Private Equity and the new corporate raiders
Theres mutterings in the city about a fundamental change in the way britain (and america) does business. Basically its a rejection of public companies in favour of private equity ie instead of raising capital via shareholders you go to banks/private institutions. Blair himself has urged Labour not to criticise this trend too much, which just goes to show how far New Labour has moved from its roots espcially given the critcism from unions. This is basically becoming an increasingly important issue as more companies turn to the so called 'dark side' of PE and start aping corporate raiders of the 80s. Its just a heads up on something that will probably come into the wider public sphere at some point. Robert Peston has an excellent blog at the bbc thats actually very respected, and hes commented quite a lot of entries in recent months on the trend (impact on employees/unions/corporate practises/does it actually create wealth etc). One of the problems that may arise is an 80s style increase in corporate raiders. I'm not making an argument in this thread as such, just pointing out an area that will potentially be of interest.
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Re: Private Equity and the new corporate raiders
its silly to deny the benefits of bank loans.
And in order to rely financially on shareholders your company has to be a) public b) no longer a "small business". Unless your thread is aimed more to huge corporations (who still use shares as main source of financing, afaik) then its a positive move towards support of small business. Ofcourse, that is giving even more power to banks and increasing their already iron grip on the market. But thats what its all about, innit... theyre just foing their job. If we are talking small business, that means private shareholders, who have limited financial capabilities... Why owuld I want to limitmy business by what i can afford, rather then use what i can have in order to progress better ? |
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You're at least 5 years out of date :(
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I don't see how corporate raiding can be much of a problem except in particular circumstances. "Asset stripping" obviously only works when your net asset value is somehow below your market capitalisation, and given the ludicrously high share values of recent (and high levels of corporate debt) I'm not sure how common that's going to be. Sure if your main market has somehow disappeared overnight unexpectedly but you've got your plant assets, etc left - but does that happen often?
Of course, there's going to be companies which are split up to keep the profitable bits, but then that's been happening for years (as Yahwe already said). The M&A activity of the last few years is what's funding half the market boom as far as I can tell. Is there any evidence that being taken over by a private-equity fund is that much worse than another PLC? There probably is more short-termism but again, public companies have been drifting that way for years. And to be honest, are company breakups inherently evil? If you've got a company which is awkwardly composed (for historical reasons) and it could be better managed in different bits then why not? If this sort of thing is "hostile" then it probably means the existing leaders of the company weren't managing things properly (probably for some time). Obviously there's an impact on workers in any acquisition activity (and any change in business practices generally), but if people were somehow thinking that shareholders were looking out for the working man then all I can really say is lolly roffle. In terms of private equity firms running companies in the long term it's not a given they can do so universally anyway. Most of the people organising these sorts of deals probably have some kind of ADHD anyway (partially because there are huge sums to be made straight away, but more modest amounts in the longer term) so their attention may drift over time. I think a lot of the concern has been raised by people who bought into the shareholding democracy fantasy a little too readily. Except in a minority of cases, institutional shareholders (or very wealthy family/individual shareholders) tend to have the weight in public companies (even if they don't exercise it) so what's the difference? Again, perhaps this is just more a question of pace. The move away from more public accounting processes is obviously a bit concerning, although presumably the changes aren't that dramatic (I'm not really sure what the regs are tbh). If there is some gigantic cock-up there'll probably be some kind of Sarbanes-Oxley-esque legislation anyway. Yes : The workers are being shit on in a lot of cases. That was already happening and will continue to happen. The answer is not to wish you had a different, kinder master. |
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Wait, this isn't a thread about the new Indiana Jones movie?
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I must confess, I did think of the TV mini-series / novel 'Stark' by Ben Elton, where one of the characters was a corporate raider. And that was published in 1989, but beyond that I didn't think for an instant about privatisations although you're right it could apply there too. I was mainly thinking about how consistently high share indices have been (yes, even including "adjustments" like the one yesterday) and how there cannot be too many firms with asset valies above their market caps. If you bought Google for instance, their physical assets (including cash) are probably worth what - 1/100th of their market capitalisation (although admittedly they are a pretty unique case)? Sure, their brand is worth something, but that's harder to quantify. Now, I agree - asset stripping is not what this is about mostly (apologies if I did not make this clear, I wrote the post while at work). You're right on the selling short point though, although I find this a little scary because you start to get the scenario where the market is disproportionately powered by "non-real" activity and as such get's further and further from fundamentals (such as they are). I suppose we're well past the point of worrying about that though. Quote:
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Indeed, even in our merger (which is in a sector so heavily regulated that to pay our staff a £100 bonus we had to receive permission from the Housing Corporation) people got screwed over to a certain extent. The level of screwing depends a lot on the personalities involved. Some of the US stories about what happened after certain mergers sound horrific, but some of that is the regulatory framework and other bits are cultural/political perspectives. Quote:
As an aside, to give some scale : Apparently the combined purchasing power of private equity including leverage is $1.2trn - which is less than the combined level of just five public companies (out of hundreds). Quote:
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The distribution of wealth to workers or others along the supply chain is much more of a concern, but as I say - I don't see how that's fundamentally different from any other private concern. Quote:
