Richardgb Posted October 20, 2011 Share #101 Posted October 20, 2011 Advertisement (gone after registration) No-one has yet surmised where the 44% figure came from. Why not, say, 40% or 45%, for instance. Did Blackstone come along and say, "I've got $130m looking for a home, how much of Leica will you let me have for that?". In which case it seems purely $-driven. Nor has anyone mentioned that 44%, while technically a minority shareholding, does nevertheless give the shareholder a BIG say in what goes on. The 56% shareholder can't simply say 'No' to his smaller sibling. Link to post Share on other sites More sharing options...
Advertisement Posted October 20, 2011 Posted October 20, 2011 Hi Richardgb, Take a look here Blackstone . I'm sure you'll find what you were looking for!
Peter H Posted October 20, 2011 Share #102 Posted October 20, 2011 It can be as simple as Dr. Kaufmann loaning the money back to Leica, presumably at a more favorable interest rate than banks were offering. This is often done in closely held corporations, where the principal loans money back to the company for a specific purpose. I have also seen this type of transaction where the principal uses the money to fund a new facility and then becomes the landlord, receiving rent payments from his own company. Or if an acquisition scenario the money loaned back can be used as part of an acquisition offer. In both scenarios the overall stock and ownership ratios are maintained (i.e. Dr. K still has his 51% and complete control). Something along these lines seems plausible. The most significant fact is that Dr K has retained 51%. Presumably he could have raised a great deal more by selling the majority stake. But he didn't, either because control is still the most important thing to him, or because Blackstone didn't want control. Either way, I doubt this spells the end of the Dr K approach to running Leica. If it does, everyone involved is rather more incompetent than I take them to be. Link to post Share on other sites More sharing options...
glenerrolrd Posted October 20, 2011 Share #103 Posted October 20, 2011 How do founders of a startup get capital? They dilute their holdings by getting a VC to invest in the business. I did not hear that Kaufman said that there would be no new share issuance. But, I assume there are ways for Leica as a company to buy back shares from Kaufman at a cheap price and resell those shares to Blackstone. Gives a partial cash out to Kaufman and an infusion of capital into the company. I am not an expert on all of the exact ways to do the stock deal but I do stick by my belief that this is not just a cash out for Kaufman. I think part of the question that Kaufman would have to ask is am I better off with less of stake in a more valuable company or having a 100% stake in the company as it exists today. I never indicated that Kaufmann was trying to cash out .(that implies he is done with the company). I expect that he has more reasonably exhausted his desire to invest more in the company. Normally the management team is pressuring the owner to find ways to fund the growth potential and the argument is as you stated ....51% of a much larger valuation . You could very well be correct about viewing this as a VC investment but I hadn t viewed Leica as sitting on the type of growth potential normally associated with such investments . Rather I have assumed that Kaufmann is to some extent cashing out of part of his investment and at the same time positioning the company for better access to the capital markets . The positive is that this transaction will allow Leica better access to capital (previously essentially all supplied by Dr K) . The downside is that the payoff to the PE is normally 5-7 years or less. The focus becomes on building shareholder value in the short term. The PE investor certainly must see that Leica is undervalued and that it has significant opportunities for growth . There is no basis to assume that Leica will be destroyed as a business but certainly you can make the case that Leica will change . Keep in mind that I am speaking purely from a customers standpoint and not speaking to the financial rationale for the owner. Link to post Share on other sites More sharing options...
StephenPatterson Posted October 20, 2011 Share #104 Posted October 20, 2011 No-one has yet surmised where the 44% figure came from. As has been widely reported Dr. Kaufmann previously owned 95% of Leica shares. His sale of 44% leaves him with 51% and complete control. Nor has anyone mentioned that 44%, while technically a minority shareholding, does nevertheless give the shareholder a BIG say in what goes on. The 56% shareholder can't simply say 'No' to his smaller sibling. Oh yes he can! This is not a situation where the 44% stakeholder can form a majority through proxy. Dr. Kaufmann has 51% which equals absolute control. He can set the agenda in the boardroom, he can shelf or veto any motion, he can appoint anyone he wants to management, he can fire anyone he wants. For all intents and purposes in this instance 51% is as powerful as 100%. Obviously Blackstone would have liked control (who wouldn't when investing this much money) but they recognized the upside of the growth potential and decided it was a smart move. Link to post Share on other sites More sharing options...
stunsworth Posted October 20, 2011 Share #105 Posted October 20, 2011 The recent example of Krell Audio's "acquisition" by a private equity fund, who seemed to have bought a 40% minority shareholding but still managed to sack Dan and Rondi d'Agostino the founders and majority owners, is instructive. I think the motto should be "use a very long spoon when supping with the devil Wilson, I didn't know about that, but then again I'm out of touch with hi-fi these days. It seems that Dan has set up a new company... D'Agostino | Master Audio Systems | Extraordinary New Creations from the World's Most Famous High-end Audio Designer 44 k GBP for the amp. Link to post Share on other sites More sharing options...
