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No credit doesn’t mean no buyouts

Scott Jagow Sep 10, 2007

No credit doesn’t mean no buyouts

Scott Jagow Sep 10, 2007


Scott Jagow: Private equity is pretty much out of business for a while. It can’t get access to credit. And credit is what you need when you buy companies on huge amounts of debt.

But Fortune Magazine’s Allan Sloan says that doesn’t mean there won’t be any buyouts on Wall Street.

Allan Sloan: I think now the buyers will be companies rather than buyout groups. And the companies are known in the trade as strategic buyers, because in theory they buy things to make strategic sense. And the leveraged buyout boys, which everybody but me calls private equity, are what’s known in the trade as financial buyers who are buying it, you know, based on finances are opposed to being based on business. Which in theory is why corporations buy.

Jagow: So we might see more mergers and acquisitions company to company in the next few months, then.

Sloan: Oh, I don’t think there’s any question that we’ll see more of them. Because until recently, the leveraged buyout boys had access to so much money and it was so cheap that they would pay prices that no business would pay. So you’ve got corporations now whose stocks are not down terribly much and who are loaded with dough, and their major competitors for businesses, the private equity guys, are now been driven out of the market.

Jagow: Yeah, but won’t companies have the same issue? Don’t they need some access to credit as well?

Sloan: Well, it depends what they’re doing. If you’re doing a stock for stock deal, you don’t need access to credit, because you can print your own currency, which is your stock. Corporations also tend now to have quite a lot of money. I mean, the big corporations are awash in money. So now, they can use their cash and cash flow to buy out the companies.

Jagow: Well, if I’m an American worker — which I am — which do I like better, a company taking over my company, or a private equity firm buying it?

Sloan: I’m gonna give you a really bold and decisive answer, which is, it depends. Because if one company buys another, the headquarters operation of the company that’s being bought is generally toast. If you’re part of a company that’s being bought by the leveraged buyout boys, you can be toast wherever you are. Neither one of them is a great thing for me — I generally just want to be somewhere where everybody leaves me alone, but it’s not clear that we’re allowed to do that anymore in this world.

Jagow: All right. Allan Sloan from Fortune magazine. Thanks.

Sloan: My pleasure, Scott.

Jagow: Allan Sloan is a senior editor-at-large for Fortune. In Los Angeles, I’m Scott Jagow. Thanks for listening and enjoy your Monday.

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