This assignment concerns the idea of “private equity,” a notion that is very important to the financial strategy of firms. We had a brief discussion on Blackrock, which is a private equity firm. Many companies have recently been bought by private equity, including Dell. Private equity firms argue that they can re-engineer the firm without shareholders breathing down their neck.
But private equity can be a very dangerous thing. Private operators buy companies by borrowing money, then load the debt on the companies books, strip it of all value, and leave it to go bankrupt. A particularly egregious case involved the
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