Union attacks Carlyle's move on Booz Allen

MSN
Posted: 2008-01-17 17:36:20

Carlyle's plans to buy the government advisory unit of Booz Allen Hamilton, the management consultancy, are under attack from one of the largest US labour unions as a "threat to national security" because a state-controlled Abu Dhabi fund owns a stake in the US private equity group.

The move by the Service Employees International Union highlights rising concerns among union leaders and politicians over the influence of sovereign wealth funds, which have invested billions of dollars in US financial groups. "There is growing unease about sovereign wealth funds and how much of the US economy they are buying," said Stephen Lerner, director of the private equity project at the SEIU, which has 1.9m members.

The SEIU's call for government intervention is unlikely to derail talks between Carlyle and Booz Allen - first revealed by the Financial Times this week - over the public sector advisory unit, a major contractor to several US departments.

But the attack is the latest sign that political resistance to investments by foreign governments in US companies is on the rise.

After months of praising cash injections in US financial institutions, New York senator Chuck Schumer recently changed course, saying "the closer they come to exercising control and influence, the greater concerns we have".

Hillary Clinton, one of the Democratic presidential front-runners, entered the debate on Tuesday, saying sovereign funds needed to be "more transparent" and calling for the World Bank and the International Monetary Fund to oversee them.

On Thursday Jim Webb, a Democratic senator from Virginia, suggested that sovereign wealth funds should be singled out in regulations that will accompany a law passed last year to tighten the vetting process for foreign investments.

Funds controlled by Asian and Middle Eastern governments have invested nearly $60bn in US financial groups over the past few months, coming to the rescue of large Wall Street banks such as Citigroup, Merrill Lynch and Morgan Stanley.

The SEIU, which has waged a campaign against private equity for the past few months, argues that the 7.5 per cent stake held by an Abu Dhabi government fund in Carlyle should prompt lawmakers to scrutinise the Booz Allen deal.

Carlyle's supporters are likely to point out that when the $1.35bn stake was sold in September last year, there was virtually no political opposition.

Carlyle is not the only private equity group in talks with Booz Allen and it might not end up as the winning bidder for the government advisory unit anyway.

Carlyle and Booz Allen Hamilton declined to comment.