11 ms·

How Not to Negotiate a $6.1B Deal

224 points by dpflan 8y ago

avs733 8y ago
It seems like it would be an all around benefit to the economy to disrupt the model that hedge funds use to invest in companies. Obviously access to capital is important. Obviously there are companies that benefit from more efficient operations (e.g., the Olive Garden drama of years past...BREADSTICKS). However, I cannot seem to find any benefit in allowing a hedge fund to charge for services to a company it has taken over. To buy a company with the pure goal of extracting any short term value with the intent of destroying it seems to be a long term societal ill that should be regulated out of existence.
- JumpCrisscross 8y ago
  > I cannot seem to find any benefit in allowing a hedge fund to charge for services to a company it has taken over They could just as easily cause the company to borrow from the fund or pay it a dividend. Ownership means control over how its assets are spent. (That said, one could encourage pay-outs via one way over another by tweaking the tax code.)
  - avs733 8y ago
    I mean legally you are right...but I wasn't saying it is illegal. I was saying it should be illegal. I can't imagine this is as common in Germany with employee elected board members.
    - mi100hael 8y ago
      How do you draw that line, though? Say I start a business and own it 100%. Should I be allowed to pay myself? What if I'm already a billionaire? What if I buy it instead of start it? What if it's a few friends + me instead of solo?
      - avs733 8y ago
        I would suggest that a couple places to start would be eliminating things that are purely about value transfer and extraction. 1) Not allowing a purchaser to transfer debt from that purchase to the newly purchased entity. 2) Not allowing a company to pay fees for service to any corporate entity that has a conflict with a board member. The board members get paid to give advice... Yes I'm aware these are imperfect solution, yes there are loopholes, yes these things rarely work...but those two practices seem to be particularly rife for abuse.
        mi100hael 8y ago
        #1 is not unique to corporate acquisitions. Think of it like a real estate mortgage. You can buy an apartment complex with 25% down and finance the other 75% as long as the building produces 1.25x the debt payment in free cashflow. The key is having enough cushion in the cahsflow to account for value-add "repairs" like remodeling stores or launching a new product to maintain/grow cashflow. If an LBO is done properly, like Michael's, it's a win for everyone. Old shareholders don't lose their shirt due to an unsustainable valuation tanking, lenders get paid back, and new shareholders aren't tied to the same old valuation because they financed the acquisition and only invested a percentage of the sale price. The trick is identifying which poorly-performing companies are just overvalued and can be transformed into strong performers at a different price-point, and which companies are just headed for the gutters.
      - perl4ever 8y ago
        You seem to be implying that raising questions about how we do things is silly because regulation would be overwhelmingly complicated and infeasible. However, if it's a public company, (which is just one possible abstract entity) then there are all sorts of rules and complications when there are one or more large investors.* Given these rules and regulations exist, it's not unreasonable to consider whether they should be changed slightly in pursuit of the public good. *I'm thinking of stuff I've read about CBS v. Redstone in Matt Levine's column, where the board of CBS was trying to get rid of its controlling shareholder. They seem to have failed, but it was a fight.
    - mseebach 8y ago
      Your parent argues that you probably can't make this illegal without fundamentally changing what it even means to own something. This is actually a very analogous situation to DRM/right to repair etc: when you've bought a device, you (should) have the right to do whatever you want with it, take it apart, modify it, use it in unintended ways and even destroy it. The seller should not have any legal rights to curtail any of these actions. The same principles applies to buying a company.
- tunap 8y ago
  It seems to me, the Blackstone Fund is single handedly causing massive short term societal ills in housing & rental price inflation.
  - refurb 8y ago
    Why? It seems to me that Blackstone was buying up homes when no one else was. They took a risk and it paid off.
    - tunap 8y ago
      The investment bankers created the mess & more(same?) investment bankers picked up the crumbs & now plan on making upwards of 400% markups on over-priced properties. This is the exact reason why Glass-Steagal was instituted, to keep investment & commercial bankers seperate. They've robbed the world's wealth twice now & are currently still going strong. Wage slaves be damned, perhaps they can get 60 year mortgages to afford housing, right?
- luhn 8y ago
  For those curious what "Olive Garden drama of years past" is, I believe it's https://en.wikipedia.org/wiki/Olive_Garden#Activist_investor_critique https://en.wikipedia.org/wiki/Olive_Garden#Activist_investor...
  - avs733 8y ago
    Thanks...that was an unfortunately opaque and self-important way of phrasing that reference.
  - orf 8y ago
    > The chain also had stopped the common practice of adding salt to the water in which it cooked its pasta in order to secure longer warranties on the pots, which had Smith incredulous Oh boy.
- bcoates 8y ago
  Lots of companies with lots of value are dead or irreversibly dying (that is, saving them would cost more than the entire value of the saved company). There's nothing wrong or strange about firms specializing in extracting what can be salvaged out of the these. It's not more short-term or long-term specific than any other decision owners make about companies -- carving out viable business units that can be spun off and sold is a fundamentally long-term proposition (for the buyer and society). It's not all Michael Douglas defrauding overfunded pensions.
