Abstract This paper provides a review of the relevant literature to define and describe junk bonds and leveraged buyouts, followed by a discussion and analysis of the current economic trends today. A summary of the research and salient findings are provided in the conclusion.
From the Paper "Michael Milken's vast and increasingly powerful junk-bond network fostered the "merger mania" of the 1980s, in which his clients, partners, and allies, among others, engaged in a wave of corporate mergers, acquisitions, hostile takeovers, and leveraged buyouts. By the end of the 1980s, the junk-bond market had grown to $150 billion in size, and Drexel Burnham had become one of the leading financial firms in the United States. Milken's own operations accounted for at least half of the firm's profits, and his own salary zoomed from $25,000 in 1970 to $550 million in 1987 (the highest annual compensation at that time) ("Leveraged buyouts," 2002, 4-5)."
Abstract In this article, the writer notes that conflicts of interest are of great concern in recent years and months, especially since the recent, highly-publicized buyouts involving Qantas and Alinta. The writer points out that in efforts to protect clients and mitigate risk in the financial sectors, conflicts in interest must be addressed suitably. The Qantas and Alinta buyouts have highlighted many of the worst issues pertaining to conflicts in interest in financial institutions. This paper seeks to review the existing literature concerning conflicts of interest, outlining the key terms and issues involved. It additionally covers the recent transactions and conflict of interest issues related to the Alinta MBO and Qantas Private Equity Deal. Finally, it turns to the views of the takeover panel, highlighting their views on conflicts of interest and, more specifically, their views on the Alinta MBO and Qantas private equity deal transactions.
Outline:
Introduction
Analysis
Background & Definitions
Evaluation
The Alinta MBO and Qantas Private Equity Deal
Background & Discussion
Possible Conflicts
The Takeover Panel and Conflict of Interest
Summary
From the Paper "Conflicts of interest often shock shareholders and the general public since they often blatantly ignore the basic requirements and duty expectations of those involved. For example, a bank that abuses a conflict of interest by recommending services that they know are not the best for a customer comes under public scrutiny for abusing the basic trust assumed in a banking relationship. A bank may suggest such services because they receive a higher interest rate or because they do not offer competitive services. This takes advantage of the lack of knowledge of the consumer, who often looks to the bank as a trusted consultant. Individuals and investors have come to assume some trust in banking and finance relationships, and most would agree that this is not an unreasonable assumption."
Abstract This paper describes the business activities of Seagate Technology - one of the world's largest manufacturers of computer disk drives and related data storage devices. When its stock price was undervalued, the management of Seagate worked with a private equity firm to plan a restructure of the company. The author gives a detailed account, together with tables and charts, of the leveraged buyout of Seagate's disk drive operations, finishing with an account of the company's position in the market today.
Outline:
Introduction
Background of Leveraged Buyouts Capital Structure
Valuation of Seagate
Conclusion
Aftermath
From the Paper "By undertaking this transaction, Seagate is hoping to allow its shareholders to realize full value for the company, by distributing the VERITAS stock tax-free and by selling the disk drive operation at a fair market value. It is necessary to divest the VERITAS shares in a separate transaction since this is done through a tax-free stock swap. If the company simply sells its VERITAS stock and buys back some shares of its own stock, it will have to pay for the tax; besides, the ability of Seagate to sell off its VERITAS stake was limited by its prior agreement with VERITAS. Previously, Seagate tried repurchasing its own stock in the market to raise its stock price; however, this had little impact on the stock price.
"As a result of this leveraged buyout, Seagate and its shareholders are the obvious winners as they were saved from tax liabilities. VERITAS and Silver Lake Partners are also benefactors of this transaction. Silver Lake stands to make a huge profit from this restructuring and VERITAS stakeholders received an attractive gain from the buyout. The ultimate loser from this transaction is the government because of the millions lost in tax revenue."
Abstract The article, "Leveraged Buyouts: Robber Barons of the Eighties," was written in 1989 and takes the point of view that LBOs are potentially inherently evil. In the 1980s, when debt was a four-letter word.
