Light Up, Light Up

Osram's private equity buyers

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What's going on?

There was no camera but plenty of lights and action on Thursday as German lighting manufacturer Osram confirmed it’d received a $4 billion takeover offer from two US private equity heavyweights.

What does this mean?

Since being cut loose by its conglomerate parent Siemens in 2013, Osram’s prospects have grown dimmer. In the last year, it’s flashed warnings that its profit would miss expectations six times – which almost spelled lights out for a long-debated deal. The banks helping finance the private purchase reassessed their terms in light of this: a lot of Osram’s LEDs are used in cars and smartphones, and both industries are currently gloomy.

Still, The Carlyle Group and Bain Capital persevered, perhaps hoping to avoid tough competition among bidders for already private companies by focusing on one with a downtrodden public price tag. And it’s certainly on trend: private equity firms have spent over $50 billion buying European companies already this year, compared to around $75 billion in 2018 overall.

Why should I care?

For markets: Investors brighten up.

Osram’s stock price rose, but not by enough to match the offer lit upon – perhaps as investors waited to see whether it would accept. But the deal’s been months in the making, and the spotlight under which Osram’s bidders have put the company probably means any rival counterbids are unlikely. US freight railroad operator Genesee & Wyoming, meanwhile, agreed to be sold to a private Canadian buyer on Monday. Among other things, access to Gee Dubya’s freight data will give its new owners early clues as to the global economy’s strength.

Zooming out: Now there’s a cartel.

Osram has a dark history as part of a once-dominant (unlike OPEC) lightbulb cartel. Almost 100 years ago, it colluded with other lightbulb makers to keep bulbs’ lives shorter and prices higher. That ensured a rise in both consumer demand and company profits – despite new technology allowing longer bulb lives. But such planned obsolescence could never happen nowadays, could it..? 🍏

Originally posted as part of the Finimize daily email.

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