This topic is temporarily closed for 4 hours due to a large number of community flags.
This topic was automatically opened after 4 hours.
This topic is temporarily closed for 4 hours due to a large number of community flags.
This topic was automatically opened after 4 hours.
The $400MM/year was all interest. The loans had a blended interest rate of 8% per year ($400MM/$5B).
And the lenders agreed to lend on the deal because (1) the company had considerable assets (particularly its real estate) and earnings that in 2005 were more than sufficient to cover the debt service, and (2) the private equity investors put up another $1.3B that sat behind the lenders’ $5B and gave the lenders comfort that the folks running the show had real “skin in the game”. It was still a risky bet, but not a crazy or reckless one on the part of the lenders. And it might have paid off if 2009 hadn’t happened. But 2009 did happen, and while the private equity bosses did pull hundreds of millions in fees out over the years, they also lost about a billion dollars of their investors’ money. I’m pretty confident nobody from KKR, Bain, or Vornado is sitting around celebrating the demise of TRU.
It was not a hostile takeover. In a hostile takeover the investor figures gain control of a company without the existing board’s or management’s support. In this case, it was a friendly deal where TRU essentially put itself up for sale and agreed to allow KKR/Bain/Vornado to take the company private.
1 Like
after paying themselves $200 million (including tens of millions in performance bonuses to the C-suite in the same year the company declared bankruptcy).
So it’s a win for everybody . . .
. . . that counts.
1 Like
I’m guessing that was one of the motivations for this acquisition. One of the games these vulture capitalists like to play is spin off the RE holdings into a separate company and then lock the original company into long term, above market rate leases. It’s another way of hiding debt before attempting to unload the company after looting it. That is their preferred endgame, because it is better to get something for the debt choked remains rather than liquidating them.
4 Likes
14 or so, if I’m not mistaken. I’m guessing Lampert holds preferred stock where he can ignore the other stockholders, Zuckerberg-style, or he’s a really good con-man. “I know, we really took it on the chin every year for the last 14 years, but this year is gonna be different, and I really meant it, this time!” (Stockholder applause)
2 Likes
That was one of the primarily motivations for sure. Hence Vornado’s involvement alongside the more typical PE buyers.
Yes, they were looking at sale-leaseback transactions throughout, although I doubt if they would have done above-market leases.
I don’t see how a sale-leaseback can “hide” debt. No potential buyer is going to miss it. It’s just another financing option.
1 Like
“Viable” is kind of a slippery term here.
TRU was acquired right before it fell off a financial cliff because of online retail, and that just by itself was responsible for a lot of the shittiest decisions made here - the workers got shafted because the new owners were trying desperately to salvage some capital from the rapidly-rotting carcass they had saddled themselves with.
That excuses nothing, of course, but it’s not like they likely acquired TRU saying “Oh yes, let’s be as evil as possible, mwa-ha-ha and so forth”. Like most evil, they slid into it gradually and by degrees, making their worst decisions under extreme pressure to perform and with very large dollar incentives to do the bad thing.
You have a higher view of the level of analysis done by eventual stock purchasers of a potential “Post restructuring” company than I do.
1 Like
My thoughts exactly. These large acquisitions are not financed by morons - it’s basically a complex way of saying “This company is under-performing its potential, let’s do a bunch of wizardry with numbers and buy it and run it more efficiently, and restructure everything so we can extract the value we create more efficiently and with as few steps as possible” (e.g. sale-leaseback, so you don’t have to funnel all the money up the corporate chain and then divvy it up, instead dump it into a side channel where it’s a one-and-done deal).
At least, that’s the theory. In real life, you can get a lot of squirrely shit that creates perverse incentives and so on, and those can be hard to completely avoid. OTOH, sometimes these structures are created so as to remove existing perverse incentives, so it’s not as gloomy-doomy as one might think at first glance.
3 Likes
I think that is a really specious argument. You are suggesting that Toys R Us uniquely had their business model blown up by internet commerce. Meanwhile many other brick and mortar businesses did not die in a way that you are suggesting, and at least in product categories where there was some consolidation the market leaders are usually the ones that remained in place. Books, electronics, clothing are some of the obvious examples. Not to mention that Toys R Us had a strong e-commerce site themselves.
The truth is the business tanked because the investors were primarily interested in bleeding off value. They did so here in the same manner that they and others in the same “business” have done with dozens of other companies.
2 Likes
At one point, IIRC, they used Amazon itself for their web retail. I know that Target did…
1 Like
What I don’t understand is why people keep lending money to these Vulture Capital firms. It seems like they are left holding the bag very often. I have to assume it’s my 401k that’s lending money to these assholes, but given the opacity of the entire process I can’t be sure.
For a real world essay, look at You can’t blow up a social relationship - the anarchist case against terrorism.
True, it didn’t persuade the insurrectionary anarchists, but getting their fingers blown off by their own bombs also doesn’t persuade them.
1 Like
Lots of smart people educated in various professional environments who went to the same colleges and see life as a win/lose.
Lawyers + bankers + deal makers + accountants + shareholders = negative outcomes for everyone else.
They are though scared of pitchforks, hence they buy bolt holes in New Zealand.
The best way round it? Support local businesses who sell good stuff and don’t take the dirty coin.
1 Like
I see what you’re saying here, and the counter-argument is “Yes, there are good and bad and everything-in-between VC firms. There has been an enormous revolution in a lot of the retail space due to the disruption of online firms, and anyone would predict that there would be a flurry of ‘vulture’-type firms swooping in and parting off the market losers as middlemen in market consolidation, and such market consolidation can be easily observed at the present time”.
Of course, this dramatically over-simplifies how messy the whole process is. Some VC firms swoop in, revitalize a company and then make tidy profits off it indefinitely. Remember when the death of Hostess was being trumpeted recently because they got snatched up? I seem to recall seeing Twinkies in my local grocery store lately, so perhaps that was a bit erroneous. In many cases, companies that are potentially profitable are mired in various liabilities that they can’t service, and are just sort of stuck in a kind of corporate paralysis. In those cases, the VC firms perform a necessary evil and make all the ugly cuts that are needed for the company to survive.
Remember, companies that are high-performing are rarely acquired, because there’s no margin between current performance and potential performance for anyone to profit on. It’s rare for firms to dissect and part out high-performing businesses because that’d be basically killing the goose that’s laying the golden egg. Yes, greed occasionally wins out, but even in that case a smarter company then buys up the high-performing assets and then just keeps them rolling, sometimes with a name change, sometimes without.
2 Likes
Oh good, glad that’s cleared up
but then here’s somebody making excuses IN THE SAME SENTENCE
We don’t know whether they were cackling with evil glee. We weren’t there.
1 Like
Hostess is probably not a good example. Bankruptcy “managed” by PE firm into the ground, the HB which emerged miraculously a year later had 17k+ less workers, all of whom were stiffed on their pensions. Of course the PE firm which purchased Hostess for a mere ~$150 mil turned it around in a couple years for 2.6 billion, which I’m sure was enough to fund most of those aforementioned pensions.
TLDR; the hostess story is even worse, because it follows the classic vulture playbook and throws in some private equity assault on unions.
5 Likes