  - staticautomatic 8y ago
    No, but a non-zero proportion of them contribute to the death of the company (for example by saddling struggling companies with debt in LBO deals).
    - refurb 8y ago
      That is often because the turnaround failed, not because it was planned.
      - staticautomatic 8y ago
        I assume you're trying to make the point that they are well-intentioned when they decide to saddle the company with debt because it's part of a turnaround effort. Empirically, that is not categorically true.
        airstrike 8y ago
        I assume you don't know what you're talking about, because taking on debt isn't inherently ill-intentioned.
        staticautomatic 8y ago
        You've also missed the point. I'm not saying it's categorically I'll-intentioned, but it certainly is not categorically well-intentioned either.
- cortesoft 8y ago
  Companies need to be able to die, and extracting as much value from the dying company is worthwhile. The alternative is to let a company waste away, slowly bleeding out the last of their resources until their is nothing left. That is not good for the economy, and only prolongs the inevitable. This might feel morbid, but it shouldn't; companies aren't people. Obviously the people at the company need to be taken care of, but that is a larger societal issue about how we deal with people who lose their jobs in general, not about companies that go out of business. If the people making the largest bid for a company want to close it down, then that is probably the best thing to do; if it was really worth it to turn the business around, then someone else would offer more money to keep it going (or at least the same amount).
  - derefr 8y ago
    > If the people making the largest bid for a company want to close it down, then that is probably the best thing to do; if it was really worth it to turn the business around, then someone else would offer more money to keep it going (or at least the same amount). Do you really think this? What if hedge funds just happen to get larger than anyone else in the spaces they operate in, precisely by executing this technique, such that there's no "someone else" who would offer more money? An analogy: you're essentially saying that it's "the best thing to do" to date a vampire and let them suck out all your blood, because if there were a better partner for you to date than a vampire, surely such a partner would be more attractive than the vampire is, and would try harder to date you than the vampire is. Now that doesn't sound right, does it? These vampire[-corporations] are supernaturally attractive [to shareholders] and are driven by their bloodlust to seduce people [i.e. board-members] far more effectively than regular human[-corporations] can manage.
    - mlindner 8y ago
      > What if hedge funds just happen to get larger than anyone else in the spaces they operate in, precisely by executing this technique, such that there's no "someone else" who would offer more money? Companies buy companies all the time. Hedge funds, in the grand scheme of things, are not that incredibly large compared to other companies. Also, companies making acquisitions have effectively unlimited funds to do so by taking out loans in order to buy companies. They can also buy companies without even exchanging money by converting stock in a larger ratio, effectively inflating the company's value in order to buy it. So what you're saying doesn't make sense. > An analogy: you're essentially saying that it's "the best thing to do" to date a vampire and let them suck out all your blood, because if there were a better partner for you to date than a vampire, surely such a partner would be more attractive than the vampire is, and would try harder to date you than the vampire is. Companies aren't people. If the board of investors wants to sell to a vampire it means that they're actually gaining the most value by selling to that vampire themselves. People need to stop looking at companies as monolithic wholes and actually as the sum intentions of the owners of the companies, the investors.
- briandear 8y ago
  Why? Should adults be allowed to make decisions about their own company? Nobody is actually forced to sell. And if you own something, isn’t it yours?
- mlindner 8y ago
  > To buy a company with the pure goal of extracting any short term value with the intent of destroying it seems to be a long term societal ill that should be regulated out of existence. If a company is on its last legs, what is wrong with extracting money from it before killing it? Trying to keep dead-companies-walking afloat would be even worse.
- busterarm 8y ago
  > It seems like it would be an all around benefit to the economy to disrupt the model that hedge funds use to invest in companies I think you maybe don't quite know exactly what a hedge fund is and what purpose it serves. Moreover, leveraged buyouts are more a tool of private equity firms. There's some overlap, but you should probably get your basic terms right before you start suggesting new regulation.
- computator 8y ago
  > Olive Garden drama of years past Ahh, Olive Garden. I hope you won't mind a slight tangent involving Olive Garden, one of Paul Graham's essays, and a sneaky business deal: In one of his essays[1], Paul Graham wrote, "I think most businesses that fail do it because they don't give customers what they want. Look at restaurants. A large percentage fail, about a quarter in the first year. But can you think of one restaurant that had really good food and went out of business?" Yes, I can name a restaurant that had really good food and went out of business -- it was all of the Olive Garden locations in Ontario, Canada, about 15 years ago. They were always busy, always had a line-up to get in, and pretty much everyone I knew liked the food a lot. Then suddenly, without explanation, all of the Olive Gardens in Ontario shut down. Much later I learned that Olive Garden USA had shifted some large debts to its Olive Garden Canada subsidiary, and allowed the Canadian subsidiary to go bankrupt, freeing the parent corporation of the debts. (So businesses fail for odd reasons even when they have excellent products and masses of loyal customers.) [1] http://www.paulgraham.com/start.html http://www.paulgraham.com/start.html
