A Glimpse Of Things To Come: KKR Suspends First Data's 401(k), Replaces Cash Bonuses With Stock
Submitted by Tyler Durden on 07/15/2013
Zero Hedge
With the untapering due any minute, and cost of debt set to plunge to even lower record levels, one thing is certain: the private equity industry is about to be bathed with even more costless credit and, with a portfolio of companies already accounting for 8% of US GDP, is about to accelerate its “going private” take over of America’s corporations. Of course, in the pursuit of the almighty cashflow driven IRR, all is fair in love and LBO wars, however, one group of people who may not like the outcome are America’s workers especially following tonight’s glimpse of the “cost-cutting” process that is about to be unleashed by the Fed-funded corner office on workers everywhere. A few hours ago First Data Corp., a KKR portfolio company, announced that it will suspend 401(k) contributions to employees and replace cash bonuses with stock “as part of its new chief executive’s strategy to return the credit-card processor to profitability.” The move was announced to all 24,000 employees of the Atlanta company in an internal memo Monday.
How big is the impact of this stunning move?
WSJ explains: “The pay overhaul takes effect Jan. 1 and will save the company about $60 million in cash next year. The yearly total is expected to grow to $100 million by 2017, equivalent to less than 1% of First Data’s overhead-related costs in 2012.”
In other words, the overall impact is negligible at best. Yet it is also so very crucial for KKR’s IRR analysis, if its portfolio company is forced to cut from its very muscle, and crush even the faintest worker dreams of a stable retirement funding (as a reminder, the traditional Pension Plan also died some time ago thanks to Ben Bernanke). It also means that even in a time of record low costs of capital, rational, sophisticated investors can no longer extract balance sheet arbitrage returns from portfolio firms, and the next big round of major layoffs (when this trifling 1% overhead cut is concluded) is just around the corner.
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