Peabody Energy Corporation (BTU)

[LouisDesyjr]

The 'agency' problem

The problem is that management does not really have any more risk in it. Any loses in the common shares are already done and there is not much to do about it. (Although I now see the common shares trading up 15% to $0.95!)

At this point management is really 'playing with other people's money'. If they take a gamble, management wins. If the gamble fails, then other people lose out and not management.

The agency problem is that the downside or lose gets put onto someone else besides the risk taker.

If it was management's money at risk, then they would probably be more conservative with the money.

Louis J. Desy Jr.