One lesson I learned early in my entrepreneurial adventures is the Golden Rule: He who has the gold makes the rules. And I’m fine with that. I am generally a cheerleader for capitalism, free markets, risk taking, and the failures that often accompany them. But capitalism is not perfect, and one of the things that sometimes bothers me about capitalism is, well, the capital part of it. From Forbes:
Billionaire Michael Dell’s msd Capital and Pegasus Capital bought Monsanto’s Equal business, Merisant Worldwide, for $600 million in 2000 by putting up $160 million in cash and borrowing the rest on Merisant’s assets. Three years later the new owners had Merisant borrow $206 million in new debt and pay the proceeds to themselves; months later they did it again, this time for $75 million. The two moves gave them a 76% profit on their initial investment, while letting them continue to hold 100% ownership.
In addition to egregious abuses like these, price fixing in capital markets has always rankled me. Why is it that – with so many investment banks competing for deals, so much more info now available to investors, more stock exchanges now than ever, and so many alternative financing options – investment bankers always still manage to charge 7% of the gross? Not a very efficient market, eh?
I trust the editors at the Wall Street Journal will offer a clever explanation soon.