Summary: Investors are starting to question recent leveraged buyouts ('LBO') that team corporate management with outside private equity funds. For example, Kinder Morgan (KMI) management took over two months to inform the board of directors that it was considering buying the company. Complicating matters, Goldman Sachs (GS) went from being a Kinder advisor to being one of the company’s buyers. In HCA’s (HCA) buyout, Merrill Lynch (MER) played a similar role, starting out as an advisor to the company and ending up as one of the buyers. Potential-conflict-of interest issues, coupled with the time it took for Kinder management to announce its buyout, are raising eyebrows: Investors want to make sure that companies which are going private in management/private equity deals are being sold at “fair” prices.
Related links: Full WSJ article • LBOs Making Executives Very, Very Rich • Investment Banks Have Too Much Money On Their Hands • 8 of 10 All Time Largest Corporate Buyouts Occurred Recently • Kinder Morgan: The Path Not Taken By Enron • Bloomberg: Arbitrage Profit in U.S. Takeovers Pending on Sept. 28 • Forbes: Kinder Morgan Shareholders May See Modest Near-Term Upside
Potentially impacted stocks and ETFs: Bear Stearns (BSC), Lehman Brothers (LEH), Morgan Stanley (MS)
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