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| ARTICLE SUMMARIES AND QUESTIONS |
"American Wealth: Private Money," pp. 50-60: Most average Americans are unaware of the role that private equity plays in the U.S. economy; a sizable number may not even be familiar with the term. Yet, corporate ownership is undergoing dramatic changes due to the rapid rise of private-equity firms. With $400 billion available to be invested by the global buyout industry, it makes sense to wonder whether we are moving into an era when we have both a public and private economy. It's not as outlandish as it sounds. Consider that PE controls assets approaching 10% of the value of the companies listed on the New York Stock Exchange. McKinsey estimates that the four largest firms — Blackstone, Carlyle, Texas Pacific Group, and Kohlberg Kravis Roberts — are among today's 15 most valuable non-oil private companies in the world. If they were publicly traded, their market caps would range from $60 billion to $80 billion, in the same league as Morgan Stanley, Apple, and Boeing. But the PE universe isn't always sunny. An analysis of fund performance against public-market investments over a six-year period showed that while the top quartile of PE funds handily outperformed its public counterparts, more than half of the funds came in well under the indexes — sometimes as much as 20% or more below. So is private equity only going to grow, or has it already peaked? We'll have to wait and see how it copes when the next hard rain falls. Students examine how private equity has changed the U.S. economy — for better or for worse. Discussion Questions:
"American Wealth: Wall Street’s Man of the Moment," pp. 74-78: As the top dog at the top firm riding the hottest trend in business — private equity — Stephen Schwarzman is the undisputed poster boy for the new era in finance. Despite his rep as one of Wall Street’s most aggressive, demanding bosses, the Blackstone CEO can be soft-spoken, even charming. And unlike other private-equity types, he’s not content to keep a low profile. He recently celebrated his 60th birthday at a multimillion-dollar party that featured performances by Rod Stewart and Patti LaBelle. Friends say his determination has been evident since his Yale days, when it was apparent that not only did he want to succeed, but he also wanted to "be above the crowd." He has certainly accomplished that in the 20 years since he formed Blackstone with partner Pete Peterson. But there are pitfalls to being the symbol of success in your field. If the private-equity game, and Blackstone in particular, are peaking, as many of Schwarzman's colleagues and rivals believe, then there's nowhere for him to go but down — quite a descent from his current lofty perch. Schwarzman, on the other hand, trusts that Blackstone's renowned esprit de corps will protect it if the market goes bad. Because the 750-employee strong firm continues to function like a much smaller operation, employees across different businesses share their expertise regularly, making the whole place smarter. For Schwarzman, that's important, because it has become more than a matter of making money — it's about making sure his poster doesn't get ripped off the wall. This article reveals who Stephen Schwarzman is and how he runs his wildly successful private-equity firm, Blackstone. Discussion Questions:
"Big Plane, Big Problems," pp. 94-98: Airbus's A380, the largest passenger airline ever built, has created some even larger headaches for its European manufacturer and its customers. The company expects to lose $6 billion in earnings due to production delays, which pushed back delivery dates of all but a handful of the massive planes from 2007 to 2010 and beyond. That's quite a price to pay for some wiring snafus. But while engineers are scrambling to work out those problems, the inside guys have some bigger fish to fry — holding onto customers and their orders. They couldn't convince FedEx, which stunned Airbus by canceling a $3 billion order for 10 planes and taking its business to archrival Boeing. In addition to sales losses, Airbus is also liable for millions of dollars in penalties because of the delays. Co-chief commercial officer John Leahy has his work cut out for him as he tries to persuade customers to accept discounts on future orders in lieu of cash compensation. That may be a tough pill to swallow for companies that still aren't sure when their plane orders will be fulfilled. Another concern of customers is that the Herculean efforts that will be required of Airbus to get the A380 airborne once and for all may threaten development of its in-demand midsized plane lines. Considering the many difficulties it faces, it seems almost impossible that Airbus will regain its lead over Boeing anytime soon. Simply staying afloat is the most important goal for the company in the short term. Students take a closer look at the business woes of Airbus in the wake of its disastrous A380 production delays. Discussion Questions:
"Verizon’s Big Bet on Fiber," pp. 119-123: After years of ceding ground in the broadband wars to cable operators Comcast, Cablevision, and Time Warner Cable, Verizon is taking a stand. The telco is spending billions of dollars on a cutting-edge Internet connection that is faster than anything the U.S. has ever seen. The technology, called FiOS (for fiber-optic service), will cost consumers from $40 to $200 a month. Meanwhile, Verizon's investment to wire just over half its market — about 18 million homes — by the end of 2010 is a whopping $23 billion. The plan is the latest and most audacious of CEO Ivan Seidenberg's efforts to boost the capacity of Verizon's wireless and wireline networks to serve up movies, games, software, and even new kinds of search engines. Seems logical enough, but will the expensive gamble pay off? Investors are skeptical. The costs associated with marketing and installing FiOS are expected to impact earnings for several years — likely longer than Verizon's own analysts initially anticipated. Further, Verizon's experience with developing and marketing online fare is limited, and it's possible that customers will simply bypass Verizon's offerings and use FiOS’s speed to access competitors' products and services. For all the risks associated with FiOS, however, it is clear that Verizon had to do something dramatic to compete with the cable guys, who now offer phone service in addition to Internet and TV. In a very real sense, the company couldn't afford not to do it. In this article, students read about Verizon's bold plans to compete directly with cable operators through its new fiber-optic service, FiOS. Discussion Questions:
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