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Buffet might also want to acquire the business via loan foreclosure. The 9% discounts the eventual acquisition.
by optimiz3 7y ago
Buffet might also want to acquire the business via loan foreclosure.
The 9% discounts the eventual acquisition.
- sjg007 7y agoHe already owns the business... he is selling and financing the sale.
- beerandt 7y agoA common (sometimes predatory) tactic is to make a bad loan at a high rate, as part of a self-financed sale to someone you suspect will have short term success but long term failure, knowing you'll get payments for a certain amount of time, then have the asset returned. It's used car tactics at the next level.
- sjg007 7y agoOk but that really doesn't work in this situation. Buffet would foreclose on the loan, retake ownership and then sell it again?
- beerandt 7y agoThat's one option, but maybe less likely for a business than for a car, because of valuation. If he already thinks the business's days are numbered, options are limited. Instead of taking a loss by holding it until bankruptcy, or selling it cheap to someone who also sees limited value, he sells it to someone who's (overly) optimistic, and and is willing to pay a higher value. Since the risk (at that higher value) is high, lenders will either refuse to finance, or offer a rate higher than what Buffet is offering. Buffet needs to offer the financing to make the sale possible, or at least more attractive. So at worst, he's turned a dead-end investment into positive cash flow for a few months, where he previously was getting zero. If he forecloses and there's something of value left, he might try to sell again, but the foreclosure makes that less likely, given future buyers will consider it in determining it's value. Regardless, he's still better off than before. Or the business does ok, and he gets a better price for selling than he otherwise would have. And 9% interest on it, which is something, but I suspect extremely low for Buffet. But he's locked in a minimum value and getting a positive rate, mitigating what he perceived to otherwise be a bigger loss.