earleygallery Posted October 19, 2011 Share #41 Posted October 19, 2011 Advertisement (gone after registration) But as for what this means for Leica, we honestly have to say it has the potential to be destabilizing. Yes, Blackstone has said that this investment will increase Leica's ability to expand in the developing world, which probably means China. They need more capital than Andreas K and his firm can raise on their own. But private equity investors make their profit when they sell their stake. So I'm afraid the conclusion has to be that in two or three years, it won't be Blackstone. It will be someone else. And that is worrying to me. You make an important point, also picked up in other responses, the issue of stability. Dr K is a Leica enthusiast, he wanted to preserve the brand and core product values, and he has achieved a lot more than many expected. That's the result IMHO of strong single-minded leadership. Going forward, decisions will no doubt be made by committee, focus groups, consultants and the like. As I've already said, the new investors will have their mind on one thing only, the return on investment. This is real investment too - not the sort of 'investment' people talk about when spending 15k on a new M9 and a couple of lenses! Leica has a world class brand. It shouldn't be underestimated how famous the name is even amongst people who aren't interested in photography. The name could be plastered over all sorts of consumer optical/electrical goods. On a positive note, those who keep saying Leica need to make cheaper bodies and lenses could soon see their wishes come true - what's the saying....be careful what you wish for! On the upside Link to post Share on other sites More sharing options...
Advertisement Posted October 19, 2011 Posted October 19, 2011 Hi earleygallery, Take a look here Blackstone. I'm sure you'll find what you were looking for!
wlaidlaw Posted October 19, 2011 Share #42 Posted October 19, 2011 Without wishing to be negative, prior to retirement from the venture capital business, I had frequent contacts with private equity funds. I hope Blackstone is better than some of the sharks I met. 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 Link to post Share on other sites More sharing options...
markgay Posted October 19, 2011 Share #43 Posted October 19, 2011 Blackstone is one of the most short-termist of the private equity sharks of the 2000s. This is extremely dodgy news for Leica. It places them in a most vulnerable position. I speak as a financial journalist of 25 years (CNBC, Reuters, Sky News, BBC) and a person with personal experience of what Blackstone has done to a profitable company. Dr Kaufmann will have to be very, very careful. I will not commit libel. I will simply quote the example of one Dutch firm of which I had first-hand experience. After Blackstone's involvement, the company took on an unsustainable amount of debt, which was used to pay a special dividend to the managment and to Blackstone (fully recouping Blackstone's investment +++). The company was then sold on to a greater fool. Blackstone's technique is not ultra intelligent. It simply hunts companies that have a strong cashflow and then uses that cashflow to raise debt. Blackstone uses the debt (raised against the target company's assets) to handsomely reimburse itself (for what, you may ask: at this point it has not magisterially turned around the company but simply extracted value.) The company is then sold on, massively burdened by debt. You may ask who would buy such a company. There is always a greater fool. And a brand like Leica is very enticing. Anyone who wants to know more or who wishes to check my credentials can PM me. God help Leica. Link to post Share on other sites More sharing options...
johnbuckley Posted October 19, 2011 Share #44 Posted October 19, 2011 Be interesting to know if this buy-in is leveraged - lumbering Leica with Blackstone's acquisition costs as their liability. That's how these outfits usually work, isn't it? The formulation in their announcement about Blackstone doing this in behalf of funds makes me think that they are simply putting to use the money already raised. So, not leveraged, I wouldn't think. People invest in Blackstone to put their capital to work, and this Blackstone is doing. Link to post Share on other sites More sharing options...