StephenPatterson Posted October 20, 2011 Share #106 Posted October 20, 2011 The recent example of Krell Audio's "acquisition" by a private equity fund, who seemed to have bought a 40% minority shareholding but still managed to sack Dan and Rondi d'Agostino the founders and majority owners, is instructive. I think the motto should be "use a very long spoon when supping with the devil." Wilson The Krell example sounds like a buy/sell agreement where the "New" Krell, which was controlled by the VC firm bought out the assets of the "Old" Krell, owned by the d'Agostinos. This is sometimes done to limit the liability of the new corporation for actions of the previous one. In this case it seems that the d'Agostinos did not have a majority stake in the new corporation and were promptly terminated. Not the first time this has happened following a VC buyout. d'Agostino should sue his lawyer for malpractice for allowing him to enter such an agreement. This is not applicable to the minority stock sale to Blackstone by Dr. Kaufmann. Link to post Share on other sites More sharing options...
wattsy Posted October 20, 2011 Share #107 Posted October 20, 2011 Advertisement (gone after registration) 44 k GBP for the amp. Looks like something you might grill a steak on. Link to post Share on other sites More sharing options...
sdai Posted October 20, 2011 Share #108 Posted October 20, 2011 Obviously Blackstone would have liked control (who wouldn't when investing this much money) but they recognized the upside of the growth potential and decided it was a smart move. The recession of controlling stake may simply imply that BS could have forced a lowered valuation of the company to maximize their potential of return. After all, running a camera business is not their expertise nor interest. Link to post Share on other sites More sharing options...
StephenPatterson Posted October 20, 2011 Share #109 Posted October 20, 2011 The recession of controlling stake may simply imply that BS could have forced a lowered valuation of the company to maximize their potential of return. After all, running a camera business is not their expertise nor interest. I absolutely agree that this is a strong possible explanation for Blackstone's minority share purchase. Link to post Share on other sites More sharing options...
colonel Posted October 20, 2011 Share #110 Posted October 20, 2011 Blackstone's Loss Widens Amid Market Tumult - WSJ.com Link to post Share on other sites More sharing options...
maccarma Posted October 20, 2011 Share #111 Posted October 20, 2011 ....and today Leica stock went up more than 15% on Frankfurt Stock Exchange! Link to post Share on other sites More sharing options...
Peter H Posted October 20, 2011 Share #112 Posted October 20, 2011 The recession of controlling stake may simply imply that BS could have forced a lowered valuation of the company to maximize their potential of return. After all, running a camera business is not their expertise nor interest. This may be the case, but don't forget there's a very good reason why non-controlling interests are worth a lot less than controlling interests. Whilst 44% is very significant indeed, it is materially less valuable and influential than 51%. Link to post Share on other sites More sharing options...
Guest Posted October 20, 2011 Share #113 Posted October 20, 2011 Dr. K. did great for his company during the last years. Looking at Blackstone minority ownerships in the past there is room for doubt weather it still is his company. Will he be in a position to hire and fire a CEO like before? What will new names in the management implicate? How do the teams in Solms feel about the news? What I like the most, apart from my rangefinders and the Asph lenses, is that Dr. K. created value. Weather this will lead Blackstone to reconsidering their strategy remains to be seen. Link to post Share on other sites More sharing options...
ho_co Posted October 20, 2011 Share #114 Posted October 20, 2011 FTD sees this sale as a crowning achievement by Dr Kaufmann (Kopf des Tages: Andreas Kaufmann - Der Sucher von Leica | FTD.de). Remember, two things clearly show his control: 1) Blackstone becomes a minority shareholder. 2) Blackstone gets only one seat on the Board. Kaufmann has done well so far--in three years, he brought a bankrupt company to the point that it is profitable and commands a premium on the market. I think we need to recognize that Dr Kaufmann is still there, is still in control, and engineered this sale. Nothing about that indicates any pending loss in the integrity of the firm. Give the boss his due! Link to post Share on other sites More sharing options...
