On 3/23/07, David B. Shemano <[EMAIL PROTECTED]> wrote:
What "good" did they do? "Good" is kind of a loaded word, but let's anwer it this way. The Hertz transaction happened because Ford, which owned Hertz, wanted to quickly liquidate its investment in Hertz for cash. Ford hired very expensive investment bankers, marketed the asset, and the best offer they got was from the private equity group, which then apparently made something like a $3 billion profit very quickly. In hindsight, Ford and
Agreed that "good" is not a black-and-white concept, but it is best not to avoid such "normative" questions. In this case surely we can agree that huge unearned profits is not "good" for society. At the very least you have to admit that the Hertz case shows that there is no "free market for capital". Ford was unable to obtain capital at reasonable cost when it was needed and had to settle for firesale terms. Is it not reasonable to suppose that if capital ownership was less concentrated in the hands of a few, companies such as Ford could obtain it more efficiently? The central normative question here is: did the Hertz financiers "earn" their windfall profit in some way? I'd strongly argue that they didn't: the only thing they brought to the table was capital the bulk of which was probably borrowed through leverage anyway. In any case they flipped the company in 7 months, which indicates that they probably had their debt financing and IPO plans lined up well before the buyout from Ford was finalised, so there was not even any real risk to their capital. Perhaps it shows extraordinary skills in organization but is that really worth billions of dollars? -raghu.