IkarusJohn Posted October 19, 2011 Share #45 Posted October 19, 2011 This has the potential to be a very worrying development, I agree. That is based on US/UK and other free movement of capital economies, which traditional closely held companies in Germany have been spared. Private equity firms are purely about return on investment. Identify a good investment, get into the company, increase leverage, boost returns, and get out with a tidy profit at the expense of the investors. We've had a lot of companies here follow that route over the last 25 years - good, traditional family companies with little to no debt. They bring in an equity investor, restructure, pay everyone big money (after the redundancies), boost the share price hard, then get out leaving the whole deck of cards to fall down after they've taken their profit. Along the way, the jettison the traditional values of a family firm, like responsibility to their staff, and any sense of involvement or responsibility beyond generating big profits. Looking at Leica Camera, it is in a hard place. It has three product lines - one (X1) in need of a significant upgrade, the second (M series) with amazing legacy, fine lenses, but unable to meet demand and crazy expensive for a mass market product, and a third (S2) new line which is out of reach of few but very highly paid studio photographers and rich amateurs. The jewel in the crown is the M9 with its full frame sensor, simplicity and fine lenses. That will need to go to the mass market, with an EVIL camera. Here comes plastic and gadgetry. Leica's competition is really the two Japanese monoliths of photography - Canon & Nikon, who dominate market share. The other specialist producers - Zeiss and Voigtlander - have fallen by the wayside. So, I would see Leica as caught in a difficult spot. The analysts will be saying they need a good mass market product, and to get there, they need capital. Probably more than Dr Kaufman has or is prepared to commit. Now would not be a good time to go to European banks for traditional debt. Besides, this may involve more than Dr Kaufmann is prepared to commit. So, he sells 44% of his shares to Blackstone. None of that goes to Leica. But Blackstone won't have invested just to be a passive investor in a company controlled by Dr Kaufmann. It will have come with a number of strings attached, including a shareholder's agreement. This will have included a significant number of seats on the Board, and possibly a significant say in management. What comes next? We will see internal restructuring; product and market re-targeting; significant expansion (the new plant in Wetzlar etc); possibly new acquisition; and Blackstone doing everything they can to get a good return on their investment. This will involve what is euphemistically called more efficient gearing (read debt), which will either be through capital reduction (Blackstone getting some of its money back at the expense of the company), and boosting the share price so Blackstone can sell its shares to an investment fund at an inflated price. Dr Kaufmann walks away with the proceeds of the sale of his 44%. What he uses that for is his business - maybe he will use it for another venture, like sensor technology, in joint venture with Kodak or someone else, which will enable him to secure supply to Leica. Who knows. He might just pay down debt, which would not be a bad thing in this market. Blackstone isn't there for its photographic knowledge. It brings access to capital and management skills to move a traditional German artisan firm into new products, new markets and new management, with new capital. A bunch of US educated management consultants turning the company on its head for profit. I guess there are other German equivalents - Porsche was a closely held company until it was taken over by VW, and BMW continues to be majority held by its family owners. It's easy to be pessimistic, but I do fear this is going to end in tears. Cheers John Link to post Share on other sites More sharing options...
markgay Posted October 19, 2011 Share #46 Posted October 19, 2011 Leverage PRIOR to the deal is not necessary. Leica is not so big a company that you would need to borrow massively in order to buy it. The question is what Blackstone does to Leica. Does it leverage Leica once it has its hands on the management. That is the bog standard private equity technique. The idea is to force your prey to raise money, and then make it GIVE that money to you in the form of a special dividend. That way the private equity predator gets the prey for free. When it sells the company on, any further profit is pure surplus. Blackstone has done this before. As I say it is standard practice. Link to post Share on other sites More sharing options...
glenerrolrd Posted October 19, 2011 Share #47 Posted October 19, 2011 Advertisement (gone after registration) Blackstone is one of the most short-termist of the private equity sharks of the 1990s. This is extremely dodgy news for Leica. It places them in a most vulnerable position. I speak as a financial journalist of 25 years (CNBC, Reuters, Sky News, BBC) and a person with personal experience of what Blackstone has done to a profitable company. Mr Kaufmann will have to be very, very careful. I will not commit libel. I will simply quote the example of one Dutch firm of which I had first-hand experience. After Blackstone's involvement, the company took on an unsustainable amount of debt, which was used to pay a special dividend to the managment and to Blackstone (fully recouping Blackstone's investment +++). The company was then sold on to a greater fool. Blackstone's technique is not ultra intelligent. It simply hunts companies that have a strong cashflow and then uses that cashflow to raise debt. Blackstone uses the debt (raised against the target company's assets) to handsomely reimburse itself (for what, you may ask: at this point it has not magisterially turned around the company but simply extracted value.) The company is then sold on, massively burdened by debt. You may ask who would buy such a company. There is always a greater fool. And a brand like Leica is very enticing. Anyone who wants to know more or who wishes to check my credentials can PM me. God help Leica. This is a dead on accurate assessment . Why would any of the Blackstone money go back into the company. The shares sold are owned by Dr Kaufmann and he receives the proceeds . What it does is put Leica back into the market which is necessary for the stock based compensation that I am sure the current management is seeking. If Leica issues new shares (has an offering) then they will raise funds that can be invested. Unfortunately all the important financial decisions will be based on short /medium term gains in the equity valuation. There are many ways to spin the tale but look for the executive compensation program next year and big grants to the CEO. I don t for a minute believe Dr Kaufmann got into Leica as a turn around opportunity . His actions follow a person that truly loves the company and the finances are a means to an end . Unfortunately he has chosen a path that has not usually worked out for those loyal to the company/brand etc. Link to post Share on other sites More sharing options...
