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This is one of those situations where it once again shows that:
Selling property to rent it back should also be super illegal. Is there ever a time this makes sense. If you want to sell land to profit, close the fucking place, there’s no way it’ll suddenly be more profitable while renting.
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.
Sweet jesus. How is this not some kind of hyper mega ultra fraud?
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.
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?
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.
IIRC it was Mitt Romneys firm that did it to (technically after he left leadership, if i recall)
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.
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.
EA was down the path of being awful, long before that. But yeah...
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.
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.
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.
And the same thing is happening to hospitals all over the US, which should fucking terrify you.
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.
Careful now, they're about to classify criticism of capitalism terrorism.
TIL: stock buybacks were considered insider trading before Reagan made them legal
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.
A victim of the good ol leveraged buyout which should be fucking illegal right alongside stock buybacks.
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.
Yeah?
Isn't that the entire thing that private equity firms do? Buy up companies, sell all their assets to the private equity firm, then have them lease it all back for insane amount until it's bankrupt.
Makes a whole lot of short term profits, destroys the company and it's employees. No fucks given
Private equity firms are a cancer (amongst many cancers) on humanity
The actions taken by private equity companies seem very similar to those taken by organized crime syndicates when THEY take over a business
Odd, don't you think?
Hooray. Back to the slash and burn asset stripping of the 80's. Isn't capitalism great?
It isn't the only company to die this way. Sears was cellar boxed the same as toys r us. It was what was intended for gamestop but the whole wallstreetbets thing happened and prevented it.
The methods that they use to do this are crazy (installing a hostile executive, naked short selling, etc), the fact that they got caught while doing it to gamestop caused some crazy shit to be brought to light, and nearly wiped out the entire market
Did you know companies can take out loans to buy their own stock to raise the value.
Time to kill private equity…..with crippling regulation and accountability of course
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.
This has become a common thing. It's assumed brick-and-mortar is dying due to Amazon and Temu and such. It's not; they've been on that path for a long time, and the companies that were going to die to it have already gone. However, it is a popular perception.
Private Equity gets to use the popular perception as a cover for shady ass shit.
Shopko was a midwestern chain of department stores. In their final years, they typically staffed like three people for the whole store. It's not as big as a Super Walmart or anything, but it's a sizable store in any case. They had one person on checkout, one in customer service, and one more running around the rest of the store. Maybe one or two more, but suffice it to say, it was deeply understaffed and it felt like it.
Behind the scenes, private equity had been taking out loans against the store's real estate, gave themselves big bonuses with that money, and left the company as a whole with unaffordable debt. Also, the money being taken out at the register for sales taxes wasn't actually being paid to the state.
Shopko was murdered. There is a standalone optical division that still operates, but the rest is gone.
This kind of buyout should be made illegal.
Is this why the one in my area has been closed, but hasn't been turned into something else? It even still has the signage.
"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