Going private by MBO while the business was doing well (2005)

The price of buying a long view

The heart of this decision is that it was not a choice forced by financial distress: with the business performing solidly, management chose of its own accord to leave the stock market. World’s executives weighed the funding and credibility that listing confers against the market’s pressure on short-term results and the cost of remaining listed, and judged the latter too heavy for a long-run rebuilding of the business. Concentrating the shares in the Hatasaki family and management, and buying the freedom to reorganize away from a quarterly gaze — that aim was also the kind of decision that can only be taken while results are still good.

But the freedom came at a price. Because most of the acquisition funding was carried as borrowing by the company itself, a balance sheet that had been close to debt-free took on heavy interest-bearing debt, laying the groundwork for the restructuring later forced upon it. The upward revision of earnings guidance after the tender offer completed also showed the weakness of a going-private MBO — the conflict of interest between management and ordinary shareholders. Gaining a long view in exchange for carrying financial and governance burdens into the next stage: that World returned to the market thirteen years later, in search of disciplined governance once again, quietly says that going private was no universal answer.