So says this article on Marketwatch.
I own Dow Chemical for somewhere around 2/3s of the accounts I manage. The above link posits a $60 bid coming but questions the validity of the source.
This is not necessarily good news. If you are investing with a 20 year time horizon do you care more about 33% now or possibly several hundred percent over 20 years?
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14 comments:
How is the public best served when Dow Chem or TXU bought out? I personally don't like the way private funds are taking out so many names. Maybe it's liquidity, hedge funds sloshing with funds - but can these private buyouts really be good for the investors, employees?
I agree that private equity buyouts are a concern. But if I were the CEO of a company, and was offered a nice premium to avoid Eliot Spitzer, endless lawsuits from fringe groups, shareholder demands, the seemingly endless rules and regulations and political placating necessary to be a public company in the US, I would probably just say the hell with it."Give me the pen and where do I sign". Most shareholders will take a reasonable premium over long term gains in a New York minute.
I was a tad apprehensive when I first saw the news, because Dow has always been a long haul stock for me. But a couple things are making me think it's a good deal. First, I think the market is peaking, and we're due for a sell-off soon, so this would be a good time to cash in some winners. Also, once the market correction happens, it'll be nice to have a pile of cash to put to work. It would be one thing if there were no other solid public companies in which to reinvest the proceeds, but it's a big market and we've got options. Let's take the money and run.
Roger: You book your 33% now and use it to get a head start on your several hundred percent return.
T: Sarb-Ox is a lot bigger concern than Spitzer who has since moved on to another job. Lawsuits from fringe groups will happen whether the company is public or private. The shareholders have the right to question management, that's what ownership is all about. I'd much rather have shareholder oversight than the old boys club (aka the board of directors).
The buyouts are happening not because companies want to be private, they are happening so that value can be "unlocked" and then the company goes public again. It is a form of the much discussed Cary Trade. You buy a public company cheaply, thanks to slosh of liquidity, and then sell it dearly thanks to investors thirst for IPOs.
I gather these private buy-outs are possible because the private investors can buy public companies, load them up with debt, and then flip them back to the public after the private equity as extracted value via special dividends and fees. So why don’t the directors of the public companies suitably load up the public companies with debt - return the value to the shareholders and take the companies off the private equity hit list? The difference is that in one case the public shareholder gets the dividend that the private investor otherwise gets. One reason might be that the officers and directors can profit from these public-private-public flips. They are looking out for who? The people buying out Kinder Morgan because they know a better way to run the company are?
While you're likely right to a degree, Anonymous, the real point to the buyout would be to spin off the various components of Dow. The company has seven separate operating segments that could stand on their own. And by themselves, they would probably muster a higher average P/E than Dow currently demands. So the point is to profit, but it may not be as much about dividends in this case as good ol' fashioned fundamentals.
Anon 5:27, I'd say that 7 times out of 10 you are right, the LBO profits no one other than good old boys but in the case of Dow I'd guess this so-called news is mostly BS so count that in the other 3/10ths, the part where nothing really happens except a lot of inside holders get to profit off of the bogus news they themselves helped generate.
Never mind the SarBox red herring (the fat cats couldn't care less); all that matters is how easy you are to play.
Where did you miss the part in Principles of Finance class where they said a dollar now is worth more than a dollar later.
Regarding "a dollar now vs. a dollar later"....I think the point is what will be the future value of that dollar invested: Resident in a sturdy, ox-drawn vehicle such as Dow, or languishing in lesser performing stocks OR in a stripped down DOW cash is swapped for debt. (And I agree that if we are peaking, it is best to get the premium now and lay low with the gun to shoot the lower flyers later.)
I'm wondering if we are seeing this buying frenzy due to the fear that rates are going to increase soon.
I actually understand a dollar now is worth more that a dollar later. It a dollar now worth more than $10 later? What about $5. at what point is it not worth it?
33% may not be a good deal if as a public company it were to go up 100% over the next couple of years. The stock has sort of languished for a while now so thinking it could move up a lot soon seems plausible kind like what Yahoo (client holding) has done this year.
Buying frenzy is to flip the deal at a top. Personally, I have ten yrs of dead money in a story tech company. They finally are making good money, but there is such a dark cloud that the street no longer trusts management...for good reason. Management is now going to leverage the mistrust. They are feverishly working behind the scenes to buy the company. Some shareholders got wind of the deal and threatened sec involvement. Management is now working on a shell to buy the company and in the end cash in by getting to the same end...ie flip it back public. There's a war out there. Shareholders are expendable.
Why are private equity buyouts a concern? It’s a public market. They can buy what they want.
And it’s got nothing to do with Elliott Spitzer. He went after a handful of businesses that were doing shady things, trials pending.
It’s not “fringe groups.” Heck, I’d love to discuss my middling corporate stewardship with Angela Jolie at Davos or over green tea at a Council of Foreign Relations shindig. What “fringe group” has taken down a US company? C’mon.
It’s not Sarb-Ox, the “Foreign IPO problem” will mean revert. And a billion dollar company paying their accountants an extra hundred grand a year is spit in the ocean.
It’s those change of control payouts, that’s what’s driving it… plus when Cash ROI equals 12% and you can borrow billions for seven percent, you’re guaranteed to win.
I'm sure glad this guy isnt managing my money. He doesnt seem to understand the time value of money
If the reason why all these firms are going private is the government, then why is KKR going after TXU, a regulated, government controlled industry? ... who have environmentalists sending them emails day after day re their coal plants?
Don't fall for their tired old 'get government off my back' spin, watch what they do.
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