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Greenspan Sees Slowdown in Leveraged Buyouts

Times Staff Writer

Federal Reserve Board Chairman Alan Greenspan said Saturday that he believes the number of leveraged buyouts of companies has started to subside, but a panel of business experts disagreed, contending that many more large companies would be takeover targets.

Greenspan expressed his view at a closed-door meeting of the Business Council, a group of 65 top executives of the nation’s biggest corporations assembled for their spring meeting here.

The Fed chief refused to comment to reporters afterward on leveraged buyouts or on any other topic, especially the moderate 0.4% rise in the producer price index for April that sent the stock market soaring Friday.

Oppose Fed Restraints

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Many of the corporation executives hope the Federal Reserve will refrain from further restraints on growth of the money supply, which they fear may trigger a recession. Greenspan “ducked a question” on his views about whether inflation has been checked by the Fed’s recent tightening of monetary policy, one of his listeners said.

Other participants in the session discussed Greenspan’s views on leveraged buyouts--the controversial practice of corporate raiders making acquisitions through heavy borrowing.

A panel of business leaders differed with Greenspan’s conclusion, however, indicating that they felt the use of such buyouts would be “accelerating” in the future, even though the trend could not be sustained indefinitely.

David M. Roderick, chairman of USX Corp., said: “There’s a tremendous amount of cash out there to keep leveraged buyouts going for some time.”

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Airline a Target

A manager of pension funds from Los Angeles, Robert G. Kirby, agreed, saying that Northwest Airlines, a target of takeover attempts in recent weeks, was a “sitting duck” because the value of its stock was much lower than the value of its assets.

“And there are a lot more out there like that,” Kirby said.

Roderick said those who take over corporations by heavy borrowing must usually cut back on research and development in order to repay the loans, thus making the firm less competitive in the long run.

“America is paying a horrible price to get short-term gains by burdening corporations with tremendous debt,” Roderick said at a news conference after the private session.

Despite the excesses, however, neither Kirby nor Roderick favored federal legislation to interfere with the buyouts, saying the free market should be allowed to operate.


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