3 Comments

At first I disagreed with this post- isn't this breakup just the market working? Shareholders are free to leave at any time, and putting the government - the biggest monopolist of them all - in front of making business decisions scares me even more. That said, mergers between public corporations are far too often (always??) driven by C-level payouts like the Bewkes example. The wasteful and harmful disruption of companies and workers' wellbeing, all for one or two executives to join the Forbes list, indicates epic rent-seeking and failure of board governance. For a start, tie CEO compensation to post-merger stock performance. Most mergers will suddenly not look so appealing.

Expand full comment

Not that share buybacks are always bad. Paid for from organic cash flow (not borrowing), they're usually fine and a justified return of capital to investors/owners. The company is admitting that it has too much equity capital and is returning it.

Expand full comment

There are a lot of distortions in the tax code that encourage these outcomes; for example, the favorable treatment of corporate debt. Among other things, this encourages not only LBOs, but corporations borrowing to buy back shares, a kind of "auto-LBO" or "self-looting." Unwitting investors belatedly discover that what they thought was an equity investment has silently become a fragile, highly leveraged pile of debt.

Expand full comment