refinery was to close there was the potential for prices to “spike.”
Administration actions have caused a much broader reduction in refinery capacity and as energy price forecasts for the summer began to look dire the White House became alarmed, according to an administration official. White House officials concluded that if the refinery closed gas prices could rise 20 cents to 30 cents a gallon.
Union-backed Pennsylvania representative Bob Brady, (D., Pa.) of Philadelphia met with Sunoco’s incoming chief executive, Brian P. MacDonald back in February after the White House began to panic. Brady said the White House was concerned and asked MacDonald to consider the options “if there was broader help,” according to a timeline later circulated by Carlyle, which Sunoco said was accurate. MacDonald communicated directly with the White House to discuss the “options” that were available; we now know those options were a private-equity investor
In March Sperling hosted a conference call with the MacDonald, Brady and Deputy Energy Secretary Dan Poneman.
MacDonald said gas prices of $5 a gallon in the summer were discussed as well as the possibility of Sunoco keeping a stake in the Philadelphia refinery as part of a joint venture and major assistance from another “party.”
“It would have to be a very capable party,” Mr. MacDonald said.
Sperling followed his discussions with MacDonald by making a call to Carlyle co-CEO David M. Rubenstein to look for private-equity investment.
While Carlyle has tried to avoid direct involvement in politics, Rubenstein did work in the Carter administration. Carlyle does not donate to political campaigns.
Carlyle paid nothing for a majority stake in the refinery, but agreed to a $200 million investment for upgrades.
Without the assistance of Carlyle this deal could not have happened. Sunoco made it clear that there had been no one interested in buying or investing in the refinery until the White House stepped in. Normally, the Carlyle-Sunoco partnership would not be worthy of more than a mention if not for the fact that the private-equity investment was engineered by the same folks that have been trashing private-equity throughout this campaign.
Had the refinery closed this summer and gas prices spiked well above where they are now, it may well have been the coup de grâce for the Obama campaign. Should the president be re-elected this fall he may well owe a debt to his two favorite whipping boys: Big Oil and private-equity. Now that’s just funny.
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