  - redcap 8y ago
    In that case I would suggest that Olive Garden Canada didn't "go out of business" (i.e. naturally through business dying off), but was killed intentionally. It didn't die as a result of failure on its own part. There is also a difference between a restaurant and a chain of restaurants - in any case the US component survived, so I would say that the (overall) business didn't "die off".
  - kbenson 8y ago
    > I learned that Olive Garden USA had shifted some large debts to its Olive Garden Canada subsidiary, and allowed the Canadian subsidiary to go bankrupt, freeing the parent corporation of the debts. How does shit like that even work? It seems like it would clearly qualify under fraud. Even if it doesn't, how does it not send every potential future creditor running away as fast as possible?
    - rando444 8y ago
      Doesn't sound like fraud. If you rack up a bunch of debt, but take out a mortgage on your already paid off house to get rid of the debt, is it fraud? You had a perfectly good house, but sometimes decisions have to be made. Your creditor point is valid, but only if the creditors are paying deep attention because if they're not, these actions could give the appearance of profitability and stability.
- ekingr 8y ago
  It is true that LBOs can injure companies - like what happened to Toys'R'Us bankruptcy after the Bain Cap & KKR buyout. It is especially dangerous in times of inflated multiples like we are seeing these days, where PE valuations are kind of bubbling. The demand for M&A transactions is so much bigger than the supply that prices growth quicker than the underlying business value - making it usually harder to justify through profitability improvements. Yet the whole PE process does bring benefits to the underlying industries is buys, especially by providing investment capacities to businesses that usually don't have enough, and also by professionalization and by introducing sophisticated management standards to the companies (eg. in terms of strategic thinking, reporting, optimization, pricing, etc.).
- joeblow9999 8y ago
  "To buy a company with the pure goal of extracting any short term value with the intent of destroying it seems to be a long term societal ill that should be regulated out of existence." Why? The company would not have been bought otherwise, apparently. The company had issues obviously. The buy felt there was value to be extracted just not by continuing the operations. So what.
jonknee 8y ago
Matt Levine touched on this earlier in the week: https://www.bloomberg.com/view/articles/2018-05-29/xerox-ceo-showed-some-strategic-thinking https://www.bloomberg.com/view/articles/2018-05-29/xerox-ceo... > Helping a merger along by offering the target CEO a good job at the combined company is … a fairly standard move, really; it’s the sort of thing that people grouse about in merger lawsuits but that happens a lot. Helping it along by offering the target CEO a good job at the combined company after he’d already been fired
- hlmencken 8y ago
  Are you missing part of your quote?
  - tempestn 8y ago
    "Helping it along by offering the target CEO a good job at the combined company after he’d already been fired is much weirder, though. It’s more or less okay for a CEO to try to preserve his job in a merger; it’s awkward for him to try to rescue his job that way."
    - mi100hael 8y ago
      I find it hard to believe a F500 CEO cares that much about keeping their job after an acquisition. Presumably he has a bunch of options/grants that will be worth a fuckton due to the 30% premium Fuji would pay. Plus it's good for the resume. Look at Monsanto's Hugh Grant. He'll be loaded so he doesn't need to take a title-cut to be CEO of a subsidiary to keep some piddly 7-figure salary, and he can find another job without too much trouble if he does decide to keep working.
fleitz 8y ago
Did he really have fiduciary duty to shareholders if he was fired?
weliketocode 8y ago
Almost no matter the size or nature of the company, sales is treated as this mysterious black box. If your top salesperson commits improprieties, well then.. you still have to keep him. Clients! Contacts! Secret Sauce! If your CEO is AWFUL, then the board can tell him he's fired. But if he's in process to sell the company? Well... sales is tough, might as well let him stay to finish it out. One success can also change everything for a salesperson. John Thain received a ton of criticism... but he was able to sell Merrill Lynch for $50bn during the crisis.
- philwelch 8y ago
  Other than extreme cases like selling an entire company, sales is a case where it's trivial to measure results and align incentives, which makes top-down interference a lot less tempting.
  - ddebernardy 8y ago
    > sales is a case where it's trivial to measure results and align incentives It's anything but. Good sales usually are driven by how much they make, and if there's any misalignment between your commission plan and what's good for the company they'll optimize their own revenue in a heart beat. It can be very hard to align your commission plan with what the company actually needs if the business you're into is non-trivial. (Think optimizing the use of existing work capacity, selling high profit products rather than easier to sell low profits ones, keeping sales more or less aligned with the company's capacity to hire staff that can deliver, etc. Selling too much too fast is not always a good thing.)
    - philwelch 8y ago
      Yeah, but compare that to literally any other job and it's unbelievably remarkable that it's even remotely possible to pay sales people in proportion to the value of their results.
      - busterarm 8y ago
jldugger 8y ago
So, this is a story where Icahn is the sympathy figure? Rare space indeed.

