Large conglomerates are giving small, unprofitable divisions to management or third-party buyers at low prices.
There's much talk in Washington these days about programs to help defense contractors retrain employees. Once again, the market is way ahead of the politicians -- and moving in a different direction.
Eager to get rid of small, unprofitable divisions, large conglomerates are giving them to management or third-party buyers at bargain prices. "I know of a company that sold a division to its managers for 10¢ on the dollar and then took back the paper on the deal," says Les Thomas, an aerospace and defense specialist in the Costa Mesa office of Price Waterhouse. "Hey, it's a lot cheaper than severance." A division of another company went from 400 to 17 people. "This group has 110 workstations, push presses, numeric machines -- good stuff. An investment banker came by, took a look at it, and bought it for his own account," says Thomas. "This is no trend; this is a feeding frenzy."
Thomas suggests that, instead of trying to retrain everyone, the government might be better off setting up a fund to provide loans to people who want to stay in the business and start a company with a new customer base. "You could even have a repayment plan where you forgive some of the debt based on the number of jobs the new company creates. Sure, many people may not want to go out on their own, but many may not want to be retrained, either, especially if they've spent 20 years developing their skills."