Daschle’s Demise Linked to Hindery’s Private-Equity Lifestyle
By Jason Kelly
Feb. 3 (Bloomberg) -- Former U.S. Senator Tom Daschle, who withdrew today as nominee for secretary of health and human services, spent four years helping friend Leo Hindery Jr. raise cash for purchases including 1970s hit dance show “Soul Train.”
Daschle’s cabinet appointment by President Barack Obama ran into trouble after he amended three years of tax returns for unreported income, including personal use of a car and driver provided by Hindery’s private-equity firm, InterMedia Advisors LLC. Daschle bowed out of the confirmation process, saying the tax issue had become a distraction.
The former Democratic leader’s $1 million-a-year consulting contract with the New York-based firm highlights how buyout firms often turn to former politicians to court investors and make deals. Former President George H.W. Bush, ex-Treasury Secretary John Snow and former Senate Majority Leader William Frist have all worked for private-equity funds.
“It provides the private-equity firms with an entrée,” said Paul Schaye, managing partner with New York-based Chestnut Hill Partners, which helps buyout funds find targets. “It also provides the politicians with life after Washington.”
Buyout firms pool cash from investors such as pension funds and endowments with borrowed money to make acquisitions.
Daschle in 2005 became the head of InterMedia’s advisory board, which included former senators Bob Kerrey and Slade Gorton, as well as media and entertainment executives. Daschle also was a consultant to InterMedia, acting as a fund raiser and adviser on investments, his spokeswoman said.
Democratic Fund Raiser
InterMedia in June 2008 said it would buy Soul Train through its MadVision Entertainment Inc. subsidiary with the intent of reviving the brand tied to the long-running television show that featured dancing as well as performances by artists from James Brown to Justin Timberlake.
Hindery, a Democratic fund raiser and former cable- television executive, founded InterMedia in 1988 and four years ago assembled a panel headed by Daschle to advise the firm. It started seven funds since its founding for media investments including the Soul Train deal, and most recently a $700 million pool marketed in 2006. The firm has about $1 billion in assets under management, making it small in comparison with New York- based industry heavyweights such as Blackstone Group LP, which oversees $116 billion, or KKR & Co., which manages $61 billion.
InterMedia and the 61-year-old Hindery’s role in the Daschle controversy underline the increasingly frequent intersections among private equity, politicians and policy makers, some of whom are taking jobs advising on investments.
Political Company
Washington-based Carlyle Group helped pioneer the use of former government officials as fund raisers and dealmakers. Former President Bush and ex-U.K. Prime Minister John Major have advised the firm, and its ranks currently include former U.S. Treasury Undersecretary Randal Quarles.
Cerberus Capital Management LP, the New York-based firm that owns Chrysler LLC, counts John Snow as its chairman and former Vice President Dan Quayle as chairman of its international unit.
Hindery backed former North Carolina Senator John Edwards’s presidential bid, serving as his senior economic adviser. Hindery threw his support to Obama after Edwards dropped out of the race for the Democratic nomination.
Daschle has characterized Hindery as a close friend and the two men have worked together on issues related to health care. Last August, the pair participated in a forum on “America’s Health Care Debacle” sponsored by the New America Foundation, a Washington-based non-partisan public policy group.
$1 Million a Year
Daschle assisted Hindery and InterMedia in fund raising by attending meetings and making presentations to potential investors and consulting on investment decisions, his spokeswoman said. The consulting agreement Daschle had with InterMedia called for him to be paid $1 million a year, according to the Senate Finance Committee’s report.
“He’s a Democratic stalwart, a very high profile figure supporting Democratic causes,” said Richard Dorfman, chief executive officer of New York-based investment firm Richard Alan Inc., which invests in media deals. “The fact that he’s very close to Daschle is probably more related to personal friendship and politics than it is necessarily to Daschle’s ability to bring in deals.”
A Democratic Senate aide confirmed that Daschle had advocated for a senior post in the Obama administration for Hindery, the Wall Street Journal reported today on its Web site. The Senate aide said Daschle’s advocacy for Hindery was one more strike against him in a case that kept getting larger.
Hindery runs InterMedia with Peter Kern. The 41-year-old Kern formerly was the chief administrative officer of St. Petersburg, Florida-based Home Shopping Network, where Hindery served on the board.
‘Beachhead’ Strategy
Kern also sits on the board of Expedia Inc. of Bellevue, Washington, the world’s biggest online travel agency.
InterMedia told potential investors when it was pitching its latest fund in 2006 that it had delivered average annual returns of about 32 percent on the $840 million the firm had invested so far, according to the New Mexico State Investment Council.
Hindery and Kern told the council they took a “beachhead” strategy to invest between $100 million and $200 million in equity in companies around a specific area of media.
“We’re particularly interested in niche markets where we think there’s an underserved audience, whether that’s Christian media, the outdoors category, Hispanic or urban media,” they said.
InterMedia has bought the Gospel Music Channel, a 24-hour entertainment channel; publisher Thomas Nelson; and Women of Faith, a producer of conferences and publications for Christian women.
Media Focus
InterMedia is among the handful of private-equity firms created to make media-centered investments. Another New York group, Quadrangle Group LLC, also focuses on media and telecommunications investments.
Some of Quadrangle’s founders are also politically plugged in. Steven Rattner, the former deputy chairman of Lazard Ltd., may become the so-called car czar in the Obama administration.
To contact the reporter on this story: Jason Kelly in New York at jkelly14@bloomberg.net
Last Updated: February 3, 2009 16:47 EST |