Ecaton Posted October 19, 2011 Share #48 Posted October 19, 2011 Be interesting to know if this buy-in is leveraged - lumbering Leica with Blackstone's acquisition costs as their liability. That's how these outfits usually work, isn't it? A leverage is most likely to be in the German based acquisition vehicle, it can't be in the target itself. Leveraging the target directly as an acquiror of a minority stake is not possible. However, there will be a shareholder agreement between ACM and Blackstone and this one would be most interesting to read:). Link to post Share on other sites More sharing options...
rosuna Posted October 19, 2011 Share #49 Posted October 19, 2011 I may understand Kaufmann's movement, but I don't see why a private equity fund, and why Blackstone. He could have sold a part of his shares in the stock market... I hope and wish Kaufmann keeps control and has a plan for Leica... Link to post Share on other sites More sharing options...
Ecaton Posted October 19, 2011 Share #50 Posted October 19, 2011 The press release is interesting, as it states the sale was made to help Leica enter new markets, specifically in Asia, Latin America and the Middle East, as well as "further developing the brand and it's products". Let's examine that for a moment. First, the transaction. Even though no financial details were announced this was not a "fire sale", and the price would be at a premium. Whatever the number it is guaranteed that selling 44% of Leica Camera would bring in hundreds of millions of dollars. Leica already has significant coverage throughout Asia. China, Japan, South Korea and Singapore all have Leica Factory stores (Hong Kong has three!!!), in addition to numerous dealers. Latin America also has a Leica Factory store in Brazil, although dealer coverage could be better. Likewise in the Middle East there are dealers in Israel, UAE, Dubai, Pakistan and I'm sure others I am missing. You don't need that kind of cash to expand the existing brand and sales territory. Yes, some of the money will undoubtedly be used for R&D, but even there Leica already has significant resources. No, that much money is needed for just one thing...acquisition. Leica is going to buy the sensor division from Kodak. Think of Apple, Porsche or IWC. Leica stores in all major centers worldwide instead of dealerships once the product base is broader? A very capital intense strategy. Link to post Share on other sites More sharing options...
markgay Posted October 19, 2011 Share #51 Posted October 19, 2011 A leverage is most likely to be in the German based acquisition vehicle, it can't be in the target itself. Leveraging the target directly as an acquiror of a minority stake is not possible. However, there will be a shareholder agreement between ACM and Blackstone and this one would be most interesting to read:). Exactly. Private equity buy-outs go like this: The management of the target company vote for the deal because they will become millionaires. They are promised they will benefit personally when the predator loads their company with debt and transfers that money to a select group in the form of a special dividend. In totally publicly-owned company, this can be quite corrupt. In effect, the management gets a multi-million dollar payoff at the expense of the shareholders. In a company like Leica, with a large individual shareholder, the issue is more complex. I would say Dr Kaufmann has the right to dispose of his stock as he wishes. But one must consider the rights of minority shareholders, too. Link to post Share on other sites More sharing options...
Posto 6 Posted October 19, 2011 Share #52 Posted October 19, 2011 Look at the big picture- we are in a Depressioin, with unbelievably serious financial problems on the horizon (Eurozone, PrimeX,Chinese real estate, etc) and Dr. Kaufmann gets the chance to recover his initial investment. What would you do in these circumstances? Let us hope that Blackstone manage to keep their eye on the ball, as they are likely to be fairly widely distracted.... In any event-who would have guessed in 2006 what the next 5 years would bring. Perhaps Leica should obtain a Banking licence, like Siemens- and have access to ECB funds (they are, after all, major investors in Portugal, a PIIGS country) in the event of a major meltdown... Link to post Share on other sites More sharing options...
luigi bertolotti Posted October 19, 2011 Share #53 Posted October 19, 2011 Be interesting to know if this buy-in is leveraged - lumbering Leica with Blackstone's acquisition costs as their liability. That's how these outfits usually work, isn't it? It surely is leveraged... or at least, we can be sure that Blacktone does surely plans for a return (in, I'd suppose, 2 to 5 years) that keeps into account the leverage costs... that's the way such entities do work... I personally had a (much less important ) similar experience just this year, when planned the acquisition of a certain firm with the backing of a "small local Blackstone". Link to post Share on other sites More sharing options...
Doc Henry Posted October 19, 2011 Share #54 Posted October 19, 2011 A group like Blackstone is like a shark in finance ! It gives money but wants to quickly recover its investment Leica must ensure that Blackstone recover their funds as soon as possible otherwise it will be the fall of the house..... There is no sentiment with groups such as Blackstone I hope this will not happen ! What use these new funds? ...funds to invest for markets such as Asia, South America, Middle East .... according to Dr K. Leica gets new investors, looks to expand - British Journal of Photography ...and funds to invest in new equipment : Leica to launch new compact system in 2012 [update] - British Journal of Photography Long life to Leica Best Henry PS: this group is present everywhere in all areas from what I read ... theme parks (Florida United States) to hotels worldwide (Hilton) Question: Why does it is interested now in the photo ? more information about the boss of Blackstone http://translate.google.fr/translate?sl=fr&tl=en&js=n&prev=_t&hl=fr&ie=UTF-8&layout=2&eotf=1&u=http%3A%2F%2Fwww.lefigaro.fr%2Fconjoncture%2F2011%2F05%2F19%2F04016-20110519ARTFIG00713-blackstone-est-le-premier-investisseur-au-monde.php&act=url Link to post Share on other sites More sharing options...