From the Paper "Leveraged Buyouts
The article, "Leveraged Buyouts: Robber Barons of the Eighties," was written in 1989 and takes the point of view that LBOs are potentially inherently evil. In the 1980s, when debt was a four-letter word. "In simple terms, a leveraged buyout begins when investors, assisted by investment specialists, attempt to buy a given company's stock in total. This is done by borrowing against the assets of the company in question, which is known as leverage" ("Leveraged" 1989 54).
The article in also explains some of the tax ramifications and other elements of the economy that are affected by the LBO, as these are called. The biggest problem that the article points out is that there is connected with LBOs a tremendous debt level.
From the Paper "During the 1980s, corporate mergers and acquisitions have assumed historically high levels of activity in the American economy (Drucker, 1986, p. 17). Earlier major episodes of merger and acquisition activity in the American economy (particularly those in the 1960s) were primarily motivated by corporate diversification strategies, in which the principal goal was growth (Glueck, 1984, p. 274). By contrast, the unfriendly takeover (wherein the strategic goal often has little relevance to the primary business activity of the acquiring corporation) has characterized most of the acquisition and merger activity of the 1980s (Drucker, 1986, p. 20)."
This paper examines the effects of leveraged buyouts (LBOs) and junk bonds on current economic conditions: Definitions, purposes, rise and fall, risk, debt and economic effects.
2,250 words (approx. 9 pages), 21 sources, 1995, $ 79.95
From the Paper THE EFFECT OF LEVERAGED BUYOUTS
AND JUNK BONDS ON CURRENT ECONOMIC CONDITIONS
"This research examines the effects of leveraged buyouts (LBOs) and junk bonds on current economic conditions. A background discussion on LBOs and junk bonds follows this discussion, and in turn is followed by a discussion of the concepts of leverage and risk. The effects of LBOs and junk bonds on current economic conditions then are assessed.
LBOs and Junk Bonds: Background
During the 1980s, corporate mergers and acquisitions occurred at historically high levels in the American economy. Prior significant episodes of merger and acquisition
Abstract The paper discusses that the current M&A flurry eases the pain of the declining market and that newer publishing companies are looking for a buyout instead of long term profitability. This paper describes the structure of the international publishing industry, especially the multi-national media conglomerate giant Bertelsmann, which now owns such companies as Doubleday and Random House. The author is concerned that ,with just six major companies in the media field, we are facing the prospect of living in the information age, where all that information will be controlled by very few people who feel that only the bottom line is important.
From the Paper "The fact is that in 1836 the Bertelsmann family ventured into the world of publishing because they didn't feel there were enough bibles available in Germany. This proved to be a profitable venture and Bertelsmann gradually grew over the next century and a half until they became the biggest trade book publisher in Germany. As Bertelsmann progressed, they also began adding print and broadcast media to their portfolio, ultimately making them one of the top (now number three) media conglomerates in the world. Then over the last five years, they really stepped things up. Being cash rich and debt-free, they began to take advantage of others in the industry -- who operating at a marginal level were hit hard when the world economy slowed and sales dropped. They acquired Doubleday, which includes Delacorte and Dell, and merged it with Bantam, a previous acquisition. They did make the front pages in 1998 when they purchased Random House, the largest and most prestigious trade book publisher in the U.S.."
Abstract In this article, the writer explains that the O.M. Scott leveraged buyout case was an example of 1980s creative financing, in which a large corporation in deep debt was able to not only be bought out by a company it then took over, but gained momentum and credit credibility. The writer further explains that O.M. Scott manufactures, markets and sells lawn care and garden products; and provides garden maintenance services. The writer points out that O.M. Scott & Sons was sold and became a closely held company following the war, when, in 1971, it was bought out by ITT. O.M. Scott & Sons remained within the conglomerate until 1986. In this article, the writer looks at related problems and discusses possible alternative courses of action.
Outline:
Introduction
Background of Company
History
Analysis of Case
Major Problems
Alternative Course of Action
Analysis of Alternatives
Conclusion
From the Paper "At the end of fiscal 1961, Scott and its subsidiaries had $16.2 million of long-term debt outstanding, $12 million in renewable five-year subordinated notes of the parent company held by four insurance companies and a trustee, and $4.2 million in publicly held bonds owed by Scotts Chemical Plant, Inc., a wholly-owned subsidiary."
