Challenging my logic, Anonymous@12:19 a.m. asks a good question: "How can they use $325 million of shareholder money to buy the company from shareholders?"
Check my math, please: (228 million shares outstanding x $1.24) + ($283 million x 15%) = $325 million.
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This seems kind of nonsenical. I'm assuming you plucked the $1.24 figure out of the air in order to get to a number that, when multiplied by 1.15 would get you to $325 million. That $325 million from the divident belongs to the shareholders, not to the managers. How can they use $325 million of shareholder money to buy the company from shareholders?
ReplyDelete12:19 am: You wrote, "That $325 million from the divident belongs to the shareholders, not to the managers."
ReplyDeleteIf that's the case, how come management got to decide to take away the payout in the first place?
It stopped being the shareholder money when the dividend was declared at 4¢. Then it became extra liquidity on the books - or as is probably closer to the truth - it was a $325 million debt that didn't occur.
ReplyDeleteWilling to bet, James, that the $325 mil didn't actually ever exist - it's been an incredibly bad first quarter. That would make the dividend change less of a fiscally prudent move than a fiscally impossible-to-avoid move.
Even if they did that, what would they do about the massive debt that they would become responsible for? Probably declare bankruptcy, to get out of it, and reorganize the company?
ReplyDeleteDon't get me wrong - I see this as a likely scenario. I heard rumblings months ago that ultimately Gannett would be taken private, after the Trib collapsed.
Jim,
ReplyDeleteAre you sure you were a business reporter? This is probably one of the most sophomoric posts from you I have ever seen. IT shows your lack of knowledge in corporate finance (something a business reporter should understand).
So, what happens to all the debt (over 3.5 billion) when management "buyout" the common shares at a "15% premium".
Do you realize that you must buy the entire company (including DEBT) if you want to do a management buyout?
So, you MATH IS WONG and your logic is flawed. Just like the rest of this blog.
Don't you think if it was that easy, someone would have bought Gannett "debt free" for a 15% premium.
I thought you were smarter than this.
That is a new one..."Your math is WONG!" I love it!!!
ReplyDeleteThis poster is correct Jim (although his grammar and spelling might be off), you are actually incorrect. You would need to include all debt in takeover of common.
I never said Gannett's $3.9 billion in long-term debt wasn't included; management-led LBOs are always highly leveraged.
ReplyDeleteBut I don't think LBO purchase prices reflect debt directly In this case, it would be a $325 million tender, plus "the assumption of debt."
Now, servicing that $3.9 billion will be another story, unless revenues stabilize -- but that's Gannett's problem right now.
There are a lot of comments on this blog about how Gannett is (mis)managed but this post points out that for less than $8,000 per employee ($325 million/42,000 employees) the employees could buy the entire company "plus the assumption of debt" and manage it however the employees want. Everyone would work for themselves and all the gain would go directly to the employees. Also, the employees could decide to re-instate the dividend and pay themselves back, thus the cost after four quarters would be close to zero! (At today's prices it would cost more - about $16,000 per employee, or about two years of dividends).
ReplyDeleteBut employee owned companies are never run by employees. The issuers of that debt would have to agree to an ESOP assuming the debt, which would mean the new company would need its own Zell or some other connected snake oil salesman to get lenders to, in effect, refinance the debt knowing (deep down in their greedy little hearts) the most likely outcome will be a bankruptcy.
ReplyDeleteAnd then you would know what it is like for Tribuners, who continued to get fired from a company they "owned" until their paper equity vanished. Now they still get fired, it just has to go through the judge.
12:19 here again. That $325 million is an asset of the company and still belongs to its owners, the shareholders. The owners employ a board of directors to make decisions on how the company is operated. That the board chose not to pay it out in the form of a dividend doesn't transfer the ownership of that money to management. So ownership can't use that money to purchase the company, any more than they can reach into my bank account and pull out money to buy Gannett. To buy out the company, management would have to use their own assets (or assets they can leverage.) Please tell me, who in this credit market is going to loan someone hundreds of millions to buy a company with declining cash flow and nearly $4 billion in debt? Instead of wild-ass speculation, why don't you get a buyout expert on the phone and ask this question?
ReplyDelete9:57 am: Good points, all of them. As to getting a buyout expert on the phone, good luck with that. I've had little luck getting ANY experts on the phone for my posts.
ReplyDeleteIt shows, dude. It shows.
ReplyDeleteWHy in the hell would anyone take on nearly 4 billion in debt in order to capture 500 million in profit(which has been rapidly declining) Bankruptcy Fire Sale is the only answer. Someone will buy it's pices for pennys on the dollar and have a business for a few years.
ReplyDelete$500 million on $4 billion is 12.5% (a year). At pennies on the dollar (which is where you can buy the debt today) the return is much higher than 12.5%. You can buy the bonds today and collect 12.5%+++ until they come due, roll them over at a nice rate that Gannett could easily pay, say, 8% and you get a nice little return for a few decades. Or you could get less than 4% on Treasuries for the next 30 years. I wonder if the economy will improve before then?
ReplyDelete2:10. It remains to be seen what Gannett can "easily pay" in this crumbling economy.
ReplyDeleteA crubling economy? 2008 was a crumbling economy. Gannett had cash flow from operations of over $1 billion in 2008.
ReplyDeleteClearing $500 million is a lot easier when you start from $1 billion. Clearing $320 million is even easier.
($500 million on $4 billion is a12.5% yield. $320 million gets you 8%. Why in the hell would anyone buy Treasuries at under 4%?)
p.s. Thank you S&P and Moody's for helping me get such a sweet deal!
A major point it seems almost everyone is missing in these "how much will it cost to buy all the company stock is that just because you have enough money to buy all the outstanding shares at the price of their most recent transaction, it doesn't mean you can buy all of the stock for that price. For any transaction to occur, there must also be a seller that wants to sell their stake.
ReplyDeleteWhen you buy stock, you don't really get to specify the price. You do get to say how many shares. So if you put in an order to buy all the outstanding shares (if such a thing were possible), it would drive the stock price upward, probably enough to break the budget.