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Asset stripping is good

Tonight, for about the twentieth time, they showed the movie Pretty Woman on the TV, on ITV2. I like this movie, but I do not like the slurs cast upon the ancient and noble, and thoroughly beneficial, art of asset stripping.

The Richard Gere character is an asset stripper. He buys companies, takes them apart and sells the bits, for more than he paid for all the bits when they were bundled together. This character is contrasted unfavourably with the old man whose warship building company the Richard Gere asset stripper character is busy buying as the movie proceeds. The asset stripper wants to take over the warship company and turn the land it occupies into a place where people will live, in houses and flats. But eventually, we are asked to believe, the asset stripper sees the error of his asset stripping ways, and switches to helping the old bloke to make yet more warships.

Yes, you got that right. Asset stripping is presented as worse than arms manufacturing. And the Pretty Woman herself, the Julia Roberts character, says that the Richard Gere character is just like her. Both screw people for money. This is a cheap shot, based on two different meanings of the word “screw”. But screwing – as in having sex for money – is not that terrible either. And assets strippers do not screw people in a bad way. They buy their property, usually for a better price than they would get from anyone else.

Just where prostitution fits into the wider economic scene I will leave for another day and another argument. No doubt it contributes to economic wellbeing in all sorts of ways that I cannot now think of, although it is not a job I would fancy. But what I do know is that asset strippers do something very valuable. When economic resources are tied up in activities with an insufficient economic future to justify their use in this way, it makes perfect sense for someone to unbundle them and release them into the wild, separately. That there are people who specialise in doing this, who are always on the look-out to ply their trade, injects huge vitality into the economy of the world. Asset strippers ensure that existing resource uses are always questioned, and that the future, when it does emerge unmistakably, is not smothered by the past.

23 comments to Asset stripping is good

  • This is great. I could never understand what was it the the Gere character was doing that was so wrong, ever since that movie first came out in theaters.

  • zmollusc

    I watched the film for the first time recently and never noticed what the man’s job was, I was more interested in how such a drab film could get aired more than once.
    Anyway, regarding asset stripping, why didn’t the warship building owner strip the assets himself and make even more money? Presumably he wanted the warship building to continue? If that was the case, then why didn’t he make the continued production of warships a condition of sale?
    Is the asset stripper disliked only because he is the one who sacks all the workers who have been strung along by the original owner?
    Cue outrage:”Strung along? It is a free market! The workers are free to leave and do other things whenever they like!” but the owner will have been promising them jam tomorrow to keep the yard working.

  • Asset stripping certainly isn’t morally wrong, but it may be a sup-optimal solution. Companies usually are worth more than the sum of their assets’ worth. There is good will, brand name etc. If a company’s assets sell for more than a company as a whole is worth at the time, said company might simply be managed badly, or there is a short-lived surge in demand for certain assets, driving their prices through the roof.

    So while it might be better to strip assets to free up valauble and scarce resources, it still is worth checking if the company might not better be left in one piece in the long-run.

  • Ahh but what he is going to do in the movie is use political connections to caues the warship company to not get a major contract. This was to have the effect of drasticly reducing the value/cost of buying the company.

    I don’t know if its realistic but that is the premise presented.

  • Ralf,

    But maybe the cost of “checking if the company might not better be left in one piece in the long-run” is greater than the benefit of simply breaking up the company here and now. In this case, the potential long-run benefit would be inaccessible.

  • John K

    Perhaps asset strippers need better PR? Maybe “asset liberators” would work better?

    Anyway, I’m distressed that so far we have been discussing Richard Gere and there has been no mention of gerbils. I thought this was traditional. After all, Richard Gere speaks for the whole world, you know. He’s certainly a long way up his own arse, though whether he will ever find the rodent is a moot point.

  • Gere is a pompous ass, but if Larry is correct, that detail (which I do not remember) changes the picture regarding the character he plays. BTW, when I first saw that movie, I enjoyed it very much, but after watching it again and again, I liked it less and less. The business aspect of the plot being only one of the reasons.

  • I disagree that the political angle changes things that much. Yes, the Gere character is playing politics in Washington, and this enables him to foul up the business of his target company. But the clear implication at the end of the movie is that he will make less money by going into partnership with the old guy to make warships than he would have if he had continued as an asset stripper. In other words, I would say, the assets ought still to have been stripped.

    But, the movie says, making warships is better than fixing it for someone else build houses and appartments on the shipyard. Ergo, the Richard Gere character is redeemed by the Pretty Woman, who persuades him to make this career switch.

    Besides which, “playing politics”, if you are making warships, is just customer relations, I would say. If you accept that governments must have warships, then “politics” there will be.

    There is absolutely no doubt that this is, among other things and albeit only incidentally, an anti-asset stripper movie, and this is the angle that concerned me, rather than the finer points of this particular plot.

  • An excellent real-world case can be examined in Daniel Yergin’s “The Prize — The Epic Quest for Oil, Money & Power” (1991): T. Boone Pickens eviscerated Gulf Oil, and it was a good thing.

  • Brian, not to nit-pick, but the problem Larry’s comment arose in my view was not playing politics perse, as I don’t see “politics” as a dirty word at all, no dirtier than the word “life”, anyway. The problem is that there is a difference between taking apart an unprofitable business and using the parts to create a new and profitable one, and actively helping making the old business unprofitable in order to make profit from taking it apart.

