The $400 Million Pat On The Back

Steven Lang
by Steven Lang recently decided to borrow $400 million for a brand new venture.

Was it in the field of research and development? Nope.

New marketing studies to explore an emerging niche in their core business perhaps? Not quite.

Issue a one-time $400 million dividend to their private shareholders and executives just before the IPO? Bingo!

The ones who will be paying for the principal and interest on this debt will be the upcoming shareholders in the form of lower earnings, a lower market valuation, and one other not so little thing hidden in the prospectus.

They will have no voting rights. In a move oddly reminiscent of a typical one-sided contract between an estate owner and a sharecropper, the new shareholders will have absolutely no say so in the affairs of the soon-to-be public enterprise. Even though their financial resources will pay for a big part of it.

There have been plenty of other Wall Street sponsored ventures that have voyaged down this path with questionable results. The sports entertainment enterprise, World Wrestling Entertainment, used a similar family focus when it came to voting rights. Although The Rock, Steve Austin, and a multitude of other big stars have returned to the square circle between the IPO and the present day, the stock has plummeted nearly two-thirds from the IPO price.

Closer to home, Ford decided to concentrate their voting rights with the Ford family and historically, it harmed the company’s ability to reform itself during World War II, the recession of the early 80’s, and even in good times. Such as the last great strong automotive market of the mid-2000’s.

Ford and Autotrader are just two of dozens of automotive centered companies that pursue policies that protect ‘special’ investors and executives over the interests of public shareholders. Poison pills, white knights, and certain industry standards often keep the seas of change at bay when it comes to a publicly traded company. Until it is too late.

Just ask Roger Smith and Ross Perot.

Should we invest in them? Should anyone?

As much as I warn folks about Craigslist being the Wild Wild West of retail car sales, it looks like the culture of grabbing ill gotten gains is not solely a matter of the retail world when it comes to cars. Corporate greed, in the nastiest of incarnations, is still alive and apparently doing quite well.

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  • Billfrombuckhead Billfrombuckhead on Jun 26, 2012

    "pay for placement" is the Autotrader mantra. This part is like the Monopoly game as well. Proof is that when the rep comes by to sell advertising, the first thing he says is "don't drop AutoTrader" just don't buy so much of their more expensive "pay for placement" packages. I think this will be a successful IPO because AutoTrader certainly has an actual existing revenue stream with all the "hotels it owns on the Monopoly board".

  • Bd2 Bd2 on Jun 26, 2012

    Eh, business as usual in the corporate/Wall St. world (I've seen this and much, much worse). If the average American really knew what was going on in the boardrooms, there would be riots in the street (or maybe not, due to apathy or acceptance).

  • Alan I blame COVID, the chip shortage, container shortage and the war in Ukraine. This aggression is evident in normal daily driving of late.
  • Alan $10 000 is a bit rich for a vehicle that most likely been flogged all its life, plus it's a VW. Lots of electrical gremlins live in them.
  • Alan Mitsubishi, Hino and Izuzu trucks are quite common in Australia. Another factor that needs to be taken into account are the cheap Chinese trucks and vans that are entering the market in Australia and becoming more popular as reliability improves, with huge warranties. Businesses want the cheapest logistics. Plumbers, concreters, builders buy many of these in their lightest versions, around 2.5 tonne payload. Hino/Toyota could use the cheaper competitor in Mitsubishi as a competitor against the Chinese. You don't see too many of the Japanese/Asian trucks in the rural areas.
  • 2ACL I think it's a good choice. The E89 didn't get respect due to its all-around focus when new, but it's aged well, and the N52/6HP combo is probably more fun and capable than it's given credit for.
  • Wjtinfwb I can hear the ticking from here...