224 points by dpflan 8y ago

It seems like it would be an all around benefit to the economy to disrupt the model that hedge funds use to invest in companies. Obviously access to capital is important. Obviously there are companies that benefit from more efficient operations (e.g., the Olive Garden drama of years past...BREADSTICKS). However, I cannot seem to find any benefit in allowing a hedge fund to charge for services to a company it has taken over. To buy a company with the pure goal of extracting any short term value with the intent of destroying it seems to be a long term societal ill that should be regulated out of existence.

JumpCrisscross 8y ago
> I cannot seem to find any benefit in allowing a hedge fund to charge for services to a company it has taken over They could just as easily cause the company to borrow from the fund or pay it a dividend. Ownership means control over how its assets are spent. (That said, one could encourage pay-outs via one way over another by tweaking the tax code.)
- avs733 8y ago
  I mean legally you are right...but I wasn't saying it is illegal. I was saying it should be illegal. I can't imagine this is as common in Germany with employee elected board members.
  - mi100hael 8y ago
    How do you draw that line, though? Say I start a business and own it 100%. Should I be allowed to pay myself? What if I'm already a billionaire? What if I buy it instead of start it? What if it's a few friends + me instead of solo?
    - avs733 8y ago
      I would suggest that a couple places to start would be eliminating things that are purely about value transfer and extraction. 1) Not allowing a purchaser to transfer debt from that purchase to the newly purchased entity. 2) Not allowing a company to pay fees for service to any corporate entity that has a conflict with a board member. The board members get paid to give advice... Yes I'm aware these are imperfect solution, yes there are loopholes, yes these things rarely work...but those two practices seem to be particularly rife for abuse.
      - mi100hael 8y ago
        #1 is not unique to corporate acquisitions. Think of it like a real estate mortgage. You can buy an apartment complex with 25% down and finance the other 75% as long as the building produces 1.25x the debt payment in free cashflow. The key is having enough cushion in the cahsflow to account for value-add "repairs" like remodeling stores or launching a new product to maintain/grow cashflow. If an LBO is done properly, like Michael's, it's a win for everyone. Old shareholders don't lose their shirt due to an unsustainable valuation tanking, lenders get paid back, and new shareholders aren't tied to the same old valuation because they financed the acquisition and only invested a percentage of the sale price. The trick is identifying which poorly-performing companies are just overvalued and can be transformed into strong performers at a different price-point, and which companies are just headed for the gutters.
    - perl4ever 8y ago
      You seem to be implying that raising questions about how we do things is silly because regulation would be overwhelmingly complicated and infeasible. However, if it's a public company, (which is just one possible abstract entity) then there are all sorts of rules and complications when there are one or more large investors.* Given these rules and regulations exist, it's not unreasonable to consider whether they should be changed slightly in pursuit of the public good. *I'm thinking of stuff I've read about CBS v. Redstone in Matt Levine's column, where the board of CBS was trying to get rid of its controlling shareholder. They seem to have failed, but it was a fight.
  - mseebach 8y ago
    Your parent argues that you probably can't make this illegal without fundamentally changing what it even means to own something. This is actually a very analogous situation to DRM/right to repair etc: when you've bought a device, you (should) have the right to do whatever you want with it, take it apart, modify it, use it in unintended ways and even destroy it. The seller should not have any legal rights to curtail any of these actions. The same principles applies to buying a company.
tunap 8y ago
It seems to me, the Blackstone Fund is single handedly causing massive short term societal ills in housing & rental price inflation.
- refurb 8y ago
  Why? It seems to me that Blackstone was buying up homes when no one else was. They took a risk and it paid off.
  - tunap 8y ago
    The investment bankers created the mess & more(same?) investment bankers picked up the crumbs & now plan on making upwards of 400% markups on over-priced properties. This is the exact reason why Glass-Steagal was instituted, to keep investment & commercial bankers seperate. They've robbed the world's wealth twice now & are currently still going strong. Wage slaves be damned, perhaps they can get 60 year mortgages to afford housing, right?
