Is Going Private A Passing Fad?

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“The only sure thing that can be said about the past is that anyone who can remember Santayana’s maxim is condemned to repeat it,” Walter Isaacson wrote in Sunday’s New York Times Book Review. “As a result, the danger of not understanding the lessons of history is matched by the danger of using simplistic historical analogies.”
This came to mind this morning while when we came to the end of David Wessel’s Capital Exchange column in the Journal. Wessel uses the Cerberus purchase of Chrysler as a jumping off point for a column describing the causes of the recent rise in the number of companies going private. Twelve companies on the S&P 500 are set to go private, with a price tag of $179 billion.
Wessel’s column runs through the now-familiar causes: over-regulation, readily available leverage, freedom from pressure of unions and other so-called “stakeholders,” and the desire of many of the most capable corporate executives to get out of public markets (which they view the highly-risky—executive turnover is high, new regs threaten personal financial liability and possible jail time—and under-compensated).
But it was his conclusion that got stuck in our craw. “Whatever the cause -- and all these factors play a role -- this isn't a permanent shift. The leveraged-buyout boom of the 1980s ended when credit got tighter, takeover targets got expensive and squeezing fatter profits from acquired companies got tougher. And that will happen again. The only question is when,” Wessel writes.
We’re not sure Wessel should so confidently discount the possibility that something more fundamental might be happening to corporate structure in America. While the current boom in private equity will certainly not last forever, there is at least some evidence that we may be witnessing the nascent stages of a shift in the way our companies are owned. law professor (and Ideoblogger) Larry Ribstein has written extensively about the rise of alternatives to the publicly held corporation.
Larry Ribstein responded to the news of the Chrysler deal by reminding us that this may be a good illustration of what he has called “a fundamental shift of American business away from publicly held corporations.
“Maybe the public corporation will be replaced by the public uncorporation, giant umbrella LLCs like Fortress that manage large hedge funds that run slim little operating companies, like the future versions of GM and Ford,” Ribstein says.
At the very least, Ribstein's scholarship in this area has demonstrated that there is no reason to simply assume that this shift in ownership and organization is a temporary phenomenon. A phrase that we know is familiar to Wessel might be more useful than Santayana’s here: past performance may not be indicative of future results. Just because the last few years of this decade may have resembled the buyout boom of the 1980s doesn’t mean we are condemned to repeat what followed.

Closing the Door: Going Private Offers Rewards
[Wall Street Journal]

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