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.
Yeah, this is the case for most “public to private” company moves, and other types of private equity acquisition deals. They are all just a massive shell game to liquidate a company’s value and transfer it to those private equity companies. Vulture Capitalism
Comical to read this when I just saw a $50 billion dollar sale of EA going private being bought by private equity firms, haha.
EA was down the path of being awful, long before that. But yeah…
My first thought as well. Of companies to lose to further “investor” shittery, I can’t say I’ll lose much sleep over EA if that turns out to be the case.
I was guessing that it was going to be leveraged as a propaganda outlet given the Kushner and Saudi connections, but it does seem more likely that it’ll just be hollowed out and thrown away.
I don’t really know if that’s the same kind of animal though. The Saudi royal family is trying desperately hard to diversify. Into as many different revenue streams as they can. You know to Stave off the coming disaster. So I think maybe they’re actually in it for real with EA, though why you bank on a video game company being a long-term investment I’m not 100% sure. Point is they have so much money now I doubt it’s for a quick profit. They have so many projects right now that are so risky they’re basically burning cash.
When you think about how much money EA’s main soccer title makes from microtransactions alone, it certainly makes sense to buy them out
Assuming the Saudis buy EA out for 55 billion and earnings don’t change much from now on, they’ll recover the expenses in 9 years.
If EA gets bled dry by private equity, it’ll probably be the biggest company to go down that way ever.
vulture capitalism
No other kind. Every major gain is just made by eating a corpse you don’t acknowledge-polluting the air or putting plastics in all our blood or slopping us with malevolent ux and llm’s.
Death Spiral Financing is one of those things that should be shouted from the rooftops by anyone who wants to spread anti capitalism. It so cleanly displays the evil inherent to the system.
Same with Sears, right?
Yes and No. Sears could have limped along for longer but the geriatric leadership they brought in made a bunch of stunningly bad decisions. Sears built their business on catalogs and shipping direct to consumers. With their huge distribution network, trusted name, and network of stores they could have embraced a hybrid model and been on the cutting edge of e-commerce but the geriatric fucks they put in charge doubled down on the retail model they had always known but with shittier service.
Picked apart by vultures for all that prime store and warehouse real estate they owned by virtue of having been around since the 19th century.
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?
The banks, and/or the insurance companies.
In the case of the banks, the money isn’t real and never existed in the first place.
The fiat money system is pretty fucked when you understand it.
At worst they take the “loss” and at best, they get bailed out by public dollars.
Pick whatever fits your ideals.
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.
It keeps working because the insurance/bank systems are evaluating things on the merit of the lender and their business plan. Anyone can make a decent business plan that will pass muster if you fiddle with it long enough. And the individual company/organisation that is defaulting on these are a dime-a-dozen. Since the failure of the loan goes down with the ship (and company), even if the borrower’s ask for more money tomorrow, as long as the request is coming from a different company/organization, the banks evaluate based on the organisation that is requesting the loan, not the leadership’s failed previous attempts from other businesses.
Incorporated companies have limited liability from their owners. While the owners operate as agents of the business, ultimately the business itself is liable for their decisions. They don’t bear any responsibility. So their actions are based on what will get them, personally, the most value extracted from the business, not based on what’s good for the long-term success of the company itself.
Leveraged buyout is insane and should be so very very illegal.
Let them leverage but they have to pay it back. None of this transfer the loan shit.
Agreed. If you can take a loss forward 20 years on your taxes, the government should be able to go after leveraged losses for 20 years too.
All we really need is to make sure the people investing in and making these decisions get financially destroyed
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.
below is a reply to a comment I made below, pasting here as I find it crazy how this went down and is allowed.
For those curious I did a little digging. I’m on mobile so won’t be going in and out to add company names etc.
Basically, the private equity firms got together and said let’s buy Toy R Us for $6.6B but we only want to use say 300M of our own money and get a loan for the rest.
Then they bought Toys R Us but made them sell all assets to equity firms which then leased them back to Toys R Us so they could pay back the loans. This means Toys R Us are paying hundreds of million a year to cover loans and can’t put that money into making a better business.
The private equity firms also made Toys R Us issue dividends in the hundreds of millions so private equity can make money.
In the end private equity walked away with over $1B in profit whilst Toys R Us declared bankruptcy with $5B still left to pay.
What a fucking insane system. Like how many people lost their jobs so these ghouls could make some extra cash off its downfall.
