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Private Equity's Poison Pills

Publication Date: 
June 15, 2009
Source: 
Forbes.com
Author: 
Alexandra Zendrian

Professor Michael Klausner is quoted in a Forbes.com article about what happens when private equity firms turn troubled public companies private in order to rehabilitate them for resale:

A lot of firms leave private equity in worse shape than they entered it, despite all of the efforts that private equity investors put into rehabbing troubled companies. Private equity investors aren't always putting the best companies out there for sale to the public says the Corporate Library, a shareholder watchdog group in a new study.

...

Though a lot of private equity investors present themselves as shareholder advocates who, by virtue of controlling the purse strings can squeeze corporate managers, they're actually conflicted.

Generous compensation plans and perks might be put in place because buyout firms need to maintain good relationships with corporate managers, who choose which firm will take them private and then eventually public again, says Michael Klausner, Nancy and Charles Munger professor of business and professor of Law at Stanford University.