Private Equity Fucks Toys R Us

[Jimmy Higgins]

They DO NOT. They only put up a small percentage of their own money and use bank $$ for the rest. Then immediately pull their cash out while financially raping the business. The operation cannot sustain it since all their profit goes to interest payments instead of operations, growth and development so it starts suffering. Eventually, usually after many years of interest payments, they force the company into bankruptcy or liquidation. These vulture capitalists made themselves whole before the first year went by.

You're lumping bankruptcy (which is common in the situation) with liquidation (which is not.)

What is with you LP? You always do this. Someone points out a forest and you shrug and say "No, there is a brook in there."

Toys R Us failed because of the leveraged takeover. That is the point. Not dealing minutia of liquidation over bankruptcy. Toys R Us is no longer because Bain Capital et al took on over $5 billion in debt to "purchase" Toys R Us. They killed it.

 

[dismal]

Over-leveraging does not cause liquidation. Over leveraging causes ownership restructuring. Those equity guys you hate so much lose all their money. Good times.

Liquidation occurs when the assets are worth more in some other use than in their current use.

We went through this earlier in the thread.

Yes, I'm just wondering why. The thread is not as much about what the proceedings are at the end of life of a company - it's about how we got there and who is responsible.

We all know it's not the receiver or liquidator's fault that everyone loses their job.

aa

I think the main reason toys r us is no longer a viable entity is this whole internet thingie. So, I blame Al Gore.

 

[dismal]

They DO NOT. They only put up a small percentage of their own money and use bank $$ for the rest. Then immediately pull their cash out while financially raping the business. The operation cannot sustain it since all their profit goes to interest payments instead of operations, growth and development so it starts suffering. Eventually, usually after many years of interest payments, they force the company into bankruptcy or liquidation. These vulture capitalists made themselves whole before the first year went by.

You're lumping bankruptcy (which is common in the situation) with liquidation (which is not.)

What is with you LP? You always do this. Someone points out a forest and you shrug and say "No, there is a brook in there."

Toys R Us failed because of the leveraged takeover. That is the point. Not dealing minutia of liquidation over bankruptcy. Toys R Us is no longer because Bain Capital et al took on over $5 billion in debt to "purchase" Toys R Us. They killed it.

Cripes, this has been explained to you several times already. In a reorganization bankruptcy *poof* the debt goes away. If the business is viable without debt that's exactly what it becomes - a business without debt.

For a liquidation you need an explanation for why the business is better off not existing that has nothing at all to do with debt.

 

[Alcoholic Actuary]

Over-leveraging does not cause liquidation. Over leveraging causes ownership restructuring. Those equity guys you hate so much lose all their money. Good times.

Liquidation occurs when the assets are worth more in some other use than in their current use.

We went through this earlier in the thread.

Yes, I'm just wondering why. The thread is not as much about what the proceedings are at the end of life of a company - it's about how we got there and who is responsible.

We all know it's not the receiver or liquidator's fault that everyone loses their job.

aa

I think the main reason toys r us is no longer a viable entity is this whole internet thingie. So, I blame Al Gore.

Nice. Why can't toys r us do the internet thingie too?

aa

 

[dismal]

I think the main reason toys r us is no longer a viable entity is this whole internet thingie. So, I blame Al Gore.

Nice. Why can't toys r us do the internet thingie too?

aa

I dunno. The same reason lots of bricks and mortar incumbents missed the transition to e-commerce? The same reason the wire and cable guys missed the transition to fiber optics? The same reason the whale oil fleets and renderers missed the transition to petroleum drilling and refining? The same reason the horse farms and buggy whip makers didn't become the masters of internal combustion engines?

It's not what they were good at? Their incumbent culture was not quick to adapt to the new technology? They didn't appreciate what effect the technological changes where going to have on their business model? That sort of thing?

 

[Jimmy Higgins]

I think the main reason toys r us is no longer a viable entity is this whole internet thingie. So, I blame Al Gore.