I don't really get your point about a dynasty either - if the firm is owned by literally one person then sure, but then you could have a PLC where the shares are mainly owned by one person / family. And indeed you do of course. Of course, if you're talking about large corporations being completely owned by four or five very wealthy people then of course, yes this is wrong (even more wrong than usual I mean). But then my question is how did they get to be so rich in the first place? If it's some scam they've managed to pull off by convincing (originally) a bank to lend them a few hundred million on dubious grounds then I guess someone should look at our banks (but they, as public companies I'm sure they're well managed anyway ;)) Quote:
So basically if "shareholder democracy/wealth generation" is declining then it's a symptom of these much larger issues (I'd argue, anyway). Joe Bloggs from Tumbridge Wells may now lack the ability to buy individual shares like he used to (although, there's numerous other ways he can invest his dosh) but a much larger issue is probably is that his companies pension fund has some sort of crisis, he's got to pay for his daughter's uni education and his son needs help with a deposit. if he's unaffected by these sorts of issues (e.g. he's got no kids, his mortgage is paid off, good pension, etc) then he's one of the lucky ones. And he can day-trade on the bond markets instead. I won't cry for him too much. Quote:
Secondly though, there's a much simpler point. The number one way of improving distribution of wealth in this country is not by legal restrictions on private equity funds, it's not by putting some sort of weird tax on city bonuses or windfall taxes on "excessive" profits or even adjustments in the benefits system. It's for working people to be paid more money. The responsibility for that demand obviously rests with "us" (the workers) and that's where political activity should be rather than worrying about regulatory frameworks and the like. p.s. Is anyone else consistently misreading PE as Price to Earnings? :( |
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On the private/public thing more generally : Are the Nationwide Building Society, the Co-Op Society and most charities inherently worse as employers (or social actors) because they're non-listed? (I realise you can become members of the former two, but you get the idea). I've heard people complain over on Slashdot that as employees the worst thing that happened to them was their firms going public because now everything is geared towards the whim of the market, rather than actually developing products or longer term concerns. Or if you look at the Body Shop, when privately owned they arguably had a larger degree of freedom to pursue perhaps less profitable but more ethical business practices (I'm not saying they did btw). Once public they're obligated to follow profit maximisation and now as I understand it they're owned by L'Oreal anyway (who test on animals) and who are in turn partially owned by Nestlé (who in turn are involved with marketing practices which are said to encourage practices which contribute to the deaths of 1.5m children a year). I'm not trying to defend non-listed firms here particularly they're all capitalist scumbags as far as I'm concerned, but, I've just not heard you list any meaty arguments as to what the new beef is (pun unintentional). Quote:
Now, control over resources & infrastructure and the afforementioned skilled population. That's something worth talking about. * = As an aside, there will of course people whose skills are in demand, but in the longer term I would imagine you would get a much more widely distributed set of skilled persons. Programming is an obvious example, but I would imagine before 1990 (say) 95% of the skilled programmers were in the US or Western Europe. I've no idea what it is now, but given the expansion in India and China (and eventually elsewhere) I'd guess this figure must be dropping rapidly. |
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Plenty of investors invest through public funds, investment funds from their banks, or if they have enough money private equity funds that play around with their money for them. Now, these private equity funds often represent a whole lot of people with a whole lot of money, same for the private funds banks have. Let's keep this simple. Sticking your money en-masse into a private fund does not necesarilly concentrate the wealth in fewer areas. It simply redistributes wealth in a different way. I am sure you realise these funds manage to survive by spreading their risk (Except Mr. Buffet, who can't move his equity anywhere). and therefore redistributing the wealth people have put into them. I really don't see how you can argue this distribution is less than when people invest themselves, since a) this would (in my opinion) would be no more than a 'gut feeling, which I b) disagree upon because my gut feeling tells me there are more investors with little to no knowledge about the market that 'invest' my pouring their money in some fund their bank has, than investors that actually trade on the market itself (you'd also require a bit more money to make this worthwhile). We'll probably have to agree to disagree here, but I don't see how PE (or putting your money on a savings account) leads to less money distribution. |
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I'm not i just disagree with it, hes not going to change his opinion and neither am i. Quote:
The principle of private ownership ==> public(specifically)/employee/etc shareholding is about (again im just repeating) 'sharing the wealth of the company and the speculation it allows is wealth creating especially to people not connected to the company and therefore "more distributative" ' All those examples you give are to me literally besides the point since im only interested in the fundamental framework. I understand the point you're making that they'll be an institution willing to accept my money, but again a fundamental difference in how we view history means we look at the impact shareholding had on top of that in opposing ways. The best way i can sum it up is by saying you look at history differently to me, to you we could still arrive at the same place today, because the '20th century vs 19th century' business practises debate was 'largely' (?) isolated from what we're talking about. To me had those transformations not occured and had everything remained private we would have been poorer today and the wealth would have been more unevenly distributed. Although i don't think it'll go to anything like this extreme, what we're ultimately talking about is a regression of history and would it have a significant affect. We disagree on the causality and hence can only agree to disagree. :) |
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As for the trading/speculating - well that is a difference, but as I say, there are many other methods of speculation available (and will be so many more). I speculated on the Dow Jones the other day, but of course I owned not a jot of it. Quote:
Saying "regressing fifty years" (or whatever) is a useful rhetorical device, but isn't really straight forward. If we reintroduced chattel slavery we wouldn't be travelling 170 years back in time, we would have an entirely different scenario which would be appalling but would not mean Britain (or anywhere) suddenly became like the 1850's. |
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