Leave it to the Financial Times to mint humor so subtle and sublime (subscription requried), so nuanced and multi-layered as to befuddle the "financial journalists" of the United States into something approaching dumbstruck madness- though astute readers will find this only slight at odds with the natural state of the typical financial journalist psyche. (Leave it, of course, to Abnormal Returns [yummy!] to point us to this wonderful Sunday find). In this particular case, John Plender weaves a wonderful reductio ad absurdam chain with such skill and craft that both proponents and opponents of private equity are made light of. It is artful to such a degree that lighter intellects might miss the joke. Not surprising then that
McBusiness Business Week rises to take the bait. Spins Plender from the Financial Times:
With private equity investors gobbling up bigger and bigger chunks of the corporate world, fuddy-duddies worry that quoted equity will shortly become extinct. The usual party-poopers see a bubble and warn that hubris will soon lead to nemesis. For them, over-ambitious private equity folk deserve their status, shared with hedge funds, as the new bogeymen of the western world.
They have, of course, got it all wrong. The problem with private equity people is, in fact, their timidity. They have been desperately slow to raise their sights when so many institutional investors have been hurling ever larger sums at them in pursuit of better returns than those available in public markets. Why have they failed to tilt at the scores of companies much larger than HCA or NTL that have far less efficient balance sheets, bigger cash flows and a crying need for focus? Consider Microsoft, which has a balance sheet so inefficient that it would make a private equity investor weep.
In short, [Microsoft] has been preoccupied to such a degree with technology – so 1990s – that it has completely failed to take advantage of a period of unprecedentedly low interest rates, of banks that are falling over themselves to lend, of weakening bank covenants and a widespread recognition that leverage is the new alchemists’ gold. It is all too obvious: Microsoft just does not get it.
Before long he's gotten to:
The new management could take the axe to Microsoft’s $6.6bn of wasteful research and development expenditure. The bloated workforce of more than 60,000 could be slashed, to the point where the huge resulting increase in cash flow would at last permit the company to borrow mega-billions.
This brings us to the real joy of private equity: the so-called “dividend re-cap”, a dividend-for-debt swap. The enhanced ability to borrow would permit the newly private company to make the greatest dividend payment of all time. At a stroke it would solve the financial problems of the army of private equity investors who have been trying – hitherto unsuccessfully – to punt their way out of pension fund deficits.
...and the punch line, sarcasm served with a side of sausage, and delivered after a deadpan fry, as only the English can (good thing too because it is also the only cooking they can do):
Only the bankers will need a way out. Their horizons are traditionally fixed more on entrances than exits. Yet even they now have an exit strategy for private equity deals. It is called the credit derivatives market. This allows them to hedge the most outlandish risks. Of course, a curmudgeon might argue that this is morally hazardous since individual banks will take bigger risks in lending for over-leveraged deals because they can now shift risk on to others. So the quality of lending in the system deteriorates overall. But because in a very opaque market nobody knows where the risk ends up, why worry? Grab the dividend while it is on the table and let the devil take the hindmost.
Business Week, in an article dated September 4th (!?) and which displays the brazen gall to be found in the "News and Insights" section displays a dark flash of dazzling daftness:
Could Microsoft be bought out? That's precisely what the Financial Times of London recently called for. A consortium of private equity firms, the FT wrote, could cobble together the $288 billion needed -- nearly nine times more than the largest deal ever made. Why dare? "In truth," wrote the FT, "Microsoft would be worth more off the [public] market than on it."
The fact that anyone is talking seriously about such a colossal deal might in itself signify the high-water mark of the private-equity boom.
No, my dear, dear Business Week writer. The fact that you are talking seriously about this Financial Times article might in itself signify the high-water maker of the "financial journalism" boom. Honestly, is there no spell, no potion, no chant, no animal sacrifice... no human sacrifice that might rid us of suchlike? Perhaps a buyout of Mc
Ah, but it gets better. No, really. The diva of digital democracy herself, where everyone has a voice, i.e. the Business Week online comments section, yields this wonderful gem:
I've got most of my money invested in MSFT because its safer than a being in a bank.
- A Real Conservative
Ah, the delicious delights of Sunday afternoon. The only pity is for those who must now travel in London on financial business while bearing the scarlet letter of a United States passport.
I do so love the intellect that recognizes there are wingnuts on either side of the Microsoft and LBO debates, and very few reasoned types in between. Seeing the double entendre of "bi-polar" in the United States (a two party political system and the propensity to have schizoid breaks of mood) is what makes the Financial Times so charming and full of character. Well, that and the sort of early-morning-vomit after-a-night-of-screwdrivers-and-peach-martinis color of the newsprint.