No one wants to look like an idiot if you sell a company, and then see a new owner flip the toy for a richer price. According to the Wall Street Journal that’s why the seller sometimes holds onto a little chunk just in case they were making a mistake. In Wall Street parlance this is known as “schmuck insurance,” a reference to the rather vulgar Yiddish word that has come to mean the equivalent of “idiot.”
That may be behind fast food chain Wendy’s decision to keep 18.5% of its struggling Arby’s arm, in its sale of a majority of the roast-beef restaurant to Roark Capital. If Roark succeeds in turning around Arby’s, then Wendy’s will benefit too from any appreciation in Arby’s value.
“We believe in the long-term success of the Arby’s brand, so we told [Roark]we’d be interested in keeping an equity stake in it,” Wendy’s/Arby’s Group CEO Roland Smith told our Deal Journal colleagues. Yup. Schmuck insurance….
Find out more at:
http://blogs.wsj.com/deals/2011/06/13/the-benefits-of-deal-schmuck-insurance/
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