Jeff S Posted October 20, 2011 Share #115 Posted October 20, 2011 Erwin Puts weighs in on the matter. Jeff Link to post Share on other sites More sharing options...
Ecaton Posted October 20, 2011 Share #116 Posted October 20, 2011 As has been widely reported Dr. Kaufmann previously owned 95% of Leica shares. His sale of 44% leaves him with 51% and complete control. Oh yes he can! This is not a situation where the 44% stakeholder can form a majority through proxy. Dr. Kaufmann has 51% which equals absolute control. He can set the agenda in the boardroom, he can shelf or veto any motion, he can appoint anyone he wants to management, he can fire anyone he wants. For all intents and purposes in this instance 51% is as powerful as 100%. Obviously Blackstone would have liked control (who wouldn't when investing this much money) but they recognized the upside of the growth potential and decided it was a smart move. No, 51% does not provide absolute control under German law. But I'm glad to see that you seem to know that Dr Kaufmann will have complete freedom to operate in the boardroom. :rolleyes:I would have thought that an investor such as Blackstone insisted on a comprehensive shareholder agreement, including detailed regulations concerning corporate governance and management structure. Kind of standard operating procedure for VCs, as they have to follow their own internal procedures as well. But what do I know;) Link to post Share on other sites More sharing options...
algrove Posted October 20, 2011 Share #117 Posted October 20, 2011 Let's hope Blackstone does NOT push for breaking up the company, like keeping the lens side, but selling off the body/camera business or something like that. Link to post Share on other sites More sharing options...
IkarusJohn Posted October 20, 2011 Share #118 Posted October 20, 2011 Exactly. The Blackstone investment is nothing else than a bank loan. So why didn't Mr. Kaufmann chose the proper way to loan money from a bank? Perhaps the banks' condition were worse than those he got from Blackstone? I don't know, but I remember Mr. Kaufmann telling the audience at the last year's meeting during the Photokina, why the investment in the new Leitz-Park at Wetzlar was postponed. He was quite frank: the conditions of the bank were unacceptable. So he just said no. In the meantime more things than the Leitz Park came on the agenda. Perhaps the banks were unreasonable again and he had another source for the money needed at hands - with better conditions. Just my speculation. Hi Uli, That is the reason all start ups and capital strapped companies go to private equity or venture capital. Traditional debt is typically cheaper (in the long term) than any other type of funding. But, they are risk averse, and will require greater security and charge higher interest for higher risk. In this case, I doubt it is Dr Kaufmann who is seem as the risk, but availability of funding. Venture capital and private equity are more imaginative about security, and will take higher risk on intangibles (the strength of the Leica brand), but will demand a huge share of the upside. It may be that Dr Kaufmann has been very smart here. Private equity and venture capital firms are reasonably awash with cash looking for a home. He may have been able to negotiate a deal which gives him access to capital, without giving up too much. I certainly hope so. The press release makes it look like this is relatively passive (compared to what it might be). Having dealt with private equity and venture capital, I would expect quite a lot of fine detail (pre-emptive rights, put and call options etc). Cheers John Link to post Share on other sites More sharing options...
stunsworth Posted October 20, 2011 Share #119 Posted October 20, 2011 Let's hope Blackstone does NOT push for breaking up the company, like keeping the lens side, but selling off the body/camera business... I can't see that happening at all. Look at the way the M8 and M9 have not only sold well, but have stimulated lens sales. Link to post Share on other sites More sharing options...
StephenPatterson Posted October 20, 2011 Share #120 Posted October 20, 2011 ...I would have thought that an investor such as Blackstone insisted on a comprehensive shareholder agreement, including detailed regulations concerning corporate governance and management structure... 1. I am quite sure Leica Camera AG already had detailed regulations concerning corporate governance and management structure. I doubt very much that there was any need to modify these documents for the sale of a minority block of stock. There is no indication in the media that this was a sale that Dr. Kaufmann needed to make, and his retention of a controlling block of shares seem to indicate that he intends to run the company in the same way he has these last several years. But what do I know? 2. Of course if Blackstone were to accuse Dr. Kaufmann of fraudulent activity or not acting in the best interests of Leica Camera AG then I'm sure that Blackstone could litigate the matter, so yes I agree with you that Dr. Kaufmann does not have absolute control over Leica Camera AG. I think this scenario highly unlikely. Link to post Share on other sites More sharing options...
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