Word: buyout
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First, some background: private equity refers to what in the 1980s was called the leveraged buyout (LBO). LBO artists such as Henry Kravis and Carl Icahn borrowed lots of money on the junk-bond market built by financier Michael Milken and used it to finance takeovers - sometimes hostile ones - of struggling corporations. During the recession of the early 1990s, the LBO business faltered, and many predicted its demise. But buyout funds re-emerged under the more genteel moniker private equity, eschewed hostile takeovers, reliably outperformed the S&P 500 and grew to be a far bigger force than they ever...
...giant American Electric Power (AEP), said that the year would be worse than expected. It probably is a sign of severe trouble when the electric company is cutting costs. Whether GM goes into bankruptcy or not, it is still shrinking its workforce. Last week 7,600 salaried workers took buyouts. Chrysler has employee buyout offers pending. Several large auto parts suppliers are still cutting people. In other words, industries which were in trouble six months ago are in as much or more trouble now. (See pictures of Detroit's decline...
...coming back. Not the kind of M&A that is about firing but the kind where the excuse for the buyout is more positive than layoffs. And, the impetus for the move up in M&A activity is probably that the stock market has been going higher recently...
...stock is way down. Before the rumor about an IBM deal hit the news, Sun traded at $5, less than a third of its 52-week high. What was lost in the commotion about the buyout was that Sun's shares had moved from $3.84 to $5 in just six trading days. Most of that increase was due to the rally in the overall market. And, if the market keeps going up, the price of potential acquisitions is going to get more expensive, even if the underlying businesses of the targets has not changed...
What makes the Schaeffler case particularly interesting is the timing of the Auschwitz allegations. It may be part of the negative reception of the controversial corporate buyout, originating from a source who may want to damage the Schaeffler family, spreading rumors about its activities during the Nazi period. Indeed, the clan seemed to have been prepared for the arrival of such charges. In early February, after rumors began to appear on the Internet that the Schaeffler clan had Nazi skeletons in its closet, the family made public a study it had commissioned in 2004 on its history during the Nazi...