Word: buyout
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Wall Street can be as slavish in following a financial trend as clothing designers are in copying fashion changes. This year's financial fad is the leveraged buyout. In these deals, the group of investors buying a company puts up the firm's assets as collateral. Since the loans needed for a leveraged buyout are thus backed by the company itself, there can be big profits for the investors, who often put up very little of their own cash. In one of the most celebrated leveraged buyouts, former Treasury Secretary William Simon and a group of financiers bought...
Nonetheless, banks, pension funds and other lenders dazzled by the gains being made in leveraged buyouts have been rushing to assemble billion-dollar cash pools to be used for the deals. That will make more loans available to buyers who actually make the buyouts. Even small investors will soon be able to get into the game. The brokerage house of Dean Witter Reynolds plans to offer a leveraged buyout fund that will allow individuals to participate for as little...
...leveraged buyouts can be risky if a company does not earn enough to pay the interest on the huge loans that have been taken out. Debt payments can also divert funds away from investment in new equipment and research and development. A group of managers at Harley-Davidson, the motorcycle manufacturer, bought the company from AMF in a leveraged buyout in 1981, but racked up big losses the following year and had to ask for protection from Japanese competitors...
POOR GULF OIL. Mounded by corporate thugs for six months, the company finally gave in two weeks ago--for $13.2 billion. In a desperate, last-ditch effort to avoid the clutches of Texas buyout cannibal T. Boone Pickens, executives of Gulf--the seventh largest oil concern in the country--sold out to Standard Oil of California, the eight largest...
Pickens's assault on Gulf was both brutal and spooky. Pickens, the head of the Mesa Petroleum Company, a small but pesky outfit, has through a series of obnoxious buyout threats acquired a terrible reputation in the industry. The history of his Viet Cong-style hit-and-run attacks on corporations far bigger than Mesa goes back...