And people think I’m crazy for making my life harder by not shopping at places like Amazon or being a pirate and not giving money to Netflix etc.
I feel I am living in crazy land. Like the Uk has all our pensions and shit tied to the damn stock market, ensuring we can never really leave this system.
Look up Cellar boxing, you’ll see all the companies that were driven out of business because of this strategy
It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.
Truer now than when Henry Ford said it like a hundred years go.
The SEC exists to shelter Self Regulating Organizations from any threats of democratic governance or law enforcement. Oh ya and to keep up the legalese charade that there literally is no such thing as counterfeit stock (because the Secret Service has purview over counterfeiting for some strange reason)
Fuck the stock market 🖕
The Secret Service has purview over counterfeiting because that’s what it was founded for. More confusing is why they became the presidential protection service from there.
Wasn’t it Bain Capital (Mitt Romney’s old place of work), or am I misremembering?
Yes, that was one of them.
From OP
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.
And people think I’m crazy for making my life harder by not shopping at places like Amazon or being a pirate and not giving money to Netflix etc.
You’re not crazy; you’re smart.
The average person just doesn’t want to accept how stupid they are.
In a sane world that would be life in prison illegal.
Sadly we live in crazy town.
Wait until you hear about using shorts to drive a company out of business or stock buy backs.
Its best to plan to not have a retirement fund. Plenty of communities just take care of each other instead.
I’m not sure what you mean. We have a state pension tied to the stock market.
I also have a private pension too. I don’t see how not planning for retirement can be beneficial?
The UK state pension is largely a Ponzi scheme, no? Those paying tax now fund those receiving pensions now with some promise that they’ll get returns in the future. The only difference is it’s backed by the currency issuer and they’re pretty up front about it.
I don’t know that I would call it a Ponzi scheme, although I could argue for it based on current trends.
Basically, the everybody pays in to the state pension with the understanding that it pays for retired people. So yes people paying in now are covering those that have retired.
The thing is now though is that birth rates are not keeping up with retirements, understandably as why would you have a child in this shit hole, so that means each year it’s harder and harder to pay for the pensioners.
The above is incredibly funny when you look at this silly anti immigration rhetoric, we need more immigration to sustain old people not less. These fools will be shocked when they ban immigration and retire and the state is like yeah we got nothing.
What’s worse is it isn’t means tested which I would support but many older people don’t as they see it as they paid in expecting it back where I see it as paying in to support those that need it.
So I have two bosses one is amazing and very progressive and has never done wrong by their 6 employees. The other is not so much progressive and is soon to retire. He is selling his house for £500k, has lots in savings already and is taking his state pension because, and I quote “ I paid in so it’s mine”, now I can’t fathom this behaviour as I don’t want more than I need and would happily not take money if I can support myself.
Alas, these are the people that vote so we are fucked.
Sweet jesus. How is this not some kind of hyper mega ultra fraud?
the primary shareholders of a company can usually do whatever they please (as they should in the case of some proprietorship) as such can sell whatever assets for whatever price.
I have no idea and it seems insane to me.
I was looking for the same thing in my country, UK, thinking we can’t be as bad as America, but nope many of the companies that have died during my life have been due to LBOs. The world is insane and I don’t see how we can change it.
In the UK I learnt that Asda one of our largest supermarkets is in a similar place due to two brothers doing an LBO to buy it. Now it’s saddled with debt meaning it won’t be able to innovate like Tesco or Sainsbury’s and thus will likely just bleed customers. Makes me wonder why these two brothers with more money than God would want to carry on, like I literally can’t comprehend wanting more than you need. Perhaps I have different motivations as I see time as my most precious asset and will earn less money than I could just for the easier life of being able to chill more and do the things I like.
It is insane. You’re not crazy, or at least if you are we can be crazy together because I also think the whole thing is rotten to the core.
It’s pretty disgusting what the borgeousie get up to and away with. The whole world is broken. How we have decided society is going to work and run is all one big collective illusion anyways; we might as well make the mirage nicer for the majority of us humans instead of scrabbling like crabs climbing over one another to get to the top.
Anyways, I think part of the problem is once you see the illusion there isn’t much of anything to do about it as an individual because there’s so much going on out of your control.
I think that’s a big part of why we’re seeing more anxiety and depression than ever - because we know how we live (particularly in the west but really almost everywhere) is not sustainable, destroys the environment and causes suffering on a global scale but we keep dutifully existing quietly in the system as the cogs we are.
