September 3, 2006
Ben Stein on MBOs
Ben Stein's column in the New York Times on MBOs ("There Ought to Be a Law"), leveraged buyouts of publicly traded companies that include the senior members of the management team, is correct. He noted the first notorious case of Metromedia (that stimulated an article by me in the 80s on the problems with MBOs) and notes that the basic situation (insiders use inside knowledge to buy the company cheap from the public shareholders) continues. I would not prohibit the deals but I would make them more difficult to do. MBOs managerial participants should disclose their pre-deal calculations for a personal profit (IRR calculations) on the MBO, their plans for the company once private, and should disclose why a privately held company and not a publicly traded company should undertake the plans. Curently, as noted in previous posts here, the HCA deal, an MBO, smells.
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