This earlier post noted that the NY Times financial columnist Ben Stein has some rather odd notions about private equity buyouts. Amidst criticizing rich folks for spending their money in a different way than Stein would if he had their money, Stein in this column continues to strap his blinders on closely regarding private equity-backed, management-led buyouts of publicly-owned companies:

“I saw an article about the chairman of Herbalife leading a private equity firmís offer to take the company private. He must be trying to underpay his shareholders for it ó otherwise thereís no built-in profit for him. Of course, heís a fiduciary for those same shareholders, obliged to put their interests ahead of his in every situation. Never mind. This is about money.”

Well, yes, it is about money and the private equity buyers could be wrong in their bet. Stein ignores that Herbalife’s stock price could go down below the price that the chairman and his private equity partners are willing to pay for it, which means that they would absorb the loss rather than the Herbalife public shareholders. Isn’t the more mature analysis here the assessment of the relative risk that Herbalife’s stock price will rise above or below the price that the private equity buyers are willing to pay for it?
But Stein isn’t finished with his blather:

Then I read an article about the head of Four Seasons Hotels and Resorts, Isadore Sharp, taking that company private. His family owns the supervoting shares that control the Four Seasons, and Mr. Sharp says he wants to simplify succession issues with his children. (Donít we all?) Several people have been quoted as saying heís underpaying for the company. Why does he have to do the deal at all? The potential for conflicts of interest is simply overwhelming.
Four Seasons declined to comment when I called to ask, but I assume Mr. Sharp wants to buy the company on the cheap. Every buyer does. The shareholders for whom Mr. Sharp is a fiduciary want ó and by all legal history, deserve ó the highest possible price. Again, why do the deal at all? If he controls the votes of the company, canít he work out succession issues by parceling out those super shares in his will or a living will? Something does not smell quite right here. At least, not to me.
And, hey, lookie here whoís investing along with Mr. Sharp. Why, itís the richest man in the world, Bill Gates. See, heís not rich enough now. He has to get into this ethically dodgy deal to get even richer. Very nice. I guess heíll use that money to do ethical things.

Let’s assume for a moment that the risk is greater that the Four Seasons stock price will fall below the price that Mr. Sharp is willing to pay for it than it is that stock price will rise above it. However, Mr. Sharp disagrees with that risk assessment and is willing to put his money up to back up his belief. Hasn’t Mr. Sharp done precisely the ethical thing for Four Seasons shareholders? I don’t know if the foregoing risk analysis is right or wrong, but it occurs to me that it is at least as likely a scenario as the “ethically dodgy” deal that Stein suggests.
If not for Gretchen Morgenson, I would be amazed that the Times editors would allow Stein’s shallow analysis to pass as a business column in the paper.