Nice. Why can't toys r us do the internet thingie too?

aa

Toys R Us made $460 million in pre-tax profit... clearly they are surviving the Internet.

 

[dismal]

I think the main reason toys r us is no longer a viable entity is this whole internet thingie. So, I blame Al Gore.

Nice. Why can't toys r us do the internet thingie too?

aa

Toys R Us made $460 million in pre-tax profit... clearly they are surviving the Internet.

Pretax profit not necessarily = cash. But in any case you are still lacking a reason for why it was liquidated. "Debt" is not a reason.

"$460 million of annual cash flow" would be a reason not to liquidate something. Of course, unless the liquidation and redeployment of assets into other uses generated >460 million of annual cash.

For example, if they tied up $100 billion in real estate to generate $460 million of cash, the returns on keeping their assets in that use would be pretty bad and liquidation might be a better option.

Their cashflow statements suggests their cashflow situation was not as rosy as you portray. Negative cash from operations in the most recent year, and $200 million of capital expense per year to get there.

https://csimarket.com/stocks/cashflow.php?code=TOYRS&annual

 

[Axulus]

Toys R Us made $460 million in pre-tax profit... clearly they are surviving the Internet.

Pretax profit not necessarily = cash. But in any case you are still lacking a reason for why it was liquidated. "Debt" is not a reason.

"$460 million of annual cash flow" would be a reason not to liquidate something. Of course, unless the liquidation and redeployment of assets into other uses generated >460 million of annual cash.

For example, if they tied up $100 billion in real estate to generate $460 million of cash, the returns on keeping their assets in that use would be pretty bad and liquidation might be a better option.

Their cashflow statements suggests their cashflow situation was not as rosy as you portray. Negative cash from operations in the most recent year, and $200 million of capital expense per year to get there.

https://csimarket.com/stocks/cashflow.php?code=TOYRS&annual

Dismal, stop trying to shake Jimny's religious faith that leveraged buyouts are evil! Religious beliefs are sacred!

 

[Jimmy Higgins]

Toys R Us made $460 million in pre-tax profit... clearly they are surviving the Internet.

Pretax profit not necessarily = cash. But in any case you are still lacking a reason for why it was liquidated. "Debt" is not a reason.

"$460 million of annual cash flow" would be a reason not to liquidate something. Of course, unless the liquidation and redeployment of assets into other uses generated >460 million of annual cash.

For example, if they tied up $100 billion in real estate to generate $460 million of cash, the returns on keeping their assets in that use would be pretty bad and liquidation might be a better option.

Their cashflow statements suggests their cashflow situation was not as rosy as you portray. Negative cash from operations in the most recent year, and $200 million of capital expense per year to get there.

https://csimarket.com/stocks/cashflow.php?code=TOYRS&annual

Dismal, stop trying to shake Jimny's religious faith that leveraged buyouts are evil! Religious beliefs are sacred!

Oh, this is religion now?

Toys R Us, $11.5 billion in sales in 2016. $460 million pre-tax profit. $500+ million in financing for debt erased the profit.

The cost of the leveraged debt (increased as ratings agencies didn't think they could handle it) and the inability to pay it back (can only kick the can so long)...

...it is religion to see that the amount of debt they socked onto this corporation isn't the primary reason Toys R Us will no longer exist.

If not for the huge debt payments, Toys R Us would be profitable and wouldn't be getting liquidated. But hey, religion.

 

[Loren Pechtel]

They DO NOT. They only put up a small percentage of their own money and use bank $$ for the rest. Then immediately pull their cash out while financially raping the business. The operation cannot sustain it since all their profit goes to interest payments instead of operations, growth and development so it starts suffering. Eventually, usually after many years of interest payments, they force the company into bankruptcy or liquidation. These vulture capitalists made themselves whole before the first year went by.

You're lumping bankruptcy (which is common in the situation) with liquidation (which is not.)

