Leveraged

Tyler Too

By Gus Tyler

Published May 11, 2007, issue of May 11, 2007.
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The classic warning, from Shakespeare’s “Hamlet,” was quite simple: “Neither a lender nor a borrower be.” Drawing on Exodus, it was meant to warn against the sin of usury. These days, alas, nobody is listening. At this moment, there are mighty financial moguls who are both borrower and lenders. Here’s the way they play the game:

They are known as “leveraged” take-over artists. The term “leveraged” means that they borrowed the money for their operation. With the borrowed money they buy up enough shares in the targeted corporation to establish their control. But — and it’s a big “but” — the company is now loaded with the burden of paying interest on the money that was borrowed to get controlling shares in the company.

The Wall Street Journal recently described the many ramifications of the growing trend to take over giant corporations with borrowed money. No longer is it confined to a given country. “Three banks from across Europe,” the Journal reported May 8, “have assembled nearly $100 billion to dismember Dutch bank ABN Amro Holding.”

Ironically, The Wall Street Journal itself is not safe from hostile takeover. Rupert Murdoch’s News Corp is offering $5 billion for Dow Jones and Co., the publishers of the Wall Street Journal. Should this happen, the consequences could be ideological — if Murdoch turns the archconservative Journal into an instrument for his even-more-conservative views.

One of the most ironic developments concerns the aluminum industry. Alco Inc. has made a $26.9 billion offer to buy Canada’s Alcan Inc. That move, notes the Journal, “would recreate an aluminum giant that the U.S. government has for some forty years trying to break up.”

All of which is part of the ongoing development for fewer and fewer to own more and more of the world’s instruments of production and exchange. But, of course, we knew that, didn’t we?






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