Basically, the company had to pay for its own buyout when private equity firms KKL, Vornado, and Bain bought the company for $6.6 billion, mostly with loans.
Because the company then had to pay off those extreme loans, they were forced to sell off their assets and property, which they leased back from the very private equity firms that now owned them.
The same thing happened more recently with Red Lobster and JoAnn Fabrics.
I’m kind of financially illiterate
what part of the firm’s actions were fraudulent? if they make an offer and toys r us accepts, there’s nothing predatory going on is there?
Many of these are hostile buyouts, which means they use their money to buy a majority of shares in the company and then overthrow the board. I don’t know if the Toys R Us sale was one of those though.
And they’re not saying it is fraudulent. Just that it should be fraudulent.
It’s not hard to use financial trickery to temporarily tank a stock price making it easier to buy up a company. When redditors went after gamestop shortsellers, the shortsellers used tricks to dip the stockprice just low enough just temporarily enough to trigger margin calls and crush the redditors.
It wasn’t fraud but it was poor business decisions based on their hope for massive growth instead of seeing success as steady profitability. They sold off assets (real estate) and then signed up to lease the property back from the new real estate owners. This shifted assets to liabilities. They idea would be to use cash to grow the business. They took too much cash as distributions to investors instead of making sound long term business decisions that would keep ToysRUs operating for the long term.
thank you for the explanation