Private Equity Takeover of Telecoms

There is a very interesting case study of the Private Equity takeover of TDC – the state PTT in Denmark. The Abstract more or less sums the situation up:

The debate over the implications of private equity leveraged buyouts revolves primarily around one central issue, the extent to which private equity ownership promotes efficient long-term investment and operational management in the target firms, or the maximisation of short-term returns to private equity investors to the detriment of the target firm’s long-term development. Supporters of private equity buyouts claim they introduce a longer term planning horizon for firms with public shareholders who have demanded that management be preoccupied with quarterly earnings improvements and short-term movements of the stock price. Critics claim private equity groups maximize the short-term cash value of the assets for payouts to investors and impose unsustainable debt structures that preclude investment in long-term growth opportunities. It would appear from the evidence to date that the objective of the leveraged buyout of TDC is not to invest in TDC’s growth and development, but rather to withdraw as much cash as possible from TDC through the combination of special dividend payments, management and financing fees, and finally the sale of a much smaller residual company.

The full paper can be found at Regulate Online.
Hat Tip: The High Priest of EuroFibre, Dirk van der Woude.