"The governing loan indenture limited the company's maximum outstanding debt to an amount not greater than three times the company's "equity working capital" as of the preceding March 31. The note indenture restricted outstanding subordinated notes to only 60% of maximum allowed debt. The agreement also required that Scott be free of bank debt for 60 consecutive days each year and that the company earn before taxes one and a half times its fixed financial charges, including interest on funded and unfunded debt, amortization of debt discount, and rentals on leased properties."
Abstract This paper discusses organizational valuation perspectives in relation to project life expiry, friendly-unfriendly buyouts, economics of changing locations, and nationalization-confiscation of corporate assets. This paper discusses in turn project life, buyout, location change, and nationalization/confiscation in relation to an organization's or enterprise's value.
From the Paper "If projects and project life can be seen as a manifestation of an organization's line of business (LOB) or as representative of its products or services, then by extension, examination of project life cycles (commencement and expiration), are a valuable method of determining one aspect of an organization's value. Popular project management literature identifies 4 main types of projects, each with its own peculiar value to the organization: type I--mission critical, type II--technically complex, type III--organizationally complex, and type IV--simple (Wysocki, 2001, p.56-57). In determining an organization's value, examination of its history in undertaking and completion of type I projects, the mission critical projects, is an excellent method to supplement any valuation process. Since these projects tend to be "a significant contributor to the business's bottom line."
Abstract This paper looks at a newspaper company which recently was bought by a larger mass media corporation, which is more committed to new media technologies, such as the Internet, than the newspaper company's traditional print journalism. The paper reports the reorganization at the newspaper company as a result of the buyout and displays its complexity.
From the Paper "The operation of large business firms is characterized by great complexity of organization and administration. The highest level of management is concerned with the overall planning and evaluation of production and distribution, and various administrative departments carry on the functions of research, production, finance, and marketing. This is especially true when a business is involved in planning for a major operational change."
Abstract "This paper is an account of Syntex, a pharmaceutical research and manufacturing company that offers an intriguing example of the rewards and pitfalls of the international drug industry. Throughout the 50 years of its history, Syntex laid important groundwork for the development of the birth control pill and led the industry in the development of nonsteroidal anti-inflammatory drugs (NSAIDs), culminating in the development of naproxen and anaproxen, the largest-selling NSAIDs in the world.
From the Paper "This paper is an account of Syntex, a pharmaceutical research and manufacturing company that offers an intriguing example of the rewards and pitfalls of the international drug industry. Throughout the 50 years of its history, Syntex laid important groundwork for the development of the birth control pill and led the industry in the development of nonsteroidal anti-inflammatory drugs (NSAIDs), culminating in the development of naproxen and anaproxen, the largest-selling NSAIDs in the world. Preferring to promote from within, the company managed to produce consistent research and development successes that kept public focus away from the individuals responsible for these successes. By the late 1980s, the company had become successful enough to be a tempting target for takeover, protected principally by its foreign status and the impending expiration of ..."
Discusses history & effects of LBOs on the American economy. Focuses on high-risk, high-return, conflicts between management & shareholders, decision alternatives, dividend & financing.
1,575 words (approx. 6.3 pages), 7 sources, 1989, $ 55.95
From the Paper "This research examines leveraged buyouts (LBOs). Specifically, it attempts to determine whether or not LBOs are either good or bad for the American economy.
LEVERAGED BUYOUTS AND JUNK BONDS
LBOs and their effect on the American economy cannot be adequately discussed without also considering junk bonds. The reason for this necessary linkage is that junk bonds are used to finance LBO deals.
A leveraged buyout is one in which the cost of the purchase is largely borne by the firm being acquired. In most instances, these deals are structured to be financed by so.called junk bonds."
Examines benefits and drawbacks in the 1980s and 1990s. Examines hostile takeovers, leveraged buyouts, competition, finances, government oversight, competition and key success factors. Includes charts.