luhn 8y ago
For those curious what "Olive Garden drama of years past" is, I believe it's https://en.wikipedia.org/wiki/Olive_Garden#Activist_investor_critique https://en.wikipedia.org/wiki/Olive_Garden#Activist_investor...
- avs733 8y ago
  Thanks...that was an unfortunately opaque and self-important way of phrasing that reference.
- orf 8y ago
  > The chain also had stopped the common practice of adding salt to the water in which it cooked its pasta in order to secure longer warranties on the pots, which had Smith incredulous Oh boy.
bcoates 8y ago
Lots of companies with lots of value are dead or irreversibly dying (that is, saving them would cost more than the entire value of the saved company). There's nothing wrong or strange about firms specializing in extracting what can be salvaged out of the these. It's not more short-term or long-term specific than any other decision owners make about companies -- carving out viable business units that can be spun off and sold is a fundamentally long-term proposition (for the buyer and society). It's not all Michael Douglas defrauding overfunded pensions.
- staticautomatic 8y ago
  No, but a non-zero proportion of them contribute to the death of the company (for example by saddling struggling companies with debt in LBO deals).
  - refurb 8y ago
    That is often because the turnaround failed, not because it was planned.
    - staticautomatic 8y ago
      I assume you're trying to make the point that they are well-intentioned when they decide to saddle the company with debt because it's part of a turnaround effort. Empirically, that is not categorically true.
      - airstrike 8y ago
        I assume you don't know what you're talking about, because taking on debt isn't inherently ill-intentioned.
        staticautomatic 8y ago
        You've also missed the point. I'm not saying it's categorically I'll-intentioned, but it certainly is not categorically well-intentioned either.
cortesoft 8y ago
Companies need to be able to die, and extracting as much value from the dying company is worthwhile. The alternative is to let a company waste away, slowly bleeding out the last of their resources until their is nothing left. That is not good for the economy, and only prolongs the inevitable. This might feel morbid, but it shouldn't; companies aren't people. Obviously the people at the company need to be taken care of, but that is a larger societal issue about how we deal with people who lose their jobs in general, not about companies that go out of business. If the people making the largest bid for a company want to close it down, then that is probably the best thing to do; if it was really worth it to turn the business around, then someone else would offer more money to keep it going (or at least the same amount).
- derefr 8y ago
  > If the people making the largest bid for a company want to close it down, then that is probably the best thing to do; if it was really worth it to turn the business around, then someone else would offer more money to keep it going (or at least the same amount). Do you really think this? What if hedge funds just happen to get larger than anyone else in the spaces they operate in, precisely by executing this technique, such that there's no "someone else" who would offer more money? An analogy: you're essentially saying that it's "the best thing to do" to date a vampire and let them suck out all your blood, because if there were a better partner for you to date than a vampire, surely such a partner would be more attractive than the vampire is, and would try harder to date you than the vampire is. Now that doesn't sound right, does it? These vampire[-corporations] are supernaturally attractive [to shareholders] and are driven by their bloodlust to seduce people [i.e. board-members] far more effectively than regular human[-corporations] can manage.
  - mlindner 8y ago
    > What if hedge funds just happen to get larger than anyone else in the spaces they operate in, precisely by executing this technique, such that there's no "someone else" who would offer more money? Companies buy companies all the time. Hedge funds, in the grand scheme of things, are not that incredibly large compared to other companies. Also, companies making acquisitions have effectively unlimited funds to do so by taking out loans in order to buy companies. They can also buy companies without even exchanging money by converting stock in a larger ratio, effectively inflating the company's value in order to buy it. So what you're saying doesn't make sense. > An analogy: you're essentially saying that it's "the best thing to do" to date a vampire and let them suck out all your blood, because if there were a better partner for you to date than a vampire, surely such a partner would be more attractive than the vampire is, and would try harder to date you than the vampire is. Companies aren't people. If the board of investors wants to sell to a vampire it means that they're actually gaining the most value by selling to that vampire themselves. People need to stop looking at companies as monolithic wholes and actually as the sum intentions of the owners of the companies, the investors.
