Corporate Raiders

It is an interesting phenomenon in the world of finance that a minority shareholder in a publicly held company can mount enough bluster to engineer a takeover. Then, in the name of shareholder equity, the raider will slash jobs, sell assets and gut pension funds so that the stock price rises. Then, sated with profits from stock options, salary and bonus, the raider melts away with a new pool of capital, ready for the next venture.

This is the ultimate in capitalism. An entrepreneur, greedy for the growth, takes a company public. Growth ensues, but bureaucracy piles up until mismanagement sets in. Reorganizations follow as the company attempts to appease shareholders, until the state is reached where a raider sees opportunity.

A business entity is responsible to its owners, its employees and its customers. When taken public, sight is sometimes lost of the latter two in a bid to maximize profits for the ownership.

Although a few shareholders were very pleased, the dismantling of Moore resulted in thousands of lost jobs and lost customers. It also hastened a transition of clientele from the Directs to the Independents—a trend that continues today.

Now, the parent company of one of the largest Independents is feeling a raider's scrutiny. Regardless of whether or not a takeover occurs, the company will be forced to take some difficult steps. Jobs may be lost, plants may be closed, and entire divisions may be sold.

The irony is that, as long as the stock price goes up, the potential raider wins, whether or not a takeover occurs. The raider can simply sell its shares, make a profit and move on to the next target.

Bill Drennan

Editorial Director

bdrennan@napco.com