3,150 words (approx. 12.6 pages), 15 sources, 1995, $ 111.95
From the Paper "Introduction
Mergers and acquisitions gained national attention during the 1980s as individuals such as Michael Milken and companies such as R.J. Reynolds and Nabisco made headlines. The public saw companies, often healthy companies with long-standing regional ties, merged or acquired with companies whose primary goal was to divide up the parts, and employees of target companies feared for their jobs as rumors and announcements were made, denied, confirmed and abandoned. This area of business activity itself took on a negative connotation of corporate raiders seeking to take advantage of unsuspecting companies; defense tactics such as the "poison pill" option were put into place in many companies.
The negative publicity and image that mergers and acquisitions gained during the 1980s fails to recognize that the art of bringing together ..."
Abstract The paper shows the relationship between corporations and the general public has always been somewhat of a double-edged sword. On the one hand, individuals purchase goods and services from corporations and invest in stock in hopes of reaping financial benefits as well as stimulating economic growth. By contrast, corporations employ individuals and must also please Wall Street analysts as well as meet their own financial expectations. The paper discusses how over the past two decades, numerous high-profile corporate scandals have occurred that have weakened the public's trust in corporations, beginning with the savings and loan scandals of the 1980 involving Charles Keating, and the insider trading and leveraged buyout scandals of the late 1980s involving Drexel Burnham and Michael Milken. During the 1990s, it seemed as if corporations could do no wrong, minting tens of thousands of millionaires (employees, executives, investors) while reporting unprecedented profits. The paper explains however, that as the accounting scandals and ensuring bankruptcies of Enron, Global Crossing, WorldCom and numerous other high-profile corporations indicate, there was much deception and smoke and mirrors behind their seemingly invincible exterior.
Part II of the paper discusses the reasons for Enron's downfall in light of the auditing business. In Part III, Enron's law firms? role in the collapse is outlined. Part IV reviews Enron's lack of 401(k) diversification. Part V outlines proposals for restoring corporate integrity. Lastly, this paper concludes with proposals for restoring integrity within the American business arena.
From the Paper "As Enron's chief outside counsel, Vinson & Elkins billed Enron for $36 million last year, about 7% of the law firm's revenue. (Mason). In addition to testifying before House lawmakers, Vinson & Elkins has been subpoenaed by the Securities and Exchange Commission, which also is investigating Enron. (Mason). Lawmakers in both House and Senate committees have criticized as inadequate the firm's review of allegations Watkins raised last year. (Mason). Vinson & Elkins was tapped by Derrick, former Enron general counsel, and former Chairman Ken Lay, to conduct a limited investigation of Watkins? allegations of questionable accounting and conflicts of interest in Enron financial practices. (Mason). Watkins maintained that because Vinson & Elkins had worked on some of the company's problematic off-the-books partnerships, another firm should investigate the practice. (Mason)."
Abstract RJR Nabisco was, until recently, an international consumer products company with subsidiaries engaged in domestic and international tobacco businesses and an 80.7 percent interest in Nabisco Holdings Corp., a large multinational food company. This conglomerate was formed in 1989 as a result of a $25 billion hostile takeover of Nabisco by RJR which was orchestrated by investment bankers KKR and which is considered one of the largest hostile takeover in American history. This paper begins by summarizing the state of the two companies before the merger, briefly details the merger, considers the options that both companies had and then concludes with the consequences of the buyout - the fall of RJR Nabisco. The paper includes tables.
From the Paper "In short order, Reynolds' acquired Chun King, Patio Foods, American Independent Oil, Del Monte, Inglenook wines, Smirnoff vodka, Kentucky Fried Chicken, Sunkist beverages, and Canada Dry, all of which it sold by 1991. In 1985 Reynolds bought Nabisco (Newtons, Oreo, Premium Saltines, Cream of Wheat, Planters nuts) for $4.9 billion, forming RJR Nabisco Holdings. Nabisco's CEO, Ross Johnson, became CEO of RJR Nabisco. When Johnson attempted an LBO of RJR Nabisco, buyout firm Kohlberg Kravis Roberts (KKR) outbid him, acquiring the company in a deal valued in excess of $25 billion in 1989."
