Perverted Capitalism

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.

Tags: interest payments

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6 Comments

  1. David Manners
    February 15, 2011 17:00

    Yes, I would say is the answer, Stooriefit, very prettily put if I may say so.

  2. David Manners
    February 15, 2011 16:53

    Bury and Ditch are the answers PE would give, I guess, Dr Bob

  3. Stooriefit
    February 15, 2011 16:43

    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?

  4. Dr Bob
    February 15, 2011 16:21

    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.

  5. David Manners
    February 14, 2011 15:30

    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.

  6. Dr Bob
    February 14, 2011 15:13

    And where exactly is the HP set up by the pair of demi-gods now?

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