5 ms·

How is it legal to be able to get a loan to buy a company, then transfer that loan to the company you bought, then let the company burn to the ground from the c

• slantedview 4y ago
  This called a "leveraged buyout". Everyone who learns about them is shocked, and they absolutely should be illegal, but they aren't. It's very common for companies purchased in this way to go bankrupt, because the debt is too heavy a burden. Many name brand companies have gone down over the last decade because of this.
  • TheLoafOfBread 4y ago
    Lot of people who trusted Elon are going to lose their money then. Are we going to see consequences on Elon's well being?
    • slantedview 4y ago
      Those people should have done more diligence. The text messages with Larry Ellison show he committed 1 billion dollars more or less on a whim. It's pretty easy to see now that buying Twitter and saddling it with debt was never going to work.
      • saurik 4y ago
        Yeah but like, if nothing else I imagine Musk is never going to get people to hand him a billion dollars on a whim again? I would think that screwing over this many investors simply has to cause a blow to one's credibility.
    • deleted 4y ago
      [deleted]
    • pmlnr 4y ago
      > Lot of people who trusted Elon are going to lose their money Good. Trust Elon the same way you'd trust Lex Luthor.
      • deleted 4y ago
        [deleted]
  • sgerenser 4y ago
    Last decade? Leveraged buyouts were a big thing in the 80s/90s, so this has been going on for over 30 years. This research showed that about 20% of LBOs resulted in bankruptcy: https://www.institutionalinvestor.com/article/b1gfygl4r8661f/LBOs-Make-More-Companies-Go-Bankrupt-Research-Shows#:~:text=According%20to%20researchers%20at%20California,during%20the%20same%20time%20period https://www.institutionalinvestor.com/article/b1gfygl4r8661f....
• jarsin 4y ago
  Wall St. calls it "Creative Destruction"
• xqcgrek2 4y ago
  Why shouldn't it be legal? The entities that gave the loan knew the risks.
  • slantedview 4y ago
    > Why shouldn't it be legal? Because it's destructive to the economy. The only winners when this happens are the execs who arranged the deal, which is why Twitter's execs pushed so hard for the Musk deal to close even though the outcome was going to be bad for everyone else. To put it another way - a lot of businesses would still be operating and a lot of people would still have jobs if LBOs were illegal.
    • sidibe 4y ago
      The only winners were the Twitter shareholders, who the execs are supposed to represent.
      • papito 4y ago
        This has been a trend in this late stage Capitalism, if you will. A large group of people spend years and decades building a company that can still grow and produce immense wealth over long-term, but a bunch of grifters roll in and sell it for parts, because "shareholders". The job of the board is to assure long-term growth of the investment, not a one-time burn-it-all-down event or a slow bleed (GE, Boeing) where the shareholders get unreasonable returns while annihilating the hard work building up the company. These are not company-building boards, these are company-destroying boards. Literally, vulture capitalists from the inside.