Election 2012

[Happy Monkey]

Originally Posted by piercehawkeye45

Also, I am aware of how they would sometimes basically make money off a dying company but how often would that be? I'm guessing it couldn't happen all the time or else why would anyone allow them to buy them?

Companies aren't usually owned by the rank and file employees. If the owners were offered a tidy sum, they might take it, and console themselves over the destruction of their company with piles of money.

Or there are hostile takeovers.

[Griff]

I have no idea either, but companies usually stick close to a business model and we've seen some of Bain's work.

[tw]

The concept of mergers and acquisitions (leveraged buyouts) can go either way. If the purpose of an M&A company is only to make a profit, then companies are disassembled because its pieces are worth more than the company's stock value. That occurs when a company's management is bad (ie General Motors, Chrysler, Kodak).

If the purpose of an M&A company is to make better products and companies, then companies are either disassembled or reorganized to make the economy productive. In this case, profits are a reward; not the objective.

The movie Working Girl (Harrison Ford, Melanie Griffith, Sigourney Weaver) demonstrated leveraged buyouts rechanneled into a productive concluson. What would be a destructive M&A redirected into creating a healthier organization.

KKR (Kohlberg Kravis Roberts) used high yield capital markets to merge RJR and Nabisco into one company. Then sell off parts to repay the debt. IOW KKR did nothing to make the economy or either company prosper. Simply earned massive profits by moving capital around. Incurring massive debt meant liquidity used to enrich the new management while mortaging future profits. Playing money games on a popular myth - a big company is more productive when made even bigger. In reality, a bigger company only ends up with more layers of management. And a massive debt where none existed. IOW how to print money.

Some examples of the resulting destruction include Regal movie theaters, Denny's, Toys-R-Us, and Harmon stereo. Most were profitable for the M&A investment firm. Were either destructive or did nothing for the targetted companies.

Kohlberg eventually had a fallout with Kravis and Roberts because KKR was making money at the expense of large companies (ie RJR Nabisco). And was not earning profits by merging small firms that could profit from being merged with a compatible firm. Mergers and aquisitions can do good for small, existing firms by doing what venture capital does for startups. M&A gets a bad reputation when it mortgages companies (incurs long term debt) for the short term benefit of investors.