Toshiba rejects private equity buyout offer on grounds it was scarcely credible

Japanese megacorp Toshiba has rebuffed an acquisition attempt by private equity outfit CVC. A notice [PDF] for shareholders said the buyout offer "was not, objectively viewed, a bona-fide and feasible acquisition proposal" under Japanese regulations and that Toshiba therefore sent CVC a "please explain" letter to seek more …

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Do buyouts ever work

Buyouts are strange.

Stockholders will only accept if they get a premium price above what the company already earns.

Companies also tout a buyout by a bigger company as being a fresh cash infusion that will allow them to "grow" quickly.

But buyers almost always make such purchase at least partially with loans. Saddling themselves with debt, unable to put the promised extra resources into the company. In fact, it usually goes the opposite way, with company assets sold off to try and reduce the debt load they've created.

Buyers are also on the hook with their stock-holders to show value from the merger. Both lead to aggressively cutting staff and spending on things like research that typically is what made the company viable over the long-term.

It seems like buyouts are a bad idea all around. But everybody goes into the deal thinking like a gambler who just has to keep raising the stakes, and is sure they're going to be the one to beat the odds.

Or else, the buyout is consolidation of market power, and just results in higher prices for customers to no benefit.