markgay Posted October 19, 2011 Share #55 Posted October 19, 2011 From news reports: "The premium camera manufacturer says it wants to expand its business into new markets, including Asia, South America and the Middle East." Sorry, organic growth just ain't what Steve Schwartzman does. We could be looking at combining Leica with some smaller suppliers - but Blackstone is not about to buy Panasonic. So I don't see Blackstone getting big bucks from such a strategy. Kodak maybe? No. My gut feeling is that Blackstone sees Leica as a luxury brand. That's not much of an insight given the Hermes tie-in. But Blackstone is all about exit strategy - and it doesn't buy a stake without having a buyer in mind. Link to post Share on other sites More sharing options...
luigi bertolotti Posted October 19, 2011 Share #56 Posted October 19, 2011 I may understand Kaufmann's movement, but I don't see why a private equity fund, and why Blackstone. He could have sold a part of his shares in the stock market... I hope and wish Kaufmann keeps control and has a plan for Leica... I think he couldn't... the market for Leica shares, nowadays, is by far too thin to support an important "seller"... Dr. Kaufmann needs a partner with a higher "placement capability". Link to post Share on other sites More sharing options...
markgay Posted October 19, 2011 Share #57 Posted October 19, 2011 It surely is leveraged... . With $38 billion of capital invested in deals around the world, I don't think Blackstone had to borrow to buy 44% of Leica for roughly $130 million )). Anyhow, it doesn't matter if Blackstone is leveraged. It matters how much debt it loads onto Leica, assuming it follows its usual strategy. Regards, Mark Marketwatch: Based on Leica's share price Tuesday, and including a usual premium for such transactions, Blackstone paid slightly more than EUR130 million, said a person close to the matter. Reuters: Blackstone did not say how much it paid, but sources in the financial industry said the price was above the stake's market value of 122 million euros ($167 million). Link to post Share on other sites More sharing options...
ho_co Posted October 19, 2011 Share #58 Posted October 19, 2011 In regard to Blackstone influence on the board of directors: "Bis auf einen Sitz im Aufsichtsrat bekommt der Investor keinen operativen Einfluss. 'Die Strategie bleibt die gleiche', sagte Kaufmann." (Auf zu neuen Ufern: Blackstone steigt bei Leica ein - n-tv.de again) In regard to leverage: "Der US-Private-Equity-Konzern habe den Einstieg komplett mit Eigenkapital finanziert, sagte Herberg - auch das ist ungewöhnlich." (ibid.) Translations: "Except for one seat on the oversight board, the investor receives no operative influence. 'The strategy remains the same,' said Kaufmann." "The US private equity concern financed its purchase completely with its own capital, said Herberg--that is also unusual." Link to post Share on other sites More sharing options...
StephenPatterson Posted October 19, 2011 Share #59 Posted October 19, 2011 Any way you look at this Blackstone is a minority stockholder, with no ability to gain control of the board, management or anything else. It was before and still remains Dr. Kaufmann's company to manage and grow in the future. Blackstone can recommend, complain, suggest, threaten, etc. all they want and Dr. K can continue to run Leica as if it was a privately held company. He didn't sell 51%. Now, consider the doomsday scenario... It can be argued that much of Leica's recent success is due to the M9 and it's full frame sensor. With Kodak selling or trying to sell every asset not related to printers what happens if Canon buys the Kodak sensor division? Or Sony? Sure, the X1 already uses a Sony sensor, but if Sony and Leica continue to march down a path of greater head to head competition (i.e. Nex-7, Nex-8, Nex-9) do you really think they will sell sensors to their competitor, at a decent price, if at all? Leica is not Nikon, who supply core technology for Sony sensor manufacturing. What happens to Leica's high end digital cameras if there are no high end sensors to buy? Kodak sensors are vital for the M9 and S2, and probably their siblings now in development. For Leica the "doomsday" scenario is that a competitor buys Kodak's sensor division and discontinues outside sales. Leica cannot take a chance that such an acquisition might occur. It would kill the company, and that is a doomsday scenario that is all to real for Leica. I predict that Dr. Kaufmann will use this money to make a bid for Kodak's sensor division. Link to post Share on other sites More sharing options...
luigi bertolotti Posted October 19, 2011 Share #60 Posted October 19, 2011 We are talking about Blackstone, not Blackwater... Ignore Ed. They are producers not predators. Regards, Bill Personally, I'm a rather satisfied investor in Blackrock equity funds... Link to post Share on other sites More sharing options...
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