pending major revision and addition
draftdraftdraftdraft Contrary to my inflammation, Jerry Kohlberg is not the proletariat pounding capitalist router I explained. Only sort of.Last night I went to NY to visit my brother, Colin, and my mother Joan. They are both well, thank you.
My brother is in a two year investment analyst training program in the Merchant Banking division of Morgan Stanley, where rich white guys grease the wheels of capital that we might all have jobs in big corporations. (or lose them to futher grease the wheels of capital...)
Part of the training, of course, is eighties history - when everybody was enraptured at the excess and debauchery of high flying financiers. He loaned me, for last night, Barbarians at the Gate, a quick reading account of the RJR Nabisco merger. Swarthmore Alum Jared Kohlberg was the senior partner of the three man firm KKR - Kohlberg Kravis, Roberts that put together the billions of dollars deal.
The biggest of the biggest eighties power plays were over LBOs - Leveraged Buy Outs. That's where a small investment firm (few people, not few cash) can use a relatively small amount of money to buy a far huger amount of corporation and make back muchos denieros.
Like this:
Say you want to buy Cabaret Corp, from Mike Zadara. You've got a franchise vision, and he wants to retire to a cafe in Vienna.
His sale price is $100 million.
You've only got $10 million.
You talk to some banks, contract $90 million worth of loans to make up the difference.
Mike sells it to you. In the first year, you decide to use a drum machine and a computer instead of the band and the stage manager, and reduce costs enough to increase profits.
A more profitable Cabaret, because you've cut costs, perhaps not yet suffering the long long term effects of your actions, you sell in two years for $130 million.
You pay the bank back for it's share, plus a little for interest - let's say $100 million dollars.
You are left with $30 million, a 300% return on your $10 million dollar investment, after only two years.
If you'd invested the whole $100 million yourself, you'd have only made 30%. So it's better to spend someone else's money, and better to spend a lot of it, because the percentages and possibilities increase with the size of your leverage.
Jerry Kohlberg invented this. To serve doddering old retiring
What's wrong with it?
The best return on your investment is cutting costs
How do you say it, someone runs with a bad crowd. "So while his ex-partners went on to snare companies like RJR Nabisco in their nets, Kohlberg teamed up with his son Jim, content to continue tdoing the somewhat humbler deals that had made him millions." page 235 (The Vulture Investors, Hilary Rosenberg)
Mike Milken and his use of technology.
justin's links by justin hall: contact