[krampian]

>> Both companies soon began to struggle under new ownership, burdened by new and huge debt obligations and falling demand during the financial crisis.

The debt obligations are the typical result of private equity intervention. It's basically financial engineering which benefits mostly the private equity people.

For a good read about conglomerates and company architecting, I would suggest Warren Buffet's most recent shareholder letter from a few days ago, especially the part where he discusses the skepticism that should be shown towards bankers and financial people proposing company spinoffs to "unlock value".

[shawndumas]

"Investment bankers, being paid as they are for action, constantly urge acquirers to pay 20% to 50% premiums over market price for publicly-held businesses. The bankers tell the buyer that the premium is justified for “control value” and for the wonderful things that are going to happen once the acquirer’s CEO takes charge. (What acquisition-hungry manager will challenge that assertion?)

A few years later, bankers – bearing straight faces – again appear and just as earnestly urge spinning off the earlier acquisition in order to “unlock shareholder value.” Spin-offs, of course, strip the owning company of its purported “control value” without any compensating payment. The bankers explain that the spun-off company will flourish because its management will be more entrepreneurial, having been freed from the smothering bureaucracy of the parent company. (So much for that talented CEO we met earlier.)

If the divesting company later wishes to reacquire the spun-off operation, it presumably would again be urged by its bankers to pay a hefty “control” premium for the privilege. (Mental “flexibility” of this sort by the banking fraternity has prompted the saying that fees too often lead to transactions rather than transactions leading to fees.)"

[kchoudhu]

And a counterpoint:

http://epicureandealmaker.blogspot.com/2015/03/uncle-warren-...

Accept no one's argument at face value, especially when it's coming from a man who has spent the last 50 years exploiting market inefficiencies.

[ryguytilidie]

"Apparently some doddering old fart in Omaha, Nebraska published a celebratory letter yesterday."

"I tend to prefer my moral fiber to come unencumbered by six cups of refined sugar and smug self satisfaction per serving. I know, I know: I am downright un-American."

And finally, in the fourth paragraph, the author finally starts the story with "Aaannnyhoo".

This guy is a pretty insufferable writer.

[kchoudhu]

Yup, but that doesn't change the fact that he's right though. Read through his posts -- it is readily apparent that he knows what he is talking about.

[a_c_s]

The author doesn't provide much of a counterpoint: underneath the layers of rudeness and rhetorical flourishes, the only point of the article is that Mr. Buffet generally purchases companies for less than what the seller would receive in an auction managed by investment bankers.

This rebuts none of Mr. Buffet's points (not even those brought up in the parts of the letter that the author quotes), nor is it very insightful. Mr. Buffet has always ascribed to and publicly stated that he looks for deals, buying companies when they are cheap.

[kchoudhu]

If you're working at a startup, I hope there aren't people relying on you to negotiate an exit down the road.

[wtbob]

Thanks for that link. It also links to http://www.bloombergview.com/articles/2015-02-28/warren-buff..., which is well worth the read.

[kchoudhu]

You could do a lot worse than just follow Epicurean Dealmaker and Matt Levine for your daily/weekly/whatever fix of financial news.