Sep 26 2008
One reason Lehman had to fail.
One of my favorite magazines is CFO, a magazine intended for the Chief Financial Officers of companies. I know, I’m sort of weird, since I am not a CFO, but it is a well written, interesting magazine that always helps me learn something new. Unfortunately, between running two businesses, writing, and being a famly member, I don’t always get to read it on time. Just today I lounged with one that had been lying around and came across an interesting article which put last week’s financial wildness into some perspective.
The article noted that more companies file for bankruptcy first, then allow buyouts to happen. The benefit: the new controlling company is not saddled with so much debt that they are burdened. The downside: the taxpayer gets stuck.
Now don’t throw rotten apples at me, please. I’ve been trying to find the darned magazine since I first read the article so I can cite it. I promise to cite it in a future edition of this blog. But the concept stuck solidly with me, and it got me realizing that it fits this Lehman Brother’s situation quite well.
First LB tried to hammer out a takeover with Barclays, then they filed Chapter 11, then Barclays began to offer buyouts for the various parts of Lehman’s that was financially lucrative. Fianlly they received the approval of the judge to do so, so most will be legally solid.
Follow this thread of thinking then. How many other big companies will die before they are bought out? And how many creditors can be stiffed before no one wants to loan money or sell goods on credit? What will that do to just general businesses? Can this kind of trend continue before litigation makes it impossible? Will the lawyers or the state legislators have to get involved? The next ten years will be very interesting in this regard.
Perhaps that is what led to last year’s tightening of legislation about the bankruptcy laws. At the time, it looked as though the credit card industry was the only ones who would benefit. Perhaps there is more benefit to businesses than meets the eye.
Finally, if you are the owner of a business that is looking to buy out another, watch the object of your takeover very carefully. Do you believe it to be so economically unsound that you could wait for it to fail first? Do you think you should offer a buyout package based upon bankruptcy first? It might save you both money for blue sky and unplesaant surprises later.