briandear 8y ago
Why? Should adults be allowed to make decisions about their own company? Nobody is actually forced to sell. And if you own something, isn’t it yours?
mlindner 8y ago
> To buy a company with the pure goal of extracting any short term value with the intent of destroying it seems to be a long term societal ill that should be regulated out of existence. If a company is on its last legs, what is wrong with extracting money from it before killing it? Trying to keep dead-companies-walking afloat would be even worse.
busterarm 8y ago
> It seems like it would be an all around benefit to the economy to disrupt the model that hedge funds use to invest in companies I think you maybe don't quite know exactly what a hedge fund is and what purpose it serves. Moreover, leveraged buyouts are more a tool of private equity firms. There's some overlap, but you should probably get your basic terms right before you start suggesting new regulation.
computator 8y ago
> Olive Garden drama of years past Ahh, Olive Garden. I hope you won't mind a slight tangent involving Olive Garden, one of Paul Graham's essays, and a sneaky business deal: In one of his essays[1], Paul Graham wrote, "I think most businesses that fail do it because they don't give customers what they want. Look at restaurants. A large percentage fail, about a quarter in the first year. But can you think of one restaurant that had really good food and went out of business?" Yes, I can name a restaurant that had really good food and went out of business -- it was all of the Olive Garden locations in Ontario, Canada, about 15 years ago. They were always busy, always had a line-up to get in, and pretty much everyone I knew liked the food a lot. Then suddenly, without explanation, all of the Olive Gardens in Ontario shut down. Much later I learned that Olive Garden USA had shifted some large debts to its Olive Garden Canada subsidiary, and allowed the Canadian subsidiary to go bankrupt, freeing the parent corporation of the debts. (So businesses fail for odd reasons even when they have excellent products and masses of loyal customers.) [1] http://www.paulgraham.com/start.html http://www.paulgraham.com/start.html
- redcap 8y ago
  In that case I would suggest that Olive Garden Canada didn't "go out of business" (i.e. naturally through business dying off), but was killed intentionally. It didn't die as a result of failure on its own part. There is also a difference between a restaurant and a chain of restaurants - in any case the US component survived, so I would say that the (overall) business didn't "die off".
- kbenson 8y ago
  > I learned that Olive Garden USA had shifted some large debts to its Olive Garden Canada subsidiary, and allowed the Canadian subsidiary to go bankrupt, freeing the parent corporation of the debts. How does shit like that even work? It seems like it would clearly qualify under fraud. Even if it doesn't, how does it not send every potential future creditor running away as fast as possible?
  - rando444 8y ago
    Doesn't sound like fraud. If you rack up a bunch of debt, but take out a mortgage on your already paid off house to get rid of the debt, is it fraud? You had a perfectly good house, but sometimes decisions have to be made. Your creditor point is valid, but only if the creditors are paying deep attention because if they're not, these actions could give the appearance of profitability and stability.
ekingr 8y ago
It is true that LBOs can injure companies - like what happened to Toys'R'Us bankruptcy after the Bain Cap & KKR buyout. It is especially dangerous in times of inflated multiples like we are seeing these days, where PE valuations are kind of bubbling. The demand for M&A transactions is so much bigger than the supply that prices growth quicker than the underlying business value - making it usually harder to justify through profitability improvements. Yet the whole PE process does bring benefits to the underlying industries is buys, especially by providing investment capacities to businesses that usually don't have enough, and also by professionalization and by introducing sophisticated management standards to the companies (eg. in terms of strategic thinking, reporting, optimization, pricing, etc.).
joeblow9999 8y ago
"To buy a company with the pure goal of extracting any short term value with the intent of destroying it seems to be a long term societal ill that should be regulated out of existence." Why? The company would not have been bought otherwise, apparently. The company had issues obviously. The buy felt there was value to be extracted just not by continuing the operations. So what.

