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It really doesn't seem like you should be able to buy a company with debt then transfer the debt to the company to now pay off while also paying yourself hefty
by siliconc0w 1y ago
It really doesn't seem like you should be able to buy a company with debt then transfer the debt to the company to now pay off while also paying yourself hefty management fees and carry.
Basically everything is now owned by PE due to this effective unpatched vulnerability in our finance system.
- swiftcoder 1y agoOne would think the financial sector would be wary of infinite money glitches, but apparently everyone is onboard with this one
- bcrosby95 1y agoThe financial sector companies involved are first in line if it goes bad. They don't care if the company survives as long as it has enough assets to sell off to get paid.
- nickff 1y agoThe company would have to be severely undervalued (or perhaps perceived to be severely mismanaged) for this to be the case, which seems strange to me. Then again, the typical PE strategies (loading the company with debt and cutting investments in future products & services) also seem like very bad business strategies. I really don't understand why anyone would loan money for a buyout, or buy a (share of the) company which had recently been through it.
- nickff 1y agoLeveraged buy-outs (LBOs) must be profitable for the investors backing them (or else I'm sure they wouldn't), but I agree that it is very strange, and I really don't understand how this could be the case.
- s1artibartfast 1y agoI dont understand why people are so confused and skeptical about this. Its basically like a mortgage. Buy a house and use it as collateral for the loan
- swiftcoder 1y agoThey are absolutely profitable for the investors backing the buyout, but they are generally detrimental to everyone else in the equation - all the existing shareholders, whose previous-profitable investment is now a debt-ridden mess, plus all the employees who are about to be laid off from the now-sinking-under-debt company
- Ekaros 1y agoIsn't idea of leveraged buyout well buyout? And almost always with premium. That is existing shareholders get paid more than current market price of their holdings. So they should also be winners and able to redeploy the capital they got.
- swiftcoder 1y agoPremiums on buyouts are kind of interesting: the buyout price was a 25% premium on the day the news was announced (and a 17% premium over the all-time high)... but of course the market immediately priced that in, so for the past few weeks it's been just a 5% premium over where EA stock is actually trading.
- s1artibartfast 1y agoSo how will those stock holders lose out? They just got a massive buyout.
- swiftcoder 1y agoThey lose the future upside of a company which a major cartel of investors clearly considers to be undervalued
- s1artibartfast 1y agoThen they shouldn't sell! Sales occur because the two sides have differences in valuation.
- deleted 1y ago[deleted]
- 8f2ab37a-ed6c 1y agoIt's not free money, because you now have to figure out how to service that massive debt for years to come, which is non-trivial. That's a lot of cash flow that gets redirected from R&D and other efforts. In EA's case the allegation is that the LBO was just a way to circumvent the current administration from preventing the deal, since there are American interests involved in it.
- mcmoor 1y agoThe fools are the people who loans you that money, and they deserve to be fleeced. Unless they actually get back their money, which by this point means you're running a professional liquidation service. It's regrettable that the original owner agreed to liquidate their company, but it's their right and there's nothing wrong with that.