Private Equity Fucks Toys R Us

[TSwizzle]

So, you ask yourself should I a) operate it, b) sell it to someone who wants to operate it (in actuality sell it to the highest bidder regardless of what they want to do with it) or c) liquidate it.

If the answer comes back "c) liquidate it" think about what that means. That asset must not be creating much value in its current use. In the case of a toy store, it means I am willing to sell the inventory at some fire sale price and eat all the other sunk costs so I can have some bricks and mortar real estate to sell. That real estate may be worth more than the ongoing business. Perhaps it is prime retail real estate that would be worth being deployed into some other use. The whole process directs valuable assets to better meeting human wants and needs. This is called "progress".

Watch for Sears (and K-Mart) going down soon.

 

[Jon Osterman]

And how do you figure that the employees continuing to work for Toys R Us is to the greatest benefit for society (employees included), vs those employees doing something else? How do you figure that society is better served having that many people selling toys?

I don't per se. But the issue is that you (and the asset strippers) do not either. This is not taken into account. There is no measure of the disruption caused to people's lives entering the calculation. This means that, if you want to go down the "greatest benefit to society" route that the calculations used for when to liquidate a company are inherently flawed.

If we had your attitude, the economy would stagnate. We'd still be protecting the jobs of candle makers and buggy whip manufacturers (or perhaps steel, aluminum, and coal jobs, as Trump is so concerned about).

No - it would only do so if the benefits to investors were not weighted into the calculation at all. Sure, caring about your workforce and the lives of ordinary people might slow down economic growth somewhat, but it may also do good things like decrease inequality while maintaining moderate growth. Unrestrained growth without any safeguards or concern for the society we live in is, in my opinion, dangerous.

 

[Horatio Parker]

No - it would only do so if the benefits to investors were not weighted into the calculation at all. Sure, caring about your workforce and the lives of ordinary people might slow down economic growth somewhat, but it may also do good things like decrease inequality while maintaining moderate growth. Unrestrained growth without any safeguards or concern for the society we live in is, in my opinion, dangerous.

Following some of the financial blogs, I read that the recent jump in GDP is partly weather related. So we goose GDP spending $161B to rebuild hurricane damage. Growth! Progress!

You can work to build or work to destroy; both are economic growth, but don't contribute equally to public good.

That's what specious about dismal's and Auxlus' arguments. That this is good for everybody.

As for running the company for the employees - why is that not a consideration? Granted, the employees are only one stakeholder out of many, but they are a stakeholder. Instead, those whose commitment to the company is most liquid call the shots.

 

[dismal]

That's what specious about dismal's and Auxlus' arguments. That this is good for everybody.

Maybe you could try responding to arguments someone is actually making? I don't recall saying this sort of progress was "good for everybody" or even implying it.

Progress wasn't good for the buggy whip makers.

Going bankrupt isn't good for the equity investors or the debtors. But the cost of propping up failing businesses is higher. The cost of keeping resources tied up in less valuable uses is higher.

 

[laughing dog]

$460 million in operating profit while having how much in assets on its balance sheet? That number tells us nothing without knowing how big the balance sheet is.

If they have, say, 10 billion in assets (or more), and their operating profit is falling (as seems to be the case for 2017), then that is not very good at all.

There is a thing called opportunity cost: the assets may be redeployed and earn a higher return with some other use. That has nothing to do with private equity or debt but rather the company's poor return on assets.

You are missing the point about the situation. Before the debt-laden acquisition, Toys R Us was not in danger of liquidation. Right after the debt-laden acquisition, it is being liquidated. If you look at this as an event study, a reasonable conclusion is that it was the debt-laden acquisition that was the cause.

The low return on assets for an otherwise profitable business suggest a reallocation or restructuring of those assets by the business, not liquidation.

 

[Jimmy Higgins]

No - it would only do so if the benefits to investors were not weighted into the calculation at all. Sure, caring about your workforce and the lives of ordinary people might slow down economic growth somewhat, but it may also do good things like decrease inequality while maintaining moderate growth. Unrestrained growth without any safeguards or concern for the society we live in is, in my opinion, dangerous.

