BUYOUTS. Complete the following sentences to summarize the text above:

Text organization.

Summarizing.

Complete the following sentences to summarize the text above:

1. Spot markets trade in commodities, currencies and…

2. Future markets make contracts to buy commodities, currencies at a … date.

3. With the help of futures, contracts and other derivatives companies and individuals may diminish…

4. Although exchange rates and interest rates fluctuate, many businesses want to buy or sell currencies at a…

5. Options, which are bought at the market of stocks and shares, allow organizations to hedge…

6. Besides options many companies nowadays arrange…

The statements below express the main ideas of the text. Number them so that they are in the same order as the ideas in the text. The first one is given for you:

	Statement	Order
a.	Every weekday, enormous amounts of commodities, currencies and financial securities are traded on spot markets.
b.	Options are merely one type of derivative instrument.
c.	As well as currencies and commodities, there is now a huge futures market in stocks andshares.
d.	Many producers and buyers of raw materials want to hedge, in order to guarantee next seasons prices.
e.	Futures, options and other derivatives exist in order to diminish the effects of future changes in prices, exchange rates, interest rates, and so on.
f.	Many companies nowadays also arrange currency swaps and interest rate swaps with other companies or financial institutions.

8Viewpoint:

How popular are the above-mentioned derivative instruments in our country?

Lead-in: Discuss when, in your opinion, buyouts take place.   Key words and phrases 1. takeover –злиття, поглинання підприємства 2. synergy (synergism) – синергізм (явище, коли результат перевершує суму окремих ефектів) 3. stockholder value – (економічна) вартість акціонера 4. raider (бірж.) –скупник акцій 5. to make a loss –зазнати витрат (збитків) 6. buyout – викупактивів, акцій діючого підприємства 7. cash reserves –резерв грошової готівкі 8. leverage buyouts –викуп контрольного пакету акцій за рахунок кредиту 9. challenge –складна задача, виклик 10. hostile takeovers and buyouts –поглинання підприємств без згоди керівництва 11. to lay-off workers –звільняти працівників

“You can’t buy a company merely by buying its shares”

(Sir James Goldsmith (1933-1997), Anglo-French financier)

In the 1960s, a big wave of takeovers in the US created conglomerates – collections of unrelated businesses combined into a single structure. Many of these conglomerates consisted of too many companies and not enough synergy. After the recession of the 1980s, there were many large companies on the US stock market with good earnings but low stock prices.

Such conglomerates were not maximizing stockholder value. The individual companies might have been more efficient if liberated from central management.

Conventional financial theories argue that stock markets are efficient. Raiders in the 1980s discovered that it was untrue. Although the market could understand data concerning companies’ earnings, it was highly inefficient in valuing assets, including land, buildings and pension funds.

Theoretically, there was little risk of making a loss with a buyout. The ideal targets for buyouts were companies with huge cash reserves that enabled the buyer to pay the interest on the debt, or companies with successful subsidiaries, or companies that are not sensitive to a recession, such as food and tobacco.

Takeovers using borrowed money are called ‘leverage buyouts’ or ‘LBOs’. Leverage means having a large proportion of debt compared to equity capital. If a company is bought by its existing managers, we talk of a management buyout or MBO.

Raiders and their supporters argue that the permanent threat of takeovers is a challenge to company managers and directors to do their job better and that well-run businesses are at little risk. The threat of raids forces companies to put their capital to productive use. Fat or lazy companies that fail to do this will be taken over by raiders who will use assets more efficiently.

LBOs, however, seem to be largely an American phenomenon. German and Japanese managers and financiers, for example, seem to consider companies as places where people work, rather than assets to be bought and sold. Hostile takeovers and buyouts are almost unknown in these two countries, where business tends to concentrate on long-term goals rather than seek instant stock market profits. Workers in these companies are considered to be as important as shareholders. The idea of a Japanese manager restructuring a company, laying off a large number of workers (as frequently happens in the US and Britain), is unthinkable. Lay-offs in Japan are instead a cause for shame for which managers are expected to apologize.

ØComprehension:

1. What is a conglomerate?

2. What are stock markets inefficient in?

3. Are companies with huge cash reserves the ideal targets for buyouts?

4. Is there any difference between ‘LBO’ and ‘MBO’?

5. The permanent threat of takeovers is a challenge to a company, isn’t it?

6. Why do you think LBO is a typically American phenomenon?

7. What is the status of workers in German and Japanese companies?

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