What is with you LP? You always do this. Someone points out a forest and you shrug and say "No, there is a brook in there."

Toys R Us failed because of the leveraged takeover. That is the point. Not dealing minutia of liquidation over bankruptcy. Toys R Us is no longer because Bain Capital et al took on over $5 billion in debt to "purchase" Toys R Us. They killed it.

You just want it to be due to the leveraged takeover--and are ignoring what we are saying about the situation.

 

[Loren Pechtel]

Dismal, stop trying to shake Jimny's religious faith that leveraged buyouts are evil! Religious beliefs are sacred!

Oh, this is religion now?

Toys R Us, $11.5 billion in sales in 2016. $460 million pre-tax profit. $500+ million in financing for debt erased the profit.

The cost of the leveraged debt (increased as ratings agencies didn't think they could handle it) and the inability to pay it back (can only kick the can so long)...

...it is religion to see that the amount of debt they socked onto this corporation isn't the primary reason Toys R Us will no longer exist.

If not for the huge debt payments, Toys R Us would be profitable and wouldn't be getting liquidated. But hey, religion.

Did you even look at the financials he linked? Awash in red ink.

 

[Axulus]

Dismal, stop trying to shake Jimny's religious faith that leveraged buyouts are evil! Religious beliefs are sacred!

Oh, this is religion now?

Toys R Us, $11.5 billion in sales in 2016. $460 million pre-tax profit. $500+ million in financing for debt erased the profit.

The cost of the leveraged debt (increased as ratings agencies didn't think they could handle it) and the inability to pay it back (can only kick the can so long)...

...it is religion to see that the amount of debt they socked onto this corporation isn't the primary reason Toys R Us will no longer exist.

If not for the huge debt payments, Toys R Us would be profitable and wouldn't be getting liquidated. But hey, religion.

As has been explained multiple times, if it was profitable enough the bondholders would be happy to become the new equity holders, wiping out the debt.

A lot can also happen in a year. They had really bad 2017 holiday sales.

 

[dismal]

Dismal, stop trying to shake Jimny's religious faith that leveraged buyouts are evil! Religious beliefs are sacred!

Oh, this is religion now?

Toys R Us, $11.5 billion in sales in 2016. $460 million pre-tax profit. $500+ million in financing for debt erased the profit.

The cost of the leveraged debt (increased as ratings agencies didn't think they could handle it) and the inability to pay it back (can only kick the can so long)...

...it is religion to see that the amount of debt they socked onto this corporation isn't the primary reason Toys R Us will no longer exist.

If not for the huge debt payments, Toys R Us would be profitable and wouldn't be getting liquidated. But hey, religion.

Do you need an explanation of what a cash flow statement showing negative cash from operations and ongoing capital expenditures means?

Or will you just be repeating your mantra?

 

[Alcoholic Actuary]

I think the main reason toys r us is no longer a viable entity is this whole internet thingie. So, I blame Al Gore.

Nice. Why can't toys r us do the internet thingie too?

aa

I dunno. The same reason lots of bricks and mortar incumbents missed the transition to e-commerce? The same reason the wire and cable guys missed the transition to fiber optics? The same reason the whale oil fleets and renderers missed the transition to petroleum drilling and refining? The same reason the horse farms and buggy whip makers didn't become the masters of internal combustion engines?

It's not what they were good at? Their incumbent culture was not quick to adapt to the new technology? They didn't appreciate what effect the technological changes where going to have on their business model? That sort of thing?

Good reasons, but the question was mostly rhetorical (I don't have the answer either).

But why would the VC guys go into such debt to take over a company if they didn't think they could reverse course on some of the things you mentioned and return it to a viable company? (again rhetorical)

There are decision making people at the core of every cause you listed above.

aa

 

[Harry Bosch]

I dunno. The same reason lots of bricks and mortar incumbents missed the transition to e-commerce? The same reason the wire and cable guys missed the transition to fiber optics? The same reason the whale oil fleets and renderers missed the transition to petroleum drilling and refining? The same reason the horse farms and buggy whip makers didn't become the masters of internal combustion engines?

