The Times has intercepted this e-mail correspondence between the head of PhilosopherStone in the UK and the chairman and chief executive of the multibillion-dollar private equity group in New York:

From: Wolf.Stitzer@PhilosopherStone.com
Sent: 03 July 18:47
To: Steve.Holtzman@PhilosopherStone.com
Subject: Windsor buyout

Steve,

As you may know, the private equity industry has been having some problems with the Establishment over here and I wanted to run an idea by you: what about a leveraged buyout of the British monarchy?

You may not have seen, but Queen Elizabeth II is having some trouble with the upkeep of Buckingham Palace, where pieces of masonry are falling off the façade. Mismanagement and long-term underinvestment are clearly taking their toll. The House of Windsor is, of course, a great brand, and it is a screaming real estate play.

Fundamentally, what I’m thinking is that we could break up the business into an opco and a propco, leaving the current management with a figurehead role in the operating company and then doing a sale and leaseback on the property assets. After all, Her Majesty’s portfolio is seriously underleveraged. The Windsor family has a personal fortune estimated at £320 million tied up in properties such as Balmoral Castle, her home at Sandringham and the Duchy of Lancaster.

Then there is £6 billion-worth of property in the Crown Estate, which George III signed over to the Government in 1760. (What was with that guy and losing prime real estate?) There is no current price tag on Buckingham Palace, Windsor Castle and Holyroodhouse, but the one has a 40-acre garden in a perfect location for major property development in SW1, the other has 13 acres of land in the much sought-after London commuter belt and the third would be an excellent location for your next birthday bash, so let’s say we offer £2 billion a pop. The current management are currently remunerated at £37 million a year in the Civil List and their security costs are estimated at £100 million. We would have to take these costs on, but could offset them against any profits, thereby wiping out an tax liability.

So, if the assets are worth just less than £12.5 billion and we offer a 30 per cent premium, we could buy the monarchy, the chief executive and her team, as well as all the assets for about £16 billion, which is just a little more than Providence Equity and the Ontario Teachers’ Pension Plan are paying for that Canadian telecoms business, BCE. The reality is that it’s doable.

Of course, if we choose to pile on the debt, flip it and float the business in 18 months, we could always change the management. But I happen to know that the current executive team at the House of Windsor is fed up with the endless public disclosure that is required of them and might welcome the privacy that ownership by PhilosopherStone would give them. They are in a position not only to put skin in the game, but throw some ermine into the deal. I’m thinking Lord Holtzman – some real cash for honours. Anyway, my hunch is they would be amenable to a management buyout. Shall I go ahead and set up a meeting?

Happy Fourth of July! Wolf

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