CEOs Love Their Companies Until They Want to Buy Them
It's possible for executives to time management buyouts to get the lowest price and keep the upside for themselves.
It's all about the timing.
Photographer: Justin Sullivan/Getty Images North AmericaThis post originally appeared in Money Stuff.
Management buyouts are weird. The chief executive officer of a company is a fiduciary, responsible for managing that company on behalf of shareholders. She crafts a long-term plan to build value at the company, and tries to convince shareholders to believe in her plan. Potential acquirers come calling, offering to buy the company at a premium, and she says no: The company’s real long-term value is far higher than the lowball acquisition price. And then one day the CEO herself offers to buy the company and everything changes. The company’s long-term prospects are now risky and uncertain, and perhaps can’t be achieved at all in the public markets. The modest cash premium that the CEO is now offering for the shares is the best way for shareholders to get certainty on the value of their investment.