I like all the stuff I have, I like my car and house and standard of living but I don’t know if it would be feasible for the whole world to live like me and I’m not even rich or that well off. That’s the real crazy part. I have some privilege, I know I’m at least better off than half of my fellow Americans … But still I am just a proletariat like every other person working for wages.
Because bankers buy politicians and if people complain they buy news coverage to call the naysayers socialists
What I don’t understand about the whole thing is who ends up holding the bag of all that debt?
Like banks that lend them billions must be intelligent enough to know how private equity takeovers like this work. So if they lend them money, they surely would want to get that off their books asap. But who do they sell it to? I can’t imagine there is any type of reinsurance for this, since insurance providers should know even better.
I imagine some of the debt is to employees and small contractors, but can that really account for such a massive sum?
Alot of debt gets bundled into bonds or other investment vehicles and sold. So small retail investors, retirement funds, etc end up holding the bag. Sometimes the banks lose, but they can take tax write offs and if the loses are too great, they can often get bailed out by the government.
Most debts are owned by the banks and the banks eat it. Then they have to make up the money somewhere else, so the costs go to the next round of borrowers, who then have to charge higher prices, so in the end we the consumer end up paying for it.
Companies are valued by earnings-per-share, independent of the assets. So if the P/E ratio is too low the company costs less than its assets and it pays off to sell the parts.
https://en.m.wikipedia.org/wiki/Price–earnings_ratio
In this case I heard a rumor that Amazon did it to dominate the toy market, so losses could have been acceptable.
So the Equity Holders (The Private Equity firms) were largely shielded from risk as they had taken out billions in dividends and they had a small equity state relative to the debt meaning their downside was limited.
The creditors (large banks) were left holding the bag, but they’d had years of interest payments so they wrote off the rest and likely still made some profit.
Employees, suppliers, and landlords. Employees lose their jobs, suppliers get pennies on the dollar for what they’re owed and landlords might have got some money but still not all.
So in short it was the banks, but don’t forget they had years of interest payments and after all they took the risk.
Well, I mean, banks kind of ‘invent’ the money which they hand out as loans…so what do they care, really?
When the pile of bad loans gets to big, they sell those bundled as loot boxes to other banks. When that pile starts stinking too much, they are too big to fail and get bailed out. That’s the circle of life 🪇🎶
Welcome to the house of cards that is globalisation and capitalism.
So we make interest illegal and the whole scam falls apart, got it.
and if you do that most of the economy fails because no one wants a bond that does nothing
The current economy sucks anyway. Houses as investments, line-go-up disposable consumerism, rent-seeking, it’s all fucked if you aren’t born on top.
seems fine for anyone that already has a house, like everyone should (for hundreds of years)
Sadly the only way is a lot more Luigi’s. If more CEO’s start getting wigged off maybe they’ll lobby for change.
Just sad that most people have it just good enough to not want to risk prison forever to murder someone, although if I could get away with it I’d have no issue in pulling the trigger on these ghouls.
The banks can also technically short the stock as well once the buyout was public, knowing how shit the deal was they can make money on the downside at the expense of all the pensions, 401ks etc that had initially bought the stock. There also isnt a limit that prevents shorting the stock more than shares are in existence. Hence why the gamestop situation was close to breaking the whole stock market a few years back when they started turning everything around for the companies bottom line. With the stock now able to make it think a bout a billion more shares over time the out for the short side has been sort of given without completely nuking the market. But as when the shares are diluted is up to the board it allows gamestop to take advantage of the short side to create more cash on hand for themselves threw timing their market offerings to coincide with when swaps that are housing those shorts come due. In the toys r us case the executives and board were happy to take their golden parachute from the buyout and let ordinary people’s pensions and 401ks carry the bag for them in the form of the stock going to zero and eventually being delisted from the market.
Not sure this applies here as it was a private buyout meaning that there would be no stock to short.
They could have shorted it before the buyout to get a better deal, but the banks didn’t buy it the just lent the money.
Also shorting before could be seen as insider trading, right? Not that something being illegal means it wouldn’t happen, but feels like that would be hard to hide.
landlords might have got some money but still not all.
This is assuming that the landlords aren’t also the private equity companies as well. So far as I can tell in long term care/assisted living/skilled nursing facilities, the same parent company owns everything, but the food branch is separate from the nursing branch, is separate from the physical rehabilitation branch, is separate from the admin services, and since they are all separate from the building branch, they are all operating “at a loss since” they have employees to pay. All the money goes to the building branches and everyone else gets told to do more with less.