jonknee 8y ago

Matt Levine touched on this earlier in the week: https://www.bloomberg.com/view/articles/2018-05-29/xerox-ceo-showed-some-strategic-thinking https://www.bloomberg.com/view/articles/2018-05-29/xerox-ceo... > Helping a merger along by offering the target CEO a good job at the combined company is … a fairly standard move, really; it’s the sort of thing that people grouse about in merger lawsuits but that happens a lot. Helping it along by offering the target CEO a good job at the combined company after he’d already been fired

hlmencken 8y ago
Are you missing part of your quote?
- tempestn 8y ago
  "Helping it along by offering the target CEO a good job at the combined company after he’d already been fired is much weirder, though. It’s more or less okay for a CEO to try to preserve his job in a merger; it’s awkward for him to try to rescue his job that way."
  - mi100hael 8y ago
    I find it hard to believe a F500 CEO cares that much about keeping their job after an acquisition. Presumably he has a bunch of options/grants that will be worth a fuckton due to the 30% premium Fuji would pay. Plus it's good for the resume. Look at Monsanto's Hugh Grant. He'll be loaded so he doesn't need to take a title-cut to be CEO of a subsidiary to keep some piddly 7-figure salary, and he can find another job without too much trouble if he does decide to keep working.

fleitz 8y ago

Did he really have fiduciary duty to shareholders if he was fired?

weliketocode 8y ago

Almost no matter the size or nature of the company, sales is treated as this mysterious black box. If your top salesperson commits improprieties, well then.. you still have to keep him. Clients! Contacts! Secret Sauce! If your CEO is AWFUL, then the board can tell him he's fired. But if he's in process to sell the company? Well... sales is tough, might as well let him stay to finish it out. One success can also change everything for a salesperson. John Thain received a ton of criticism... but he was able to sell Merrill Lynch for $50bn during the crisis.

philwelch 8y ago
Other than extreme cases like selling an entire company, sales is a case where it's trivial to measure results and align incentives, which makes top-down interference a lot less tempting.
- ddebernardy 8y ago
  > sales is a case where it's trivial to measure results and align incentives It's anything but. Good sales usually are driven by how much they make, and if there's any misalignment between your commission plan and what's good for the company they'll optimize their own revenue in a heart beat. It can be very hard to align your commission plan with what the company actually needs if the business you're into is non-trivial. (Think optimizing the use of existing work capacity, selling high profit products rather than easier to sell low profits ones, keeping sales more or less aligned with the company's capacity to hire staff that can deliver, etc. Selling too much too fast is not always a good thing.)
  - philwelch 8y ago
    Yeah, but compare that to literally any other job and it's unbelievably remarkable that it's even remotely possible to pay sales people in proportion to the value of their results.
    - busterarm 8y ago

jldugger 8y ago

So, this is a story where Icahn is the sympathy figure? Rare space indeed.