Every student in every school
should be taught how businesses and corporations work.
Every one of us needs to know how the decisions get made
that determine where we work, how much we get paid,
and how the goods we buy get produced.
Sadly, virtually NO teacher or school administrator anywhere
knows ANYTHING about such a vital subject
that they SHOULD be teaching to everyone!

An event that happens sometimes is called a "hostile takeover."
That's when someone buys a business
against the will of the business's management.
Common sense might tell you that this should be impossible.
But it does happen, and here's how it works:

Large businesses are usually "publicly owned corporations."
The business's founders sell stock to the general public.
ANYONE can go to a stockbroker
and buy a small piece of the corporation.
The Securities and Exchange Commission regulates this activity.

Many stocks are listed on the New York Stock Exchange.
Others are sold "over the counter." 
The price is determined by how many people
want to buy or sell a particular stock.
When there are more people who want to sell, the price goes down.
When there are more people who want to buy, the price goes up.

Sometimes, the price might go far below
the "book value" of the stock.
The book value is price it would cost
to build the company from scratch.
If the stock price goes low enough,
it might become possible for a company
that's worth a billion dollars to be bought for a half billion.
That's when LBOs (leveraged buyout companies)
become interested.

Leverage means borrowing money, usually from a bank.
LBOs borrow money from a bank, buy a corporation,
and then they usually sell off the parts for a profit.

President Carter and the Democrats
imposed many policies that were harmful to business.
This caused stock prices to go WAY down.
Then Ronald Reagan became President. 
Working with Congress,
he implemented policies that were far more helpful to business.

It took several years for stock prices to come back up.
LBOs targeted many corporations in the 1980s.
One of them was Kroger Corporation.
This is a very good example to study.

In the 1980s, Kroger, the grocery chain, saw its stock trading
at about half of the book value of the company.
KKR (Kohlberg, Kravis and Roberts), an LBO company,
started buying up the stock at this bargain price.
(It's important to know about KKR.
The main people in that company were major contributors
to the Romney campaign for President in 2012.)

KKR publicly announced that they intended to
dismantle Kroger Corporation and sell off the pieces.
Of course, Kroger management and employees
were all very alarmed about this!

Kroger management went to the banks
in their home city, Cincinnati,
and borrowed $450 million
to buy back from the public enough stock
that KKR couldn't buy a majority of shares.

This example illustrates how LBOs
are the banks' way of punishing companies
for not staying in enough debt.
Regardless of who wins the fight, Kroger or KKR,
the banks win, because one of the two
has to borrow a huge pile of money,
and therefore has to pay interest on it to the bank.

This also illustrates why the "greedy Wall Street fat cats"
like Democrat politicians at least as much as they like Republicans.
It was the Democrats who created this out of balance condition
that KKR tried to exploit to begin with!

Freedom --

Your description of the takeover process is good, but I disagree with your conclusion:

re:  "This example illustrates how LBOs are the banks' way of punishing companies for not staying in enough debt."

Not really.  Hostile takeovers are rarely, if ever, initiated by the banks.  They happen when outsiders perceive that there is value in the company that is not being realized by the management of the company, including its board.  Sometimes this is in break-up value, where the sum of the parts exceeds the whole.  Sometimes it is in lack of an effective strategy, which the takeover people believe they can supply, often involves pairing with another company to implement that strategy. 

The takeovers are "hostile" because, all too often, entrenched management (including the board, again) is unwilling to take the steps necessary to bring full value to the shareholders.  Such takeovers are usually a good thing because they deliver more value to the shareholder, either thru the buyout or by forcing management to take steps to deliver that value.  Banks are not usually the source of the buyout funds.  More often the funds come from major investors like pension funds.

Your remarks about the inadequacy of financial education are mean and unfair.  Apparently you believe that a modicum of financial education would be more valuable than all the really crucial and valuable stuff that liberal teachers waste their time and our money on.  . . . . . . . . . .  Well, you might be right.

Take care,

Russ Walden

Quote from: Solid Right on April 13, 2016, 02:06:45 PM
Freedom --

Your description of the takeover process is good, but I disagree with your conclusion:

re:  "This example illustrates how LBOs are the banks' way of punishing companies for not staying in enough debt."

Not really.  Hostile takeovers are rarely, if ever, initiated by the banks.  They happen when outsiders perceive that there is value in the company that is not being realized by the management of the company, including its board.  Sometimes this is in break-up value, where the sum of the parts exceeds the whole.  Sometimes it is in lack of an effective strategy, which the takeover people believe they can supply, often involves pairing with another company to implement that strategy. 

The takeovers are "hostile" because, all too often, entrenched management (including the board, again) is unwilling to take the steps necessary to bring full value to the shareholders.  Such takeovers are usually a good thing because they deliver more value to the shareholder, either thru the buyout or by forcing management to take steps to deliver that value.  Banks are not usually the source of the buyout funds.  More often the funds come from major investors like pension funds.

Your remarks about the inadequacy of financial education are mean and unfair.  Apparently you believe that a modicum of financial education would be more valuable than all the really crucial and valuable stuff that liberal teachers waste their time and our money on.  . . . . . . . . . .  Well, you might be right.

Take care,

Russ Walden

This sounds more like the "Hostile takeovers" that I know about.

Quote from: walkstall on April 13, 2016, 03:49:35 PM
This sounds more like the "Hostile takeovers" that I know about.

Interesting read, all of it.

If I was a well-heeled investor, I'd be looking for - let's say a company with unleveraged infrastructure, well located - as my first criteria.

Sometimes the best product ideas partially fail for lack of marketing, poor design, cost of manufacturing - all which the right guy(s) can easily solve.   

Was looking into a couple of designs, no real details given, but the idea was pretty novel.  One guy picked up the idea, improved on it, patented, and is marketing it .. clearly unaffordable to the target market.  I could do the same thing, with a modifications and market it at 1/3 of his price.  Guess you could call that a hostile idea takeover, or market share take over.   

A little over 2 years ago, we saw a design that was pretty novel, but we had already been working on almost the same thing.  Realizing the guy had a great idea, but didn't know how to build it - idiot proof and inexpensive, we changed our design (seeing his failure) and have sold 160 units compared to the handful he's sold over 7-8 years.  Couple of weeks ago, a guy approached us with this other guy's product, lamenting the poor performance.  I told him we'd make a "kit" to adapt his product to our system - he was ecstatic!   Rather than a hostile take-over, we'll just put him out-of-business with a better product. 

IMO, it's the same as a "hostile take-over", on a smaller scale, I won't be paying this other guy's retirement and buying his mortgage.  Just as he STOPPED development, I suspect these other companies get BOUGHT OUT because of the unrealized opportunity.  Not a bad thing at all, in my book.  There is risk in every business, isn't there?

Quote from: Hoofer on April 15, 2016, 11:26:16 AM
Interesting read, all of it.

If I was a well-heeled investor, I'd be looking for - let's say a company with unleveraged infrastructure, well located - as my first criteria.

Sometimes the best product ideas partially fail for lack of marketing, poor design, cost of manufacturing - all which the right guy(s) can easily solve.   

Was looking into a couple of designs, no real details given, but the idea was pretty novel.  One guy picked up the idea, improved on it, patented, and is marketing it .. clearly unaffordable to the target market.  I could do the same thing, with a modifications and market it at 1/3 of his price.  Guess you could call that a hostile idea takeover, or market share take over.   

A little over 2 years ago, we saw a design that was pretty novel, but we had already been working on almost the same thing.  Realizing the guy had a great idea, but didn't know how to build it - idiot proof and inexpensive, we changed our design (seeing his failure) and have sold 160 units compared to the handful he's sold over 7-8 years.  Couple of weeks ago, a guy approached us with this other guy's product, lamenting the poor performance.  I told him we'd make a "kit" to adapt his product to our system - he was ecstatic!   Rather than a hostile take-over, we'll just put him out-of-business with a better product. 

IMO, it's the same as a "hostile take-over", on a smaller scale, I won't be paying this other guy's retirement and buying his mortgage.  Just as he STOPPED development, I suspect these other companies get BOUGHT OUT because of the unrealized opportunity.  Not a bad thing at all, in my book.  There is risk in every business, isn't there?

Not just business, but in life also.  Ever day I get up and put my foot on the floor and smile and think to myself wow! I have made it one more day.   

Hoofer, et al --

re:  "I suspect these other companies get BOUGHT OUT because of the unrealized opportunity.  Not a bad thing at all, in my book."

Exactly so.

