Although this news is a bit dated by now (originally published on August 3rd), I still think the message is relevant, …and telling (see Houlihan Lokey Declined to Endorse Tribune LBO).

Apparently, Houlihan Lokey had been approached by Sam Zell to render a solvency opinion of his planned LBO in March of 2007. Houlihan declined. According to Reuters:

Investment bank Houlihan Lokey had declined to endorse Sam Zell’s $8.2 billion leveraged buyout of Tribune Co, citing the deal would saddle the media conglomerate with too much debt, the Wall Street Journal said, citing people familiar with the matter.

Houlihan Lokey rejected overtures from Tribune around March 2007 to provide a solvency opinion labelling Zell’s takeover financially sound, the people told the paper.

Houlihan believed the deal would saddle the newspaper and television company with too much debt, the Journal said.

For those of you who follow this blog, you know my general opinion of the deals that were consummated during the go-go M&A wave between 2005 and 2007. In short, I thought many of the deals were overpriced and over-leveraged (see The Future of Corporate Performance, Dumbfounded by the Data, and Stupid Money Chasing Stupid Deals for background).

In one of those posts, I singled out the Tribune Company as an example of a misguided, over-leveraged deal (see also Tribune Company Bankruptcy). In June of 2007 I wrote:

…I’ll be interested to see how a firm like The Tribune Company, under the leadership of Sam Zell, will be able to pay off its debt – at 10.7 times earnings – in a business (newspapers) where cash flows have been steadily declining.

Nice to learn I wasn’t the only one worried about the solvency of that deal deal, …although I’m sure that’s no comfort Tribune’s creditors, who probably would have liked to have known about Houlihan’s abstention in the matter.

This has been making the rounds recently (ht, Gene). Hysterical!

click on the picture for a larger, sharper image.

A bit crass? Sure. But so funny I just couldn’t resist!

I received a call yesterday from Nin Hai Tseng, a reporter at Fortune, asking my opinion of the tax credit portion of Obama’s recent stimulus proposal (see Why Obama’s Plan Won’t Buy Votes).

President Barack Obama heads to Cleveland, Ohio today to unveil more measures aimed to jolt the country out of a frustratingly slow economic recovery ahead of the November mid-term elections. In an effort to create jobs, the administration’s proposal includes a $50 billion infrastructure spending plan and a tax write-off for businesses that invest in new equipment.

…as far as Obama’s proposal to allow companies to deduct from their taxes the full value on purchases of new equipment through 2011, it remains to be seen if this would be a big enough incentive to get businesses to invest more and hire more. Companies can already deduct these expenses, but the plan would allow them to make the deductions upfront.

If the tax break pans out anything like consumers’ response to Obama’s tax credit on home purchases, then that’s a bad sign, says Robert Salomon, professor at New York University’s business school. The tax credit supported home sales briefly. When it expired in April, sales of previously owned homes dipped in July to their slowest pace in 15 years.

Salomon supports more stimulus spending. He adds the tax credit holds promise, but it could act as a “misincentive,” merely giving tax relief to businesses who were going to buy new equipment anyway. The hope is that the incentive prompts businesses to buy things they otherwise might not have without the tax break.

Companies have been sitting on record amounts of cash, but the lack of demand has largely kept many from spending more.

This more or less represents my view. Overall, I am in favor of some form of stimulus to help combat stubbornly-high unemployment. Therefore, I view Obama’s stimulus proposal, however small, as something that’s better than nothing.

That said however, I wonder whether the business tax credit portion of the stimulus could be better spent on efforts that have a more direct impact on employment. My fear is that the business tax credit will work much like the home-buyer tax credit, either by pulling demand forward thereby leaving a demand void once the stimulus expires, or by wrongly rewarding firms that were planning to make capital investments anyway, again failing to meaningfully influence future demand.

As I see it, the goal of any tax-related stimulus should be to encourage economic actors to make purchases/investments that they otherwise might not have made, in the hope that it will improve confidence and kick-start a virtuous private demand/investment cycle. I’m not sure that this specific business tax credit accomplishes that goal, especially in an environment in which final demand remains extraordinarily weak.

In this sense then, I believe it’s a poorly-targeted stimulus. Instead, I think the $30B estimated total cost of the tax credit program would be better spent on additional infrastructure projects and/or additional employment tax relief. I view those alternatives as having a more direct, immediate impact on employment.

My apologies for the recent radio silence. I was traveling for the better part of the month of August – first on business, then enjoying a bit of vacation time with the family.

Still in the midst of that travel. Will return to a more regular posting schedule upon my return after Labor Day, …but I just couldn’t resist the temptation to post this short note from 39,000 feet in the air on a plane traveling between New York and San Francisco.

I am increasingly marveled by the ubiquity of connectivity. I’m hard pressed to think now of a place where the internet is unavailable. Airplanes were seemingly the last remaining preserve – protected from internet infiltration. No more!

What’s more, I’m writing this post with my relatively new-ish technological toy: the iPad. So far I love it, though the highly-publicized flash clash incompatibilities drive me a little crazy sometimes.

That aside, if you would have told me last year that I’d be writing a blog post on an airplane with a handheld tablet computer, I’d have called you crazy. Amazing!

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UPDATE IN THE INTEREST OF FULL DISCLOSURE: While I was able to draft this post on the airplane with the iPad, for whatever reason (either because of some issues with WordPress, the iPad’s compatibility with WordPress/flash, or the wireless service on the airplane) I was not able to actually post the message from the plane. It needed to wait until my return. Hence, the delay in posting. Technology. Go figure.