Following some of the financial blogs, I read that the recent jump in GDP is partly weather related. So we goose GDP spending $161B to rebuild hurricane damage. Growth! Progress!

You can work to build or work to destroy; both are economic growth, but don't contribute equally to public good.

That's what specious about dismal's and Auxlus' arguments. That this is good for everybody.

As for running the company for the employees - why is that not a consideration? Granted, the employees are only one stakeholder out of many, but they are a stakeholder. Instead, those whose commitment to the company is most liquid call the shots.

And I keep whining about the debt portion of it. Toys R Us isn't profitable now because the idiots who bought it didn't have the money to buy it in the first place. The company is in a field that is getting tougher and tougher to compete in, so the idea of rapid growth to pay off the debt should never have been considered. Toys R Us is gone because the new owners couldn't afford it... and no other significant reason.

But we have our dismals out there that think nothing else but what is in the best interests of idiots that buy companies with other people's money.

 

[Playball40]

And how much did those "investors" pull off the top for 'management fees'? These fuckers overvalue the purchase, get a bank to leverage the hell out the company while putting little of their own equity in.....then pay their equity back immediately in the form of obscene 'management' fees while bleeding the actual core company. Then when it simply gets too top heavy to stand, they liquidate (or in some cases take the company). It's a pattern seen over and over. Vulture capitalists.

No - it would only do so if the benefits to investors were not weighted into the calculation at all. Sure, caring about your workforce and the lives of ordinary people might slow down economic growth somewhat, but it may also do good things like decrease inequality while maintaining moderate growth. Unrestrained growth without any safeguards or concern for the society we live in is, in my opinion, dangerous.

Following some of the financial blogs, I read that the recent jump in GDP is partly weather related. So we goose GDP spending $161B to rebuild hurricane damage. Growth! Progress!

You can work to build or work to destroy; both are economic growth, but don't contribute equally to public good.

That's what specious about dismal's and Auxlus' arguments. That this is good for everybody.

As for running the company for the employees - why is that not a consideration? Granted, the employees are only one stakeholder out of many, but they are a stakeholder. Instead, those whose commitment to the company is most liquid call the shots.

And I keep whining about the debt portion of it. Toys R Us isn't profitable now because the idiots who bought it didn't have the money to buy it in the first place. The company is in a field that is getting tougher and tougher to compete in, so the idea of rapid growth to pay off the debt should never have been considered. Toys R Us is gone because the new owners couldn't afford it... and no other significant reason.

But we have our dismals out there that think nothing else but what is in the best interests of idiots that buy companies with other people's money.

 

[Loren Pechtel]

I have a big problem here:

When a business goes under due to an inability to service the debt the result is a transfer of ownership, not liquidation. The debtors get more taking over a going concern than liquidating it.

The only time liquidation happens is when the liquidation value is higher than the profit the enterprise can make.

 

[Jimmy Higgins]

I have a big problem here:

When a business goes under due to an inability to service the debt the result is a transfer of ownership, not liquidation. The debtors get more taking over a going concern than liquidating it.

The only time liquidation happens is when the liquidation value is higher than the profit the enterprise can make.

I agree, you have a big problem here.

 

[dismal]

I have a big problem here:

When a business goes under due to an inability to service the debt the result is a transfer of ownership, not liquidation. The debtors get more taking over a going concern than liquidating it.

The only time liquidation happens is when the liquidation value is higher than the profit the enterprise can make.

I agree, you have a big problem here.

Yeah, it's called "knowledge". How dare someone one substitute it for emotional rants at a website dedicated to emotional ranting.

 

[laughing dog]

I have a big problem here:

When a business goes under due to an inability to service the debt the result is a transfer of ownership, not liquidation. The debtors get more taking over a going concern than liquidating it.

The only time liquidation happens is when the liquidation value is higher than the profit the enterprise can make.

I agree, you have a big problem here.

Yeah, it's called "knowledge".

Someone with knowledge would know that LP is wrong. The correct statement is that the only time liquidation happens when the liquidation value is higher and the creditors are demanding payment and it is higher than the expected profit the enterprise is expected to make.

How dare someone one substitute it for emotional rants at a website dedicated to emotional ranting.

