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 think Kmart and Sears are in this list, too, along with Bed, Bath, and Beyond and even some hospitals. There’s nothing private equity forms won’t do to make a buck at the expense of a once thriving company or even people’s healthcare.
Back to the good old corporate raiders like Lorenzo. For a while there we kept them on a leash. Now with the Land of No Consequences and leashes becoming meaningless these leeches are free to buy and pillage as they see fit. The housing market is gonna be destroyed next, wait until they start selling the homes off to shell companies and taking loans to pay for the deteriorating properties and property taxes (which trump has floated getting rid of to keep these hoarders afloat even longer).
I generally feel like leveraged buyouts for numbers into the billions are just inside jobs for those selling.
Stay with me for a sec.
So the seller makes a closed door deal with the “buyer” to funnel money back to them personally after the sale is done. So in this case, say, they commit 3.6bn to the “buyers” and pocket 3bn for themselves. Almost the entire purchase is leveraged, with the expectation that it will become unsustainable and go bankrupt shortly after the purchase.
The buyers don’t really give a shit, they’ll write it off, collect whatever they can from insurance, etc. They didn’t really want to company anyways, so they let it fold.
The money they took home from the deal with the seller is entirely theirs, the company bears the weight of the debt and the consequences of defaulting on the debt, so the execs that made the move are basically free and clear.
Everyone wins, except, you know, the poors who work at the purchased company, the banks, who don’t give a shit, and insurance people, which… Nobody gives a fuck about them…
At the end of the day, the execs of the purchasing company get rich, the sellers get rich, and that’s the fucking point.
If the sellers instead just closed up shop, they would get maybe a fraction of the money they would from selling it, mainly in selling off assets… It would be a pittance compared to this scheme.
All they need to do is find someone they can buy out the morals of, to complete the deal. This is surprisingly easy in the corpo world.
Ok, but who is providing the loans for the buy out. When they default on the debt someone or some thing is not getting paid. If that were the case eventually no company would loan money for a leveraged but out right?
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Bear with me for a bit, because i don’t understand these schemes.
If the sellers instead just closed up shop, they would get maybe a fraction of the money they would from selling it, mainly in selling off assets… It would be a pittance compared to this scheme.
How would the sellers get more money from this scheme? Isn’t liquidating company assets are basically what the buyers (the private equity firms) did anyway?
collect whatever they can from insurance
How does the insurance companies keep falling for these? This has happened several times, and insurance companies aren’t known for being charitable.
Every time I read something like this, it makes me want to burn money.
Everything they did was to line their pockets and destroy the company and leave creditors holding the bag. They should ban buying with loans, no taking loans against acquired companies for X years. The sale and leasing of assets back by the same owners stinks.
“Millennials are ruining the [_] industry! How dare they-”
Oh right, it was capitalist greed all along. Excuse me while I shed a tear for your precious local Applebee’s as you keep voting for the people who enable these acquisition monopolies, lmao
My first ever job as a high school kid was stocking the shelves at Toys R Us; I have found memories of that place, and those people to this day.
Fuck Mitt Romney, I will never forgive him for this treachery.
This kind of buyout should be made illegal.
I watch the YouTube channel “Company Man” that does a bunch of interesting business stories. 95% of the “Decline of (brand)” or “Rise and Fall of (brand)” videos are because of leveraged buyouts.
A group of idiots borrow billions of dollars, throw the unrecoverable debt onto the books, slowly killing the company, and then it’s dead.
Who loans this money? How does that work? I understand the rest of it about being a bastard who collects millions in salary and bonuses while driving a company into the ground. I just don’t understand where the money comes from, or why.
Oh it is real simple. Imagine you have a really nice truck that is all jacked up with a lift, big tires, light bar, supercharger, etc.
I want to buy it and you want $10k for it since it is an older model and most of it’s worth is from the accessories. The problem is I don’t have $10k. I only have $2k.
This is where the magic happens. I find some someone who will buy all your accessories for $8k. I make a deal, let me strip your truck and I will pay you $10k for it.
You agree and I come over, take off all the accessories and then sell them for $8k and then buy your truck for $10k.
The truck is pretty worthless at this point without wheels or anything, but I can sell it for about $3k. Well, I ruined the truck and made a thousand bucks. This is a silly example of how they get the money.
It may be U.S. plutocrat strategy to weaken political enemies by killing their companies.
Consider Microsoft destroying Nokia and their Linux phones to benefit fellow American companies Apple and Google.
Consider the Destruction of OkCupid as an attack against its liberal-skewed user base.
Consider Microsoft destroying Nokia and their Linux phones to benefit fellow American companies Apple and Google.
I’ve considered it, but I do think it was a huge blunder that was planned differently. They invested a bunch of money in Windows Mobile, had a partnership with Nokia and then bought their mobile business… And then they just gave up, handling their competitors in other markets (Apple being a competitor to Windows and Google at the time being already a competitor to Office) a win. I suspect they actually had faith in Windows Mobile and wanted to fuck up Nokia and buy their phone business so they could sell Windows Phones.
The best book I’ve read about private equity is called Songs of Profit, Songs of Loss by Daniel Souleles. It’s an ethnography of private equity.
Private equity is the logical extreme of the idea of shareholder value. Companies are bought, stripped for parts, and mined for resources. The money comes from wealthy people and institutional investors like university endowments, pension funds, etc, and some years it is a very high-return investment. Other years, not so much, see the relationship by the University of California and Blackstone as an example in recent years.
TIL: stock buybacks were considered insider trading before Reagan made them legal
Is there anything that Reagan hasn’t fucked?
He died before Epstein Island was a thing, presumably.
Whatever he didn’t got fucked by Clinton.
“Bill! Get you dick out of the jelly beans!”
