If ever there was a cautionary tale it is the story of Freescale. Private equity firm Blackstone bought Freescale in 2006 for $17.6 billion.
Freescale's sales that year were $6.36 billion with EBITDA earnings of $1.63 billion.
Last year's sales were $4.4 billion for a $1.05 billion loss.
Blackstone defrayed some of the $17.6 billion purchase price by selling $9.4 billion worth of bonds, secured on Freescale's assets.
The bond sale left Freescale with annual interest payments of $800 million.
Freescale has repaid some of the debt, but still has $7.62 billion outstanding, on which it had to pay, last year, interest of $537 million.
Now Freescale has filed for an IPO in which it could raise $1.15 billion. The company says the proceeds will be used to repay some of the debt, of which $764 million matures next year.
Meanwhile Blackstone is being sued in a class action for, allegedly, not revealing the full extent of its possible exposure to loss from its interest in Freescale when Blackstone filed for its own IPO in 2007.
What a mess. Some say: 'This is capitalism'.
Many prefer to see capitalism as the old HP of Dave Packard and Bill Hewlett - a company making great things with corporate tradition of decent behaviour and long-term focus.
Compared to the HP way, the private equity way is a perversion.
And where exactly is the HP set up by the pair of demi-gods now?
Like an insubstantial pageant faded, Dr Bob, as your ancestor put it, but, though the glory-days pass, the example of capitalism being done well, and still being done well in some companies, points up the inadequacies of those doing it badly.
Cousin not ancestor. I would have thought something along the lines of
I come to bury HP/Freescale/Philips/etc not to improve them. Whether tis nobler in the pocket to suffer outrageous bunce or to ditch them when presented with a sea of troubles, that is the question.
Is this a spreadsheet which I see before me,
The ROI figures under my hand? Come, let us go Fab lite:
I have thee not, and yet I see thee still.
Art thou not, fatal vision, sensible
to capacity as to margins? or art thou but
a foundry of the mind, a false creation,
Proceeding from a badly concieved strategy?
Bury and Ditch are the answers PE would give, I guess, Dr Bob
Yes, I would say is the answer, Stooriefit, very prettily put if I may say so.