Irony noted.

 

[Alcoholic Actuary]

$460 million in operating profit while having how much in assets on its balance sheet? That number tells us nothing without knowing how big the balance sheet is.

If they have, say, 10 billion in assets (or more), and their operating profit is falling (as seems to be the case for 2017), then that is not very good at all.

There is a thing called opportunity cost: the assets may be redeployed and earn a higher return with some other use. That has nothing to do with private equity or debt but rather the company's poor return on assets.

Yes that is a reason for liquidation. What does that have to do with incompetent ownership over-leveraging with no viable business plan?

aa

 

[Alcoholic Actuary]

I have a big problem here:

When a business goes under due to an inability to service the debt the result is a transfer of ownership, not liquidation. The debtors get more taking over a going concern than liquidating it.

The only time liquidation happens is when the liquidation value is higher than the profit the enterprise can make.

Yeah, lets don't be too hard on the people who put the business in that position in the first place. Just ruin all of their employees lives and be done with it.

aa

 

[dismal]

$460 million in operating profit while having how much in assets on its balance sheet? That number tells us nothing without knowing how big the balance sheet is.

If they have, say, 10 billion in assets (or more), and their operating profit is falling (as seems to be the case for 2017), then that is not very good at all.

There is a thing called opportunity cost: the assets may be redeployed and earn a higher return with some other use. That has nothing to do with private equity or debt but rather the company's poor return on assets.

Yes that is a reason for liquidation. What does that have to do with incompetent ownership over-leveraging with no viable business plan?

aa

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.

 

[Playball40]

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.

$460 million in operating profit while having how much in assets on its balance sheet? That number tells us nothing without knowing how big the balance sheet is.

If they have, say, 10 billion in assets (or more), and their operating profit is falling (as seems to be the case for 2017), then that is not very good at all.

There is a thing called opportunity cost: the assets may be redeployed and earn a higher return with some other use. That has nothing to do with private equity or debt but rather the company's poor return on assets.

Yes that is a reason for liquidation. What does that have to do with incompetent ownership over-leveraging with no viable business plan?

aa

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.

 

[Alcoholic Actuary]

$460 million in operating profit while having how much in assets on its balance sheet? That number tells us nothing without knowing how big the balance sheet is.

If they have, say, 10 billion in assets (or more), and their operating profit is falling (as seems to be the case for 2017), then that is not very good at all.

There is a thing called opportunity cost: the assets may be redeployed and earn a higher return with some other use. That has nothing to do with private equity or debt but rather the company's poor return on assets.

Yes that is a reason for liquidation. What does that have to do with incompetent ownership over-leveraging with no viable business plan?

aa

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

 

[Loren Pechtel]

I have a big problem here:

When a business goes under due to an inability to service the debt the result is a transfer of ownership, not liquidation. The debtors get more taking over a going concern than liquidating it.

The only time liquidation happens is when the liquidation value is higher than the profit the enterprise can make.

I agree, you have a big problem here.

How about addressing the issue rather than attacking me?

 

[Jimmy Higgins]

I have a big problem here:

When a business goes under due to an inability to service the debt the result is a transfer of ownership, not liquidation. The debtors get more taking over a going concern than liquidating it.

The only time liquidation happens is when the liquidation value is higher than the profit the enterprise can make.

I agree, you have a big problem here.

How about addressing the issue rather than attacking me?

I did in the OP. Bain et al’s debt financing to buy Toys R Us killed Toys R Us.

You want to bitch to Moody’s about it, go ahead.

 

[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.)

Excessive debt causes the business to get taken over by the debt holders but it remains in operation.

Locally, we see bankruptcy after bankruptcy with the big casinos. The only ones that are gone are ones that weren't bringing in much money and couldn't compete with the modern stuff.

 

[coloradoatheist]

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.)

Excessive debt causes the business to get taken over by the debt holders but it remains in operation.

Locally, we see bankruptcy after bankruptcy with the big casinos. The only ones that are gone are ones that weren't bringing in much money and couldn't compete with the modern stuff.

Yeah it looks like Toys R Us went through bankruptcy last year but couldn't handle what they settled. Now they want liquidation