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American International Group, Inc. (AIG), Rollins, Inc. (ROL) & More: Buffett’s Buyout Blues and the First LBO

Since the turn of the century, the FCC has stepped up its enforcement of television-related indecency regulations, culminating in the infamous “wardrobe malfunction” and subsequent fines of the 2004 Super Bowl. The FCC has also become an important player in the Internet’s network neutrality debate. It played its most visible role in a 2008 ruling against Comcast Corporation (NASDAQ:CMCSA) when the company attempted to throttle download access for users of file-sharing programs.

A new kind of buyout
The first leveraged buyout in American history  took place on June 19, 1964, when Rollins, Inc. (NYSE:ROL) made a $62.4 million bid to acquire nationwide exterminator Orkin. The deal, later called “Jonah swallowing the whale” by BusinessWeek, saw a company with $7.9 million in annual revenue and $600,000 in annual net income put up virtually none of its own money to acquire a company with $37.3 million in annual revenue and $3 million in annual net income. Rollins/Orkin (the pairing has worked out for nearly five decades) quotes the particulars of the deal on its website:

Rollins Broadcasting borrowed $60 million, including $10 million from the sellers, and used $2.4 million of Orkin’s excess cash to close the transaction. Rollins Broadcasting also borrowed $20 million, including $10 million at 4.5% interest for 15 years from the Orkin family, with payments deferred for four years. The $10 million of Rollins Broadcasting’s assets helped support the transaction.

Nearly five decades later, Rollins, Inc. (NYSE:ROL) and Orkin have shown that leveraged buyouts can be great successes when both parties have the same goals. In its most recent fiscal year, Rollins, Inc. (NYSE:ROL) reported $1.3 billion in revenue, of which nearly $1.1 billion came from Orkin’s pest control services. The combined company generated $111 million in annual revenue. On a combined basis, Rollins, Inc. (NYSE:ROL)/Orkin has grown its revenue at an annualized rate of 7.1% and its net income by 7.3% since closing the deal. This sort of deal might have a much better reputation if only more leveraged buyouts worked out this way.

The article Buffett’s Buyout Blues and the First LBO originally appeared on

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.The Motley Fool recommends American International Group, Inc. (NYSE:AIG) and Berkshire Hathaway Inc. (NYSE:BRK.A). The Motley Fool owns shares of American International Group and Berkshire Hathaway and has the following options: Long Jan 2014 $25 Calls on American International Group, Inc. (NYSE:AIG).

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