Time to kill private equity……with crippling regulation and accountability of course
Nah just make the rich people pay their taxes. Then they won’t have money for stupid shit like this
One of the reasons they have so much money is the financial trickery that private equity employs
Not when you live in a country where private equity basically owns the government.
Eddie Lampert set the gold standard for corporate raiding in the 21st century when he orchestrated the Sears/KMart merger and then spent the next 18+ years liquidating all of Sears Holdings fixed assets.
Drowning the company in the bathtub on one hand while on the other, constantly crying to anyone who would listen about the struggles of retail. Buying up the retailers debt to create the public image of a benevolent shareholder who just wanted to offer lifeline after lifeline.
It took a lot longer than some of the smaller private equity takeovers. The combined organization was enormous at the time of the merger in 2004 and still very much financially viable. It’s even possible that Lampert intended to make an earnest go at the retail business initially. Although I kind of doubt it. Either way, at some point he figured it was more profitable for him to slowly liquidate the business than continue trying to compete in a harsh retail environment.
It took years for creditors to figure out what was happening and the general public never really caught on. Lampert is a greedy bastard but I have to admire his incredibly patient handling of that whole situation, which was honestly brilliant.
20 years later, Sears and KMart have gone the way of Montgomery Ward, even if their websites are still functioning. Tens of thousands of people lost their jobs and Eddie Lampert is far wealthier than he was when he started.
Sears could have been what Amazon is today. Hell, it the 19th century, it WAS was Amazon is today. But the focus is so often on financial trickery over actual sound business practices
They told US TARGET killed Geoffrery!!!
Target ended up getting the rights to the brand didn’t they?
What happened to Babies 'R Us? The one near me where we registered for our oldest got turned into a trampoline park. We took him there for his 9th birthday a couple weeks ago.
It’s a cycle I can describe, but cannot understand. A business has some minor decline in sales, or profits, or whatever. Private equity firms convince one group of people this is the biggest disaster, and the company is ruined forever, hardly worth anything. Simultaneously, they convince a second group of people that the company has a strong business model, and will recover soon.
The second group lends the company a ton of money to buy itself from the first group of people, for the private equity firm. Now, the private equity firm tries to make a temporary spike in value, pay themselves large dividends, and sell the (now actually, fundamentally broken) company for as much as they can.
The original shareholders lose. The employees of the business lose. The banks (or their insurance company) lose. Private equity wins.
My lack of understanding is, if I were a bank, I would spot this scam either the first, or second time it happens. Next time Mitt Romney came to ask me for ten billion dollars, I would tell him to pound sand. How has it taken actual professional bankers hundreds of times to (still not) see the cycle?
Likewise, the insurance companies backing some of these loans must know they’ve lost billions on this. Why haven’t they done anything?
The banks get paid first. As long as the company’s assets are large enough, they work with the PE firm to strip anything of value to repay the loans, the the PE firm walks away with whatever’s left.
This kind of buyout should be made illegal.
Yeah, the term “venture capitalist” is very negative in my mind because of how they destroy companies from the inside out to profit themselves. Fuck them.
Does the term “venture capitalist” refer to these types of activities? I thought that was more about funding startups (like in Silly Con Valley) and this was more private equity holders.
Or are they two sides of the same card?
I’m not sure honestly, I know venture capitalists buy companies usually with the intention of expanding or helping grow, but lately it seems like they pass around their debt, force them to bankrupt, liquidate and kill it.
Venture capitalism is about creating a monopoly by operating at a massive loss until you can jack up prices without competition
Kinda like how Uber and Lyft put cab companies out of business and then their prices skyrocketed?
I think you’re looking for the term vulture capitalism.
A victim of the good ol leveraged buyout which should be fucking illegal right alongside stock buybacks.
I read something about the birth of these private Equity firms sometime in the late 70s or early '80s when a firm bought out this other productive firm and loaded them up with debt, paid themselves every which way they could, sold off any profitable parts of the company, then declared bankruptcy and stiffed everybody else walking away with a boatload of cash, unemployed workforces, and razed Pension funds.
We have been celebrating this type of behavior for decades now, Behavior I think exemplified in Monty Python’s skits of the pirate building seizing the other buildings like it was a pirate ship.
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).
