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But what is good for shareholders and investment bankers is not necessarily good for the country. Certainly the thousands of workers who have been laid off as a result of KKR's deals see little virtue in leveraged buyouts. Top executives go along with or even instigate buyouts because as major shareholders they stand to profit. The resulting companies may be leaner, but often they are also weaker, with little money to invest in expansion or innovation. Says Michel David-Weill, the French senior managing partner of the Lazard Freres investment firm: "The wave of leveraged buyouts is weakening the competitiveness of many U.S. companies that have fought so hard to regain it."
A more immediate danger is the debt being loaded on corporate America. This summer Revco, a chain of 2,000 drugstores based in Twinsburg, Ohio, defaulted on $700 million worth of bonds and went into bankruptcy proceedings just 19 months after going private in a leveraged buyout. Some experts fear that Revco will be one of many major failures resulting from the buyout binge. In the first half of this year, Standard & Poor's lowered the investment ratings for $216 billion worth of corporate securities, while raising the standing of only $130 billion in such debt. Warns economist Henry Kaufman: "If this deterioration of corporate debt is occurring in the course of an expansion, you can imagine what will happen to a lot of corporate debt in a recession."
In his letter to the Senators last week, Fed chairman Greenspan noted that current tax law encourages corporate borrowing. Companies, for example, can write off the interest on their loans. Greenspan suggested that Congress consider whether the tax incentives that are helping fuel the trend are still prudent. If Congress takes Greenspan's advice, the heyday of big-time buyouts could come to an end.
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Illustration by Mirko Ilic
CAPTION: KKR's LARGEST DEALS
DESCRIPTION: Color.