Word: lbo
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...clamor for the doughnuts, a demand met by cutting a window through a wall to handle retail. An ugly conglomerate, Beatrice Foods, bought Krispy Kreme in 1976 only to spin it off to franchisees in a 1982 leveraged buyout. Today the family of Joseph McAleer Sr., who led the LBO, holds roughly 25% of the shares...
...buyout game is more complicated today. The typical LBO has three layers of financing--equity (put up by the buyer), senior debt (borrowed from a bank), and junior debt, or junk bonds (most often provided by junk-bond mutual funds). Banks are reluctant to lend for speculative buyouts with the economy slowing, though the Fed's rate cuts are easing that condition...
Besides, today "most LBO funds won't engage in hostile activity," says Greg Polle, who co-heads the mergers-and-acquisitions department at Salomon Smith Barney. "They spend more time trying to have good relations with boards so they will be viewed as a warm and friendly place...
Today's givers match their money with their energy. Forstmann, who is chairman of Gulfstream Aerospace and a senior partner at a New York LBO firm he co-founded, spent a year canvassing the country, examining local school districts--the program will serve 40,000 students in 38 cities--and cajoling everyone from Michael Ovitz to Barbara Bush to join the fund's board of advisers. He got the idea for the venture after years of studying a similar financial-aid program in New York City. Nine out of 10 school kids who used money from the fund to attend...
...like Eastern Air Lines. He also gave Northwest employees stock that has tripled in value. "Look," he says, "we took one of the worst airlines in America and made it one of the most profitable." But Paul Omodt, spokesman for the Air Line Pilots Association for Northwest, says the LBO was "disastrous" for the employees, who ended up bailing out the company in return for stock and three directors' seats. As for the state's involvement, critics like Minneapolis' Federal Reserve Bank researcher Art Rolnick say what Checchi touts as a "partnership" of government and business was really a government...