It's not what they were good at? Their incumbent culture was not quick to adapt to the new technology? They didn't appreciate what effect the technological changes where going to have on their business model? That sort of thing?

Good reasons, but the question was mostly rhetorical (I don't have the answer either).

But why would the VC guys go into such debt to take over a company if they didn't think they could reverse course on some of the things you mentioned and return it to a viable company? (again rhetorical)

There are decision making people at the core of every cause you listed above.

aa

The company failed because management just made terrible decisions. They decided to focus on their real estate and locations. They thought that hiring the lowest wage workers (even Walmart was sucking away their employees with higher salaries), having a terrible online system, loose inventory controls, large box, poor marketing and etc. would be offset by their superior locations. Then with all their real estate, they leveraged their properties more to offset cash flow suck from suppliers getting nervous which increased their leverage even more. A companies success/failure is mostly determined by the decisions made by management/ownership - and Toys R US had miserable management. I feel bad for the employees, but they will be in much better shape looking for a better company.

 

[repoman]

I am asking this question from complete ignorance of facts, but what if the venture capitalists in this (or another) case have a conflict of interest by owning a lot of Amazon, Target or Walmart stock or something else that makes them more money if Toys R Us closes? I mean other than liquidating the property...

I assume that they legally needed to be transparent about all conflicts of interest.

 

[Alcoholic Actuary]

I dunno. The same reason lots of bricks and mortar incumbents missed the transition to e-commerce? The same reason the wire and cable guys missed the transition to fiber optics? The same reason the whale oil fleets and renderers missed the transition to petroleum drilling and refining? The same reason the horse farms and buggy whip makers didn't become the masters of internal combustion engines?

It's not what they were good at? Their incumbent culture was not quick to adapt to the new technology? They didn't appreciate what effect the technological changes where going to have on their business model? That sort of thing?

Good reasons, but the question was mostly rhetorical (I don't have the answer either).

But why would the VC guys go into such debt to take over a company if they didn't think they could reverse course on some of the things you mentioned and return it to a viable company? (again rhetorical)

There are decision making people at the core of every cause you listed above.

aa

The company failed because management just made terrible decisions. They decided to focus on their real estate and locations. They thought that hiring the lowest wage workers (even Walmart was sucking away their employees with higher salaries), having a terrible online system, loose inventory controls, large box, poor marketing and etc. would be offset by their superior locations. Then with all their real estate, they leveraged their properties more to offset cash flow suck from suppliers getting nervous which increased their leverage even more. A companies success/failure is mostly determined by the decisions made by management/ownership - and Toys R US had miserable management. I feel bad for the employees, but they will be in much better shape looking for a better company.

Yes, that's entirely my point.

Some folks around here are very quick to point out that if an employee screws up or commits the sin of not returning value to the company greater than her salary, she deserves to be fired. They don't consider the other side of the equation - that maybe ownership and management aren't doing enough to increase the value of the company beyond everyone's salary expense.

These people take control of the plane and fly it into a mountain and kill everyone on board and they will blame the mountain for the deaths.

Is the CEO of Toys R Us going to have difficulty finding a job again (assuming he doesn't just retire)? Is Bain Capital going out of business? Of course not, but thousands of employees are going to lose their jobs and have terrible difficulty finding employment again, and PEOPLE were the cause of that - not circumstances.

aa

 

[Harry Bosch]

The company failed because management just made terrible decisions. They decided to focus on their real estate and locations. They thought that hiring the lowest wage workers (even Walmart was sucking away their employees with higher salaries), having a terrible online system, loose inventory controls, large box, poor marketing and etc. would be offset by their superior locations. Then with all their real estate, they leveraged their properties more to offset cash flow suck from suppliers getting nervous which increased their leverage even more. A companies success/failure is mostly determined by the decisions made by management/ownership - and Toys R US had miserable management. I feel bad for the employees, but they will be in much better shape looking for a better company.

