In late 2005, Stephen Schwarzman, the hard-charging chief executive of Blackstone, the US private equity group, caught wind that the German government was in talks with several of his rivals about the sale of a large chunk of Deutsche Telekom, the partly state-owned telecommunications giant.
Two months later, Mr Schwarzman was sitting in the private office of Chancellor Angela Merkel in Berlin, ready to present his case for buying a stake in the company.
The two made an odd couple: Mr Schwarzman, son of a Philadelphia clothing merchant and now a New York billionaire; Ms Merkel, the physicist-turned-politician from former communist East Germany now in charge of a fractious coalition government. Yet the two shared a goal: to use the power of private equity to transform Deutsche Telekom, thereby triggering broader reform in the sluggish German economy.
As the talks unfolded in the chancellor’s office, Ms Merkel avoided mentioning Deutsche Telekom by name but pointedly praised private equity’s qualities over the short-termism of hedge funds. Mr Schwarzman, who had a multi-coloured presentation on hand, was visibly encouraged. The chancellor then reminded Mr Schwarzman of the responsibility Blackstone would assume as a standard-bearer in Germany if a deal were struck.
Just months earlier, ahead of the election that brought Ms Merkel to power, a leading Social Democrat had denounced hedge funds as “locusts”, ravaging the German corporate landscape. A senior German official recalls that Ms Merkel, from the conservative Christian Democrats, was acutely aware of the public mood. But, the official says, the chancellor recognised that private equity could help to attract foreign investment to Germany and give support to underperforming companies.
The Berlin meeting paved the way for Blackstone to take a 4.5 per cent stake in Deutsche Telekom at a price of €2.7bn ($3.7bn, £1.8bn) – an unlikely double-act between government and private equity. The Financial Times has pieced together the inside story of a saga that highlights the culture clash between Blackstone’s sabre-toothed search for value and the consensual German post-war model of the social market economy, where the power of management and labour is finely balanced. Above all, it marks an audacious experiment in the evolution of German capitalism.
The Merkel<->Blackstone Nexus
♠ Posted by Emmanuel in Neoliberalism
at 7/05/2007 02:06:00 AM
The Blackstone Group seems to be all over the news nowadays. Earlier came all that stuff about China taking out a stake in the firm. Then came the Blackstone initial private offering (I don't want to sound like a curmudgeon, but is it still a "private-equity" firm now that it's gone public?) Now we have news that the firm and the Hilton Hotel Corporation have agreed to a purchase of the later by the former for a cool $26 billion. Aside from those largely Made-in-America stories, it turns out that Blackstone has also been active on this side of the Atlantic. The Financial Times features a detailed story on how Blackstone was used by the Merkel government to foster changes in Germany's corporate governance. OK, it's towards a more "neoliberal" (business competitiveness first) and less "corporatist" (labor+government+corporate compromise) model, but it's interesting how an external player was brought in to shake things up nonetheless. With connections to government officialdom in China and Germany, there is no mistaking that Blackstone has friends in high (public) places: