More on Private Buyouts

I've written two posts in the past few months concerning private equity-financed buyouts, found here and here.

According to a piece in Friday's edition of the Wall Street Journal, something I mused about in the second linked post, from June, seems to be occurring already. It seems that VNU, NV, of the Netherlands, which owns the Nielsen ratings service, was taken private only after shareholders organized and demanded a higher premium for the deal. Mind you, these shareholders, some of them large mutual funds, overrode the board of directors' recommendation to accept the initial private equity offer, and extracted an additional 2.5% of the initial offer for their trouble.

According to the article, the premiums on some private equity deals is rising sufficiently to make them unattractive.

On a related note, I saw a fascinating little interview on CNBC yesterday. An analyst with a major commercial bank discussed Microsoft from a leveraged-buyout, private equity perspective.

Allowing that the firm is far too large to effectively be taken private like that, he went on to describe it as an ideal, typical buyout target. It has too much cash on its balance sheet to use productively. Its R&D spending is wasteful, producing little in the way of products or services which are driving total returns higher. And its staffing seems bloated, for the lack of value being created by the firm nowadays.

The only silly comment I heard was, as usual, the CNBC air-head interviewer. She asked how one "would fix Microsoft?"

There is no "fixing" Microsoft. My prior posts, here and here, discuss Microsoft's stagnant stock price and total returns for the past 5 years or so, as well as various mismanagement issues. It's a once-great, now-dormant tech giant, now being run more like a private bank account for Gates, Ballmer and perhaps a few other senior executives, than like a public company.

It's really a shame that this company is too large to be subject to the dynamics of our capital markets. How I'd love to see a one-time union of buyout firms like Texas Pacific Group, Blackstone, Carlyle, etc, to take Microsoft private, like a wolf pack cornering, bringing down and dismembering an aged bulk elk.

Now that would be something to see in the markets. Maybe not now, but perhaps in a few more years, such 'creative destruction' could come to pass.