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Politics : View from the Center and Left -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (94381)	11/6/2008 3:58:13 PM
From: thames_sider	Read Replies (1) \| Respond to of 541457

If the company is acquired and debt is held by it, that debt depreciates the value of the asset to the new owner. Its isn't a free lunch. But the new owner doesn't care. They've already taken out their costs and made a profit by leveraging the company up, secured on its own cash flow, running it for cash for a bit (note that their management fees come off pre-tax, as of course does the interest) and then flogging the remainder for some more instant cash. Or let it go bankrupt, they don't care. A classic example of this over here is Debenhams, a decent-size and well respected department store chain. The private equity firms bought it largely free of debt, leveraged it up and paid themselves back with the money, took out more money by selling off its property, chopped out costs and even managed to float it back at a profit. guardian.co.uk The shares are down 24% since its May flotation. Industry observers have pointed the finger at Texas Pacific, CVC Capital Partners and Merrill Lynch Global, the three private equity groups that took Debenhams private. Bryan Roberts, an analyst at Planet Retail, said: "It was successful compared to its peers when it was on the market the first time round. But when it exited private equity, it was swaddled with debt, its property had been sold and its performance was dismal." If the company is more profitable with fewer employees, then reducing the number of people it employs increases effeciency and frees up resources to be used in the rest of the economy. Short term, from the POV of that company. Some jobs probably are surplus. By cutting others you prevent future growth. And you may not have noticed but labour is not (except in the ideal models) fully fungible: jobs cut in company A don't instantly transfer to company B or even need appear in the same country, the human costs are not accounted for, the new jobs are not generally as good as the old, those who lose their jobs are often those least equipped to find new ones so become a net cost on society not a gain, and... Oh, I cannot be bothered rehashing the imperfections of the real world labour market. You'll neither listen nor care.