Yes, that's entirely my point.

Some folks around here are very quick to point out that if an employee screws up or commits the sin of not returning value to the company greater than her salary, she deserves to be fired. They don't consider the other side of the equation - that maybe ownership and management aren't doing enough to increase the value of the company beyond everyone's salary expense.

These people take control of the plane and fly it into a mountain and kill everyone on board and they will blame the mountain for the deaths.

Is the CEO of Toys R Us going to have difficulty finding a job again (assuming he doesn't just retire)? Is Bain Capital going out of business? Of course not, but thousands of employees are going to lose their jobs and have terrible difficulty finding employment again, and PEOPLE were the cause of that - not circumstances.

aa

Yep. It's not the worker's fault. Again, faulty management strategy did them in. It is true that one of the issues was that retail staff was not motivated and knowledgeable as some of their competitors. But that was another management strategy. They decided to pay their workers less. So, they saved a little on labor. But their better retail employers where hired away by competitors.

 

[dismal]

The company failed because management just made terrible decisions. They decided to focus on their real estate and locations. They thought that hiring the lowest wage workers (even Walmart was sucking away their employees with higher salaries), having a terrible online system, loose inventory controls, large box, poor marketing and etc. would be offset by their superior locations. Then with all their real estate, they leveraged their properties more to offset cash flow suck from suppliers getting nervous which increased their leverage even more. A companies success/failure is mostly determined by the decisions made by management/ownership - and Toys R US had miserable management. I feel bad for the employees, but they will be in much better shape looking for a better company.

Yes, that's entirely my point.

Some folks around here are very quick to point out that if an employee screws up or commits the sin of not returning value to the company greater than her salary, she deserves to be fired. They don't consider the other side of the equation - that maybe ownership and management aren't doing enough to increase the value of the company beyond everyone's salary expense.

These people take control of the plane and fly it into a mountain and kill everyone on board and they will blame the mountain for the deaths.

Is the CEO of Toys R Us going to have difficulty finding a job again (assuming he doesn't just retire)? Is Bain Capital going out of business? Of course not, but thousands of employees are going to lose their jobs and have terrible difficulty finding employment again, and PEOPLE were the cause of that - not circumstances.

aa

Generally in the private equity world when one of your investments goes bankrupt you lose all your money - this is considered "bad". It's hard to do worse.

 

[Alcoholic Actuary]

The company failed because management just made terrible decisions. They decided to focus on their real estate and locations. They thought that hiring the lowest wage workers (even Walmart was sucking away their employees with higher salaries), having a terrible online system, loose inventory controls, large box, poor marketing and etc. would be offset by their superior locations. Then with all their real estate, they leveraged their properties more to offset cash flow suck from suppliers getting nervous which increased their leverage even more. A companies success/failure is mostly determined by the decisions made by management/ownership - and Toys R US had miserable management. I feel bad for the employees, but they will be in much better shape looking for a better company.

Yes, that's entirely my point.

Some folks around here are very quick to point out that if an employee screws up or commits the sin of not returning value to the company greater than her salary, she deserves to be fired. They don't consider the other side of the equation - that maybe ownership and management aren't doing enough to increase the value of the company beyond everyone's salary expense.

These people take control of the plane and fly it into a mountain and kill everyone on board and they will blame the mountain for the deaths.

Is the CEO of Toys R Us going to have difficulty finding a job again (assuming he doesn't just retire)? Is Bain Capital going out of business? Of course not, but thousands of employees are going to lose their jobs and have terrible difficulty finding employment again, and PEOPLE were the cause of that - not circumstances.

aa

Generally in the private equity world when one of your investments goes bankrupt you lose all your money - this is considered "bad". It's hard to do worse.

Yes. So why would 3 large private equity firms agree to go into significant debt in order to buy a 'failing' company that they did not bother to turn around?

aa