Management and Leveraged Buyouts: Hearings Before the Subcommittee on Telecommunications and Finance of the Committee on Energy and Commerce, House of Representatives, One Hundred First Congress, First Session, February 22 Nd May 25, 1989, Volume 4 |
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assets average Bernanke bondholders capital expenditures capital spending cash flow Chairman Committee competitive conclusions Congress corporate debt DANIEL MORRISSEY directors disclosure Duracell earnings economic effect efficiency employees employment equity ERISA Federal fiduciary Finance firms going high-yield debt highly leveraged Houdaille income increased industry institutions investment investors issues Jensen junk bonds Kaplan KKR companies KKR leveraged buy-outs KKR study KKR's laws LBO activity LBO companies LBO performance LBO's leveraged buy-outs loans Long and Ravenscraft look Lowenstein Management Buyouts merger and acquisition methodology million MORRISSEY Motel mutual funds operating ownership pension funds percent portfolio post-buyout post-LBO data pre-LBO problem productivity profitability projections question ratios recent recession research and development response restructuring result risk RJR Nabisco Safeway Salomon Brothers sample securities shareholders Simmons SOMMER statement structure subcommittee Sunley SYNAR takeovers tender offer Testimony transactions
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Page 125 - SIA members are active in all exchange markets, in the over-the-counter market and in all phases of corporate and public finance. Collectively they provide investors with a full , spectrum of securities and investment services and account for approximately 90% of the securities business being done in North America.
Page 78 - Steagall restricts bank involvement in investment banking activities. The Chandler Act restricts the involvement by banks in the reorganization of companies in which they have substantial debt holdings. In addition, the 1940 Investment Company Act put restrictions on the maximum holdings of investment funds. These factors are consistent with the empirical fact that money managers do not serve on boards today, and seldom think of getting involved in the strategy of their portfolio companies. The restrictive...
Page 81 - Partnerships, but the pay-to-performance sensitivity (including ownership interests, of course) appears to be large relative to that of the LBOs. The effective ownership interest in the gains realized by the buyout pool generally runs about 20% for the general partners as a group. LBO business unit heads also have far less bureaucracy to deal with, and far more decision rights in the running of their businesses. In effect, the LBO association substitutes incentives provided by compensation and ownership...
Page 80 - The LBO partnerships play a role that is similar in many ways to that of the main banks in the Japanese groups of companies (commonly known as keretsu). The banks (and LBO partnerships) hold substantial amounts of equity and debt in their client firms and are deeply involved in the monitoring and strategic direction of these firms. Moreover, the business unit heads in the typical LBO association, unlike those in Westinghouse or GE, also have substantial equity ownership that gives them a pay-to-performance...
Page 39 - SECURITIES AND EXCHANGE COMMISSION, BEFORE THE SUBCOMMITTEE ON TELECOMMUNICATIONS AND FINANCE OF THE HOUSE COMMITTEE ON ENERGY AND COMMERCE...
Page 243 - ... when the prime interest rate rose to over 20%. Despite the recession, these buy-outs retired all debt on time and collectively provided the equity investors an annual compounded rate of return of approximately 35%. • Each leveraged buy-out is carefully structured and designed to meet its working capital, capital expenditure and other financial requirements. • See Section 12 of this presentation for a case study involving Houdaille Industries, Inc., a machine tool manufacturer whose business...
Page 87 - This change would eliminate some of the most inefficient acquisitions that take place. These acquisitions are frequently engineered by managers flooded with free cash flow they are unable to invest in the businesses they understand but are reluctant to pay out to shareholders for reinvestment elsewhere in the economy. Some of the best examples of this have occurred in the oil, tire and tobacco industries — all industries that have been forced to shrink their operations in the last decade. As in...
Page 238 - Company is a diversified manufacturing 1981 company with operations in building and remodeling products and industrial and defense products. PACIFIC REALTY TRUST (ASE) — Company was a closed end real estate 1983 investment trust based in Portland, Oregon with a portfolio consisting primarily of real estate equity investments. DILLINGHAM...
Page 84 - The median net of market return on the post-buyout equity alone is about 600%, but these returns are distorted by the fact that the equity is highly leveraged. In effect, the equity returns are almost a pure risk premium and therefore independent of the amount invested. Calculating the returns on the entire capital base used to purchase the pre-buyout equity, or the fraction of the total wealth gains that go to the prebuyout shareholders, gives a better picture of the distribution of the total wealth...
Page 78 - Current attacks on Wall Street are reminiscent of that era. The result of these political and other forces over the past 50 years has been to leave managers increasingly unmonitored. Currently when the institutional holders of over 40% of the equity in this country become dissatisfied with management, they have few options other than to sell their shares. Managers' complaints about the churning of financial institutions...