Deal Scuttling: A New Problem For Management Buyouts?

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Management buyouts have been a favorite target of corporate governance types for years but the critics may have a new line of attack—criticizing managers for scuttling deals.
The traditional criticism of management buyouts—where a company’s senior executives cooperate with financiers to buy a company from public shareholders and take it private—has been that management could exploit shareholders by buying the company on the cheap and discouraging other bidders. When the buyout market was firing on all cylinders, objecting to management buyouts on these grounds was a favorite past-time of self-styled shareholder advocates. (One particular lunatic who happens to have a column in the New York Times even proposed outlawing them.)
But now that the buyout market has ground to a crawl—if not a complete halt—the conflicted role of buying and selling a company at the same time could be working the other way. This morning our own Joe Weisenthal, who also writes over at PaidContent.org, points out that the collapse of the deal to take radio operator Cumulus Media private has collapsed, and unlike some recently failed deals, Cumulus seems to have no plans to sue the buyers to force them to close the deal.
“A question that shareholders might be wondering about: Was the agreement to amicably drop the deal made easier by the fact that CEO Lew Dickey was on both sides of the transaction?” Weisenthal writes.
Cumulus shareholders will get a break-up fee of $15 million but it hardly seems likely that the company could sue its chief executive to force the sale. Think of it as an agency cost of a bear market.
Cumulus Take-Private Deal Falls Through; Stock Off Over 20 Percent [PaidContent.org]

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