
How Not to Negotiate a $6.1B Deal - dpflan
https://www.bloomberg.com/news/features/2018-05-24/how-not-to-negotiate-a-6-1-billion-deal
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avs733
It seems like it would be an all around benefit to the economy to disrupt the
model that hedge funds use to invest in companies. Obviously access to capital
is important. Obviously there are companies that benefit from more efficient
operations (e.g., the Olive Garden drama of years past...BREADSTICKS).
However, I cannot seem to find any benefit in allowing a hedge fund to charge
for services to a company it has taken over. To buy a company with the pure
goal of extracting any short term value with the intent of destroying it seems
to be a long term societal ill that should be regulated out of existence.

~~~
computator
> Olive Garden drama of years past

Ahh, Olive Garden. I hope you won't mind a slight tangent involving Olive
Garden, one of Paul Graham's essays, and a sneaky business deal:

In one of his essays[1], Paul Graham wrote, "I think most businesses that fail
do it because they don't give customers what they want. Look at restaurants. A
large percentage fail, about a quarter in the first year. But can you think of
one restaurant that had really good food and went out of business?"

Yes, I can name a restaurant that had really good food and went out of
business -- it was all of the Olive Garden locations in Ontario, Canada, about
15 years ago. They were always busy, _always_ had a line-up to get in, and
pretty much everyone I knew liked the food a lot. Then suddenly, without
explanation, all of the Olive Gardens in Ontario shut down.

Much later I learned that Olive Garden USA had shifted some large debts to its
Olive Garden Canada subsidiary, and allowed the Canadian subsidiary to go
bankrupt, freeing the parent corporation of the debts. (So businesses fail for
odd reasons even when they have excellent products and masses of loyal
customers.)

[1]
[http://www.paulgraham.com/start.html](http://www.paulgraham.com/start.html)

~~~
kbenson
> I learned that Olive Garden USA had shifted some large debts to its Olive
> Garden Canada subsidiary, and allowed the Canadian subsidiary to go
> bankrupt, freeing the parent corporation of the debts.

How does shit like that even work? It seems like it would clearly qualify
under fraud. Even if it doesn't, how does it not send every potential future
creditor running away as fast as possible?

~~~
rando444
Doesn't sound like fraud. If you rack up a bunch of debt, but take out a
mortgage on your already paid off house to get rid of the debt, is it fraud?

You had a perfectly good house, but sometimes decisions have to be made.

Your creditor point is valid, but only if the creditors are paying deep
attention because if they're not, these actions could give the appearance of
profitability and stability.

~~~
kbenson
> If you rack up a bunch of debt, but take out a mortgage on your already paid
> off house to get rid of the debt, is it fraud?

That isn't what was described, to my understanding. What was described seems
sort of like transferring all your unsecured debt to your spouse, and letting
her go through some individual bankruptcy that doesn't affect you.

> You had a perfectly good house, but sometimes decisions have to be made.

If you're allowed to transfer debt around to related entities where negative
repercussions don't affect you, the normal checks and balances of the system
have failed.

I imagine a similar situation (even if not purposefully attempted) is why
student loans are actually protected from bankruptcy. Parents used to pay for
college, because students couldn't really afford it. Parents don't necessarily
want to go into bankruptcy because they may have other assets affected. If the
students take out the loan, if they go into bankruptcy in the few years after
graduating, the parents aren't affected. Students are a risky bet because
bankruptcy has fairly little cost for them that early in life, so the loans
would be very hard to get. To incentivize lenders to give the loans, you have
to protect them.

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jonknee
Matt Levine touched on this earlier in the week:

[https://www.bloomberg.com/view/articles/2018-05-29/xerox-
ceo...](https://www.bloomberg.com/view/articles/2018-05-29/xerox-ceo-showed-
some-strategic-thinking)

> Helping a merger along by offering the target CEO a good job at the combined
> company is … a fairly standard move, really; it’s the sort of thing that
> people grouse about in merger lawsuits but that happens a lot. Helping it
> along by offering the target CEO a good job at the combined company after
> he’d already been fired

~~~
hlmencken
Are you missing part of your quote?

~~~
tempestn
"Helping it along by offering the target CEO a good job at the combined
company _after he’d already been fired_ is much weirder, though. It’s more or
less okay for a CEO to try to preserve his job in a merger; it’s awkward for
him to try to rescue his job that way."

~~~
mi100hael
I find it hard to believe a F500 CEO cares that much about keeping their job
after an acquisition. Presumably he has a bunch of options/grants that will be
worth a fuckton due to the 30% premium Fuji would pay. Plus it's good for the
resume. Look at Monsanto's Hugh Grant. He'll be loaded so he doesn't need to
take a title-cut to be CEO of a subsidiary to keep some piddly 7-figure
salary, and he can find another job without too much trouble if he does decide
to keep working.

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weliketocode
Almost no matter the size or nature of the company, sales is treated as this
mysterious black box.

If your top salesperson commits improprieties, well then.. you still have to
keep him. Clients! Contacts! Secret Sauce!

If your CEO is AWFUL, then the board can tell him he's fired. But if he's in
process to sell the company? Well... sales is tough, might as well let him
stay to finish it out.

One success can also change everything for a salesperson. John Thain received
a ton of criticism... but he was able to sell Merrill Lynch for $50bn during
the crisis.

~~~
philwelch
Other than extreme cases like selling an entire company, sales is a case where
it's trivial to measure results and align incentives, which makes top-down
interference a lot less tempting.

~~~
ddebernardy
> sales is a case where it's trivial to measure results and align incentives

It's anything but. Good sales usually are driven by how much they make, and if
there's any misalignment between your commission plan and what's good for the
company they'll optimize their own revenue in a heart beat. It can be _very_
hard to align your commission plan with what the company actually needs if the
business you're into is non-trivial. (Think optimizing the use of existing
work capacity, selling high profit products rather than easier to sell low
profits ones, keeping sales more or less aligned with the company's capacity
to hire staff that can deliver, etc. Selling too much too fast is not always a
good thing.)

~~~
paulddraper
> It can be very hard to align your commission plan with what the company
> actually needs if the business you're into is non-trivial.

But...it usually is trivial. Businesses sell widgets: a ream of paper, a car,
a CRM.

Is there anyone whose instrinsic goals are _more_ aligned with the company's
than a commissioned salesman? (Alignment with the customer's goals...that's a
whole other story.)

~~~
rubidium
Haha. Anything but. If you have one product, sure it's easy. But if you have a
diverse product offering things quickly spin out of control.

I see this a lot in my current company.

Low margin hard to maintain product being pushed over high margin easy to
maintain because the pricing (and margin) calculations don't take into account
the tech support burden.

Having proper understanding of this the cost to support different product
lines is difficult for large companies and the comp structure is usually just
straight up gross revenue. For those higher up margin begins to play a factor,
but they usually doesn't account for where the "overhead" gets spent.

~~~
busterarm
I can, with almost 100% confidence, assure you that upper management
understands this. There is some value that those high-dollar, low-margin
transactions provide that isn't realized on the company balance sheet. It
could be that your company's board or investors are asleep at the wheel, or
haven't looked too closely at the books, or there aren't adequate company
controls.

They could be positioning for some sort of exit, or are just trying to juggle
the company afloat until they solve what seems to be an unsolvable problem.

If what your saying is really true though, that would be enough to motivate me
to look for another job.

It would be much worse if they were just clueless about this.

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jldugger
So, this is a story where Icahn is the sympathy figure? Rare space indeed.

