"The Barbarian at the Door" after reading

1. Why was there a wave of mergers and acquisitions in the United States at the end of the 1980s?

(1) The stock market is sluggish, and Wall Street is forced to transform. In 1987, the US stock market crashed, the stock trading volume plummeted, the major US companies had no incentive to issue new shares, and Wall Street could only turn to the M&A business that only made money. Mergers and acquisitions are wall street's magic weapon, because whether it succeeds or fails, Wall Street can earn fees, including consulting fees, divestiture fees and borrowing fees. Throughout the 80s, these fees contributed to the rapid development of Wall Street.

(2) The valuation depression of blue-chip stocks provides a good opportunity for corporate mergers and acquisitions.

(3) Junk bonds are prevalent, providing a lot of financial support for leveraged buyouts. What finally made Wall Street stop mergers and acquisitions was the subsequent shock of the junk bond market (junk bond default).

2. What is a leveraged takeover? What is a "barbarian"?

(1) Leveraged buyout (LBO): With the help of financial institutions, the acquirer acquires the company's shares by borrowing (bank loans, issuing bonds) to obtain control of the company, and then repays the debt by cutting the financial budget and selling part of the business.

(2) According to the different acquirers, it can be divided into management leveraged buyouts, external leveraged buyouts, and if the outside party is not approved by the company and is forced to acquire, it can be classified as a hostile takeover, and the acquirer is called "barbarian".

(3) LBO benefits: Financial institutions will receive huge loan interest, handling fees (bond issuance fees, consulting fees, management fees, etc.) and brand reputation; debt will make the company more streamlined and frugal; the management that dominates the LBO will become extremely rich; and the stock price will benefit the rapid growth of shareholders' short-term interests.

(4) LBO disadvantages: High debt will force the company to cut the budget of R&D expenses and other aspects, thereby weakening the company's competitiveness, as evidenced by the subsequent decline of RJR-Rabisco; the positions of management and company employees are not guaranteed.

3. What are the key factors in this acquisition game?

(1) Funds: As the "King of Junk Bonds", Deschung Securities provided sufficient funds and ammunition for KKR;

(2) Talent: KKR employs 4 investment banks, which may appear redundant, but its main purpose is to defend and not let outstanding talents become their opponents;

(3) Information: Any successful leveraged buyout is inseparable from a series of data forecasts (profits, sales, cash flow), which can reveal how much debt a company can repay at most without affecting its operations, and the lack of internal financial information of the company almost made KKR lose the war; a correct bidding price means everything, and the knowledge of the bidding price of the opponent determines the course of the battle;

(4) Public relations: Johnson's mouth to the media has made it stand on the cusp of public opinion, which has affected the final position of the board of directors to a certain extent.

4. What is the evaluation of this acquisition?

On the one hand, the acquisition is top-down contingency. In this huge leveraged buyout through junk bonds, we can glimpse the impact of the times on the financial world and the business industry, the "noisy 80s" is the "casino society", investment bankers act as both bookmakers and alchemists, they make up absurd schemes to lure the company's management to the bait. If it weren't for the downturn in the stock market that caused blue-chip stocks to be undervalued, and if it weren't for Wall Street's leveraged buyout engine of junk bonds, this unprecedented buyout might not have happened.

The acquisition, on the other hand, is bottom-up inevitability. In this fierce battle like the pursuit of wild beasts and the sharing of prey, the greedy nature of human beings for fame and fortune has been exposed, and the management, board of directors, investment banks, commercial banks and other parties are all carrying out sophisticated interest calculations, the essence of capital is to pursue profits, which is the micro basis of this acquisition, which determines the inevitability of the acquisition, even if there is no Johnson, the tragic CEO with comedic overtones, "open the door and steal", but I believe there will be other "rational people" Discover the mistakes of the market and deduce another version of "Barbarian at the Door".

(Source: Zhihu)