He did not. Have. Sexual relations. With that. Policy.
Your mom.
Well he better get to work then
The entire investor community is filled with shitbags.
This is like me taking out a loan to buy a car and then expecting the car to make the payment.
And since all the debt is on the company and not the people/organization who bought the company, they don’t suffer any of the repercussions of defaulting on the loans. Why this isn’t illegal is beyond me.
This is like me taking out a loan to buy a car and then expecting the car to make the payment.
It’s even worse than that. Imagine you bought a car from a dealership and were making monthly payments on it. I take a loan to buy your debt from the car dealership, sell your car to pay my loan off, and then expect you to continue making your monthly car payments to me. You file bankruptcy to get out from under the debt, but by then I’ve pocketed months or years of your car payments and come out with a tidy profit.
And then I do it to hundreds of other people, over and over again, as long as other rich people are willing to loan me money. Which of course they are, because running companies into bankruptcy is incredibly profitable.
Something something road to serfdom.
Well fuck … that’s even more depressing.
It was illegal, then Reagan changed that.
Because of course it was Reagan.
Well, in theory it’s the responsibility of the banks to not make bad loans. If private equity passes on their debt to the company they bought, and then that company goes bankrupt and the private equity walks away free, that’s still the bank’s problem and they’re gonna lose a lot of money. Of course the problem is banks have a pretty bad track record about being disciplined with their loans.
Elementary my dear billwashere, in one word: money.
People don’t notice the leeches, so noone cries out. This enables said private equity leeches to
bribe politiciansmake considerable donations to various political action committees. And believe it or not, politicians like money.Well, you wouldn’t want those politicians to be poor?
Oh deary me, no, poor politicians would be susceptible to bribes
Did you know companies can take out loans to buy their own stock to raise the value.
Toy R Us is still a thing in Canada, you can just go there and get your kid legos like its 2002
It’s still kind of a thing in the USA, you just have to visit a Macy’s department store at the local dying mall. The Toys R Us is a small section in the back.
Which is far more depressing than if the brand was outright dead.
What will really shift your thinking is finding out that they have done this to almost all the hospitals in the United States, which is part of the reason healthcare costs have skyrocketed.
Hospitals need more to pay their leases, health insurers need to pay more to feed the hospitals machine, premiums go way up/more services restricted/more cost share (copay etc)
If you think it’s shitty that consumers can’t own anything anymore, they stole your wellbeing services while you were bitching about how little is still on Netflix these days
This is enough reasoning to say that capitalism is the single greatest enemy of mankind. The search for endless profit will kill everyone.
Capitalism is a great system as long as it’s regulated. It’s been more and more destructive and caused catastrophic shifts in wealth distribution since deregulation started with Reagan
You’re basically saying cancer isn’t so bad as long as it’s just a little cancer and is kept in check. All you need is a few bad actors and everything goes up in flames.
Nono its the best system. All others have failed. You cant have the American dream without capitalism.
/LIES FROM FASCISTS
Careful now, they’re about to classify criticism of capitalism terrorism.
The culture of consumption is the greatest threat to humanity.
Capitalism, and even communism, are just means to that end.
The fact that they can buy a company by going into debt and immediately transfer the debt to the company is fucking insane. Maybe we need to figure out how we as individuals can do that and just fucking crash the lending industry entirely? Can I make my house buy itself for me and then “whoopsie, the house can’t pay the bills, guess it will file for bankruptcy and hand me a big ol’ stack of cash”.
That’s how landlords work.
Take loan, buy houses, house has to pay back loan via rent, rent is paid for by renter.
Landlord gets house for free, everything paid by renter.
In this scenartio, the Landlord also owns the maintenance company, so the renter pays the wages of the maintenance advisor and maintenance costs.
As usual, renting is one of the biggest scams society has fallen for.
We only accept it as normal because so many people around us are doing it.
And the same thing happens to banks for people with mortgages.
the same happens to most mortgages, namely income goes to the lender and you get a house.
But, you get the equity, and you own the house when (if) you pay off the loan. Renters get nothing.
Renters get a roof over their head (and they should be grateful for that). /s
Can I make my house buy itself for me and then “whoopsie, the house can’t pay the bills, guess it will file for bankruptcy and hand me a big ol’ stack of cash”.
2008 called…
I’m not going to say exactly what it would take, but it rhymes with Bolotov Cocktail
I couldn’t possible know what you mean, but that sounds delicious.
Justice often is.
I use fireball in mine. So the revolution will smell like cinnamon.
Fireball and gin. Tastes like Christmas.
They will never, ever give us equal rules willingly. The only way that’s going to happen is if we build a new financial system, immune to their Pinkertons and police.
You will not build a new financial system without structures of power. The best we can do is to understand the structures of power and how to combat them.
You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.
— Buckminster Fuller
Structures of power… You mean “guillotines”?
I mean things like this https://m.youtube.com/watch?v=rStL7niR7gs
I mean things like this.
Pretty much nothing in “the economy” works like it does in theory. It’s always way more complex so the people with the most power and money can squeeze more exploitation out of it. I really like how this guy explains it
https://www.facebook.com/reel/976701137942045
https://www.youtube.com/shorts/1LcJjd6Wosw
He’s got a whole series on Private Equity
I think that’s the natural outcome. that’s the emergent behaviour of capitalism.
those with more money have more power and more influence to make the system better for those with money and power.
the rest, like almost all “economics” its just BS to hide that simple fact.
Sometimes teenagers ask me about how the stock market works.
I love explaining shorts, because the reaction is always “how does that even make sense?”
The short answer (ba dum, tisssss) is that some forms of mutual funds buy a little bit of every stock rather than picking and choosing. Then, for reasons never really made clear, they let other investors borrow those stocks as long as they return them later.