This is true more at the board level than executive management, but sometimes they fall in love with the legend:  "We are an "X" company, we have always been an X company and we will always be an X company."  Where X can be a geography, a product, a market, etc.   This occurs at the board level, because, otherwise, they would require executive management to follow a new plan -- or get some who would.

Sometimes it is a bad strategy, aggressively executed -- the inverse is "If you're gonna do stupid things, try to do them slowly."  Example here is the A&P grocery chain.  They made a conscious decision that they would not pay the high dollars needed for prime locations.  Instead, they would take secondary (even sometimes tertiary) locations and execute a superior marketing plan.  They loaded up on the secondary locations, but their marketing plan didn't compensate.  I think the remnants are on their third round of bankruptcy.  I lost interest and lost track.

re:  "There is risk in every business, isn't there? "

That has been my experience -- sometimes for the good and sometimes for the worse.  Fortunately, I have had more of the former than the latter, but have had both.

Take care,
Russ

Quote from: Solid Right on April 15, 2016, 12:43:26 PM
Hoofer, et al --

re:  "I suspect these other companies get BOUGHT OUT because of the unrealized opportunity.  Not a bad thing at all, in my book."

Exactly so.

This is true more at the board level than executive management, but sometimes they fall in love with the legend:  "We are an "X" company, we have always been an X company and we will always be an X company."  Where X can be a geography, a product, a market, etc.   This occurs at the board level, because, otherwise, they would require executive management to follow a new plan -- or get some who would.

Sometimes it is a bad strategy, aggressively executed -- the inverse is "If you're gonna do stupid things, try to do them slowly."  Example here is the A&P grocery chain.  They made a conscious decision that they would not pay the high dollars needed for prime locations.  Instead, they would take secondary (even sometimes tertiary) locations and execute a superior marketing plan.  They loaded up on the secondary locations, but their marketing plan didn't compensate.  I think the remnants are on their third round of bankruptcy.  I lost interest and lost track.

re:  "There is risk in every business, isn't there? "

That has been my experience -- sometimes for the good and sometimes for the worse.  Fortunately, I have had more of the former than the latter, but have had both.

Take care,
Russ

THAT is a tough one, large grocery stores can't be relocated quickly, and I liked A&P, remember them as an upscale kinda store.

There is something to be said for convenience & accessibility to the store.  Who wants to deliberately drive 2 blocks out of the way for groceries, when the competitor is right on the way home?  Plus the visible reminder, every time you drive by - that's what makes them PRIME locations.  Allows you to sell volume, volume, and more volume.  In my opinion, big volume beats big margins every time - turning the cash & product over quickly.

My favorite commercial is the running of the squirrels - The line at the end, 'it's not the big lumbering competitors, it's the quick, nimble ones ...'  I was on my 2nd business startup, taking customers from AT&T right out from under them... they could not adapt fast enough to compete.  Learned quite a lesson, the bigger they are, the greater the opportunity - 'cause they're probably sitting on their hands!

https://www.youtube.com/watch?v=2Z2_kKAe9y0

In the service industry, response time is critical.

Hoofer --

That is a great commercial.

re:  " large grocery stores can't be relocated quickly"

That is particularly true since, even in secondary locations, the grocery store is usually an anchor tenant -- so the leases are longer and stronger, and sublease candidates tend to be in short supply.  Also, secondary locations tend to be on the downhill slope as neighborhoods evolve.  So, instead of taking Amex & Visa cards, they find that their customers are using EBT cards. and the average per ticket sales are circling the bowl.

It ain't pretty, but they did save a helluva lot of money not having to pay for those prime locations.

Take care,
Russ

Quote from: Solid Right on April 13, 2016, 02:06:45 PM
Your remarks about the inadequacy of financial education are mean and unfair.  Apparently you believe that a modicum of financial education would be more valuable than all the really crucial and valuable stuff that liberal teachers waste their time and our money on.  . . . . . . . . . .  Well, you might be right.

I was a little miffed, until I read the rest of the paragraph.
That was good use of sarcasm.

A thoroughly trained student
would have stopped reading after the first sentence
and thrown a tantrum.

That's another problem with modern "education."
They train students to be hyper temperamental,
to react emotionally,
to shut down any rational thought process,
to make themselves completely defenseless against any demagogue.

The Democratic Party and the teachers' union
work together seamlessly.
The teachers train the students to feel instead of think,
and the Democrat politicians exploit the feelings
and absence of thought.