July 30, 2007

How Paris Hilton Lost $60 Million Due to Private Equity

Can you imagine being a billionaire grandfather who is publicly embarrassed when your granddaughter's sexual escapades are released on the Internet? Can you imagine being the patriarch of a family whose multibillion dollar fortune (which took over 100 years to accumulate) is laughed at?

Can you imagine how the inappropriate actions of a single family member can attract more attention than the excellent work of hundreds of thousands of well meaning employees? Well, Baron Hilton is not willing to tolerate this behavior any longer.

As you know, I frequently talk about how the money community takes advantage of opportunities by buying companies and stages a type of corporate Darwinism in the process. But sometimes when private equity agrees to write a giant check to purchase a company and take it off the stock market - there are surprising consequences.

Well, now that the Hilton Empire has agreed to be purchased by the Blackstone Group for $26 billion, all of the stock of the Hilton family is about to be turned into cash and grandfather Baron Hilton has a few hard decisions to make. He has to think about what giving all that cash away to his family will do to them. Apparently, thinking about all this cash has caused Grandpa Baron to make a couple of tough decisions.

He has decided that his spoiled kids, who didn't earn a penny of the family's wealth, should not receive much of the money that he has made. He decided, and it's been announced in newspapers around the world in the last 24 hours, that he will donate the $2 billion+ that he receives from the sale of his company, to charity.

That means that Playboy Paris Hilton will not receive her expected $60 million inheritance. That's a whole bunch of money that she won't receive. And all of this is because the private equity community freed up resources that the Hilton family originally held in stock. When it was in stock they would not have sold it because it would upset the overall market value of the company.

We can only imagine what other families are thinking about - families such as the Bancroft's who own much of the Dow Jones company and who are facing a similar type of financial maneuver. As the private equity funds and the rest of the money community call on companies to acquire their companies, the owners have more to think about than whether "the price is right".

About Joel G. Block

Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenue and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker and advisor. Would you like to get a private phone consultation with Joel? Visit www.joelblock.com/capital for details.

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