  • James

    Hello, hello? Julia Roberts naked in a tub, people. And were talking about asset stripping? Sheesh…

  • James

    “we’re talking” even.

  • James, she is covered with water and soap bubbles. How do you know she is naked? Sheesh…

  • Danny,

    it usually won’t be that expensive. Even so I’m speaking in the most general of terms. My assumption that it will be possible to keep some companies intact depends on finding an investor who is willing to go along, after all. My point is that you can’t generalise the assumption that assset stripping is the best solution for companies in trouble, even if it frequently is the case.

  • Richard Thomas

    The major problem with asset stripping is that it can seriously damage a company’s (and hence, potentially society’s) long term fortunes. The one that always springs to mind (and I’m sure someone will jump in and demonstrate why what happened was actually a good thing) is the case of Eveready which was bought up and had its R&D arm closed down for immediate short-term profitability at the expense of its lead in the battery market and, potentially, better power solutions for us all.

    That said, it is not necessarily a bad thing. Its major effect is likely to be that the market will end up favoring those companies whos owners prefer to keep their running under their control rather than cashing out in a major IPO, leaving the company in a position to be taken over and asset stripped. This in turn might somewhat control the over-subscribed, over-priced way IPOs are tending to be.


  • although it is not a job I would fancy

    err I think the feelings mutual!

  • Just as asset strippers do something very valuable, so do prostitutes. Moreover, it’s actually honorable for a man to pay a prostitute for sex — a fair exchange of money and services. The availability of this fair exchange might even prevent him from making an unfair exchange: fooling a woman into thinking he’ll offer her commitment simply to get sex.

    An ex-boyfriend/longtime friend would always call me to ask what he should do [I’m an advice columnist] when yet another girl he’d slept with was banging on his door at midnight, furious that he didn’t want a relationship. Finally, after much prodding, I convinced him that hiring a hooker was actually the ethical thing to do. His only complaint now: I didn’t get him to do it sooner. He sees a Brazilian woman once a week for $400. She’s gorgeous, great in bed, and she never threatens to set his apartment on fire — she just smiles seductively and leaves.

  • jon

    Asset stripping is just one part of the business cycle. The other end has the asset grabber, who buys little companies to add to a big company. Which one is where on the moral totem pole is not something I care to argue, since businessmen are businessmen and business is business. There are winners and losers and profits and losses. Someone gets screwed, someone screws. Sometimes it’s good, sometimes it’s offensive. And, since Richard Gere is involved: sometimes you’re the gerbil, sometimes you’re the ass, and sometimes you’re the unfortunate emergency room physician who has to use the tongs.

  • Daveon

    Tricky one. Assett strippers can have their place, but they can also be more destructive than necessary. Pretty Woman did show the side that most people don’t necessarily get, that the assett stripper, typically aided by one of the big banks will have pretty serious background research on all the owners and will indulge in perfectly legal but morally shady practises to divide a board or family to get the deal done. I’m not convinced the net economic effect is always going to b positive, as there are far to many variables.

    The impression I got from the Pretty Woman “case” was they were particularly interested in selling off the dockside properties for redevelopment. While that makes a nice lump fo cash, I’m not convinced it would necessarily be better for the area economy than actually building stuff. I suspect there was also an allegory in there about services versus manufacturing.

    Hmmm… maybe this should become an MBA case study 😉

  • chris edwards

    If you look at the Uk in the sixties the gov intervention in obselete industries was the opposite, when ther finally died many years too late it caused a glut of land and workers and was a disaster, usually wrongly blamed on Thatcher but really the fault of the unions and Labour, back then we could have really used asset strippers in our shipbuilding, steel and coal industries, arguably if the sickest works had been asset stripped the unions might have looked beyond the next inflated pay check!

  • Giles

    Its also worth bearing in mind that most asset strippers have an interest in being portrayed as badies – it lowers the number of entrants to the market and so increases the profits of those that remain.

    Interestingly people who work in the industry which puts things together- mergers – are keen to cultivate exactly the same reputation as the asset stripper.

  • John K

    If you look at the Uk in the sixties the gov intervention in obselete industries was the opposite, when ther finally died many years too late it caused a glut of land and workers and was a disaster, usually wrongly blamed on Thatcher but really the fault of the unions and Labour, back then we could have really used asset strippers in our shipbuilding, steel and coal industries, arguably if the sickest works had been asset stripped the unions might have looked beyond the next inflated pay check!

    Sadly this may be true of the Rover Group. The government bottled out of making a hard decision, offered by Alchemy, to turn the company into a niche maker of sports cars, but accepted the senior management plan to use BMW’s legacy money to keep on going as a mass production car maker. But Rover just does not have the capital to compete properly in this field, and is reduced to trying to cut deals with the Chinese. Even if this deal comes off, there will have to be large scale redundancies. Alchemy would have used a lot of the BMW money to pay off redundant workers, who could have retrained for new jobs. Now those workers are ten years older, but still have the same skill sets and are less attractive to potential employers. Maybe it would have been kinder in the long run to cut the company down to the size where it could have competed, now it might be too late.

  • Aidan

    I don’t remember the plot clearly but I seem to remember it involved the asset-stripper making underhand political deals. If that’s the case, it’s a fair target since government corruption is a genuine economic problem, and in serious cases can stifle economic development completely.