It existence of share ownership permits the operation of Vampire Capitalism via the formation of Private Equity funds and Hedge Funds. The hostile takeover of Cadbury by Kraft was only the latest example of such operations, which always grows after a crisis and cheap money becomes available.
The operation can have many variants but generally proceeds as follows. A public company is targeted by a Private Equity fund as having characteristics that make it suitable for "restructuring". Such restructuring is termed "pruning out the dead wood" and "making the company more efficient". In other words the Private Equity folk are engaging, by their own admission, in helping share-owning capitalism to work better.
Step one - fund insiders put up a little of their own money and invite external participants to put up theirs. Much larger funds are borrowed from investment banks.
Step two - a controlling interest in a company is acquired.
Step three - The acquired company is restructured - assets stripped, staff layoffs, production moved overseas - anything that will reduce costs.
Step four - After several years higher earnings are achieved, as a result of restructuring. The higher priced shares are sold or refloated if the company was totally taken into private hands.
Step five- Divide up the profits, which mostly go to the insiders. Very often the external fund participants get very little in return for the risk incurred.
Step six - The company is left with much higher debt, which it is in a weakened position to pay back. The vampires have left town and on to the next victim.
The anglo-american business model at work.
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