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Funds News

Gate Gourmet sale shows private equity's challenge

LONDON, March 2 (Reuters) - A day after Texas Pacific Group [TPG.UL] joined other powerful private equity houses in a call for more transparency, the firm’s mystery sell-off of Gate Gourmet reveals just how much work the industry has ahead of it.

TPG, which bought the airline catering firm in late 2002 from Swissair, has quietly reduced its stake in the business over the past year without any disclosure, selling the last piece to Merrill Lynch on Thursday.

TPG has still not made any comment on the sale, although Gate Gourmet confirmed its new ownership by about 40 unnamed institutions on Friday in response to questions from Reuters.

Private equity firms have come under fire from unions and some politicians over the last two months over job cuts at the companies they buy and the amount of information they disclose about their investments.

The industry said on Thursday it would begin studying ways to be more forthcoming, with some proposals due by autumn.

“We believe there would be real benefit to all stakeholders if a regime of more effective disclosure took hold,” about two dozen firms said in a joint statement supporting the initiative by the British Private Equity and Venture Capital Association.

The group recruited former Morgan Stanley International Chairman David Walker to lead a group that will make recommendations about what private equity firms should reveal about themselves under a voluntary code of conduct.

In contrast to publicly traded companies, those owned by private equity firms do not have to disclose financial information, or much else. They benefit from less administrative and regulatory burdens, and typically avoid outside scrutiny of operational changes.

Still, some 250 airlines rely on Gate Gourmet to feed their customers and a brief walk-out at the caterer two years ago cost British Airways BAY.L millions of pounds. The company employs about 20,000 people.

WINDOWS INTO PRIVATE EQUITY WORLD

Not everyone thinks private equity is as private as the critics say, however.

Jonathan Nelson, the founder and chief executive of Providence Equity Partners, said times have changed from when the industry was especially secretive.

“At one time, private equity really was private, but our business has changed over the years as capital markets and our strategies have evolved,” he said earlier this week during an industry conference in Frankfurt.

“There are now many windows into our world,” he said, citing public bonds related to private-equity-owned companies and eventual public floats, when the owner firms usually retain stakes.

Providence Equity did not sign the support letter for the trade group’s disclosure initiative.

Texas Pacific reveals very little about itself. Its Web site, for example, only lists addresses and phone numbers for its offices around the world and links to some news articles about it, the last one from July 2006.

The firm restructured Gate Gourmet’s debt a year ago, when it also invested another 30 million Swiss francs ($24.5 million) in the company and said it remained the largest shareholder.

That was the last time TPG said anything publicly about Gate Gourmet.

“Trappist monks seem more loquacious on this subject,” said one union member, referring to Gate Gourmet’s ownership.

Texas Pacific bought Gate Gourmet after proving its mettle in the airline industry, having turned around ailing Continental Airlines and eventually reaping an 11 times return on its investment.

Gate Gourmet was plagued with problems while TPG owned it, including union strife in Britain and the United States. It also narrowly avoided bankruptcy in 2005.

In the end, the company said it benefited from TPG’s ownership even though it was only the company’s troubles that played out in public.

“TPG has been extremely supportive over the last few years,” Gate Gourmet Chief Executive Dave Siegel said in a memo to employees, “and I want to thank them for helping to transform Gate Gourmet from a division of a legacy carrier to a highly successful stand-alone company with a strong and positive future.”

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