TIL that Toys R Us wasn't killed by competition, but by private equity companies

This is one of those situations where it once again shows that:

Private equity stakes in companies are bullshit and at the very least need to be utterly regulated to hell and back.
More specifically, it should not be allowed to buy a company "on debt". If you want to buy somebody, you need cash-on-hand to do that. That's the only allowed form.

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.
- Not defending PE, but there are situations where this type of thing would make sense. If the rates were low enough a company could cash out it's property value using something like this and use the cash for an expansion, to make a moonshot investment, or maybe as a last ditch to survive in a downturn.
  That's not what's happening here, but turning real assets to cash through debt to then invest in the business is a decent tactic.

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.
- Because bankers buy politicians and if people complain they buy news coverage to call the naysayers socialists
- 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.
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.
- 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%E2%80%93earnings_ratio
  In this case I heard a rumor that Amazon did it to dominate the toy market, so losses could have been acceptable.
- 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.
IIRC it was Mitt Romneys firm that did it to (technically after he left leadership, if i recall)
- Impossible! Mitt Romney is one of the good conservatives!
  /s because tens of millions of liberals actually believe that it's true.
- Just saw this after making my comment. I believe it was.
  Bain Capital
- Not technically, it was years after he left Bain.
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 🖕
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.
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.
- The hypersane smart get called crazy by conformists.

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.
- If EA gets bled dry by private equity, it'll probably be the biggest company to go down that way ever.
- 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.
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.

And the same thing is happening to hospitals all over the US, which should fucking terrify you.

We should really restrain what private equity can invest in.

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.
- Nono its the best system. All others have failed. You cant have the American dream without capitalism.
  /LIES FROM FASCISTS
- 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
- The culture of consumption is the greatest threat to humanity.
  Capitalism, and even communism, are just means to that end.

TIL: stock buybacks were considered insider trading before Reagan made them legal

Is there anything that Reagan hasn't fucked?
- Whatever he didn't got fucked by Clinton.
- He died before Epstein Island was a thing, presumably.
- Your mom.
The entire investor community is filled with shitbags.

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.
- the same happens to most mortgages, namely income goes to the lender and you get a house.
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.
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.

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.

It was illegal, then Reagan changed that.
- Because of course it was Reagan.
- Well fuck … that’s even more depressing.
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 politicians~~ make 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?
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.

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?

Like in Goodfellas, cannibalizing their own community. Embezzle and steal everything you can, then torch the place for the insurance.
But in Goodfellas, the owner of the restaurant approaches the mafia and asks Paulie to "be a partner", so he can get Tommy to stop terrorizing the place AND running up tabs he has no intention of paying.
Imagine some short mafia type with a Napoleon complex walking around the Toys R Us aisles, knocking merchandise off the shelves while harassing kids and their mothers.
I betcha the equity firms approach with a silk tongue and Wall St technobabble jabberwocky. I know those CEO business types, the read their CEO magazines chock full of pseudoscience articles like, for example, determining a personality type via their handwriting style, the hooks and curves of their calligraphy. Corporate astrology, just as gullible to fancy jargon as the proverbial Man Down The Street.
- Nah. They have deluded themselves with ideas of "rescuing" the company. But they protect themselves financially first. Then they don't have the awareness to show that a business could have just made 1-2% a year forever instead of selling off assets for a chance at 4Xing their investment. They think its how life works. Take the big risk and never consider the costs as long as your ass is covered.
Capitalism is organized crime

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
I live in a place that suddenly became a fucking healthcare desert because of this shit. The local hospital network was bought by vulture capitalists who sold the real estate to themselves and then leased it back to the hospitals, racked up enormous debt almost entirely due to obscene bonuses they paid themselves, then declared bankruptcy. The hospitals are all closed now but the vulture capitalists have their cash and still own the real estate. I recently had to spend two days in the ER of a far-away hospital that has been swamped with the overflow, with my mom in a bed in the hallway for the entire fucking time. Muigi Langione is the thing to do.

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.

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.

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.
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.

Did you know companies can take out loans to buy their own stock to raise the value.

And now they want access to 401Ks

This kind of buyout should be made illegal.

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.

It’s a PE firm. It’s what they do.

Bloody parasites
PRIVATE EQUITY. PUBLIC ENEMY!

"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

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.

More like vulture capitalist.
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.

It still exists here in Japan for some reason!!

From the Wikipedia page:
In September 2017, Toys "R" Us filed for bankruptcy protection in the U.S. and Canada. In June 2018, Toys "R" Us closed its remaining 200 stores after entering bankruptcy, however certain international divisions outside of the United States continued.
In January 2019, the global (excluding Canada) Toys "R" Us intellectual property was transferred to Tru Kids, Inc. In August 2021, Tru Kids announced that Toys "R" Us would be opening over 400 stores within Macy's starting in 2022. A few new standalone stores would open, starting late in 2021. The flagship store is located in New Jersey at the American Dream shopping and entertainment complex. A second flagship store was opened inside the Mall of America in Bloomington, Minnesota, in November 2023.
Japan feels like it’s part of an alternate universe. Tower Records also still exists here.
It also exists in Canada.

So private equity got their real estate for cheap. Might be intended

Assuming they owned the places and don't rent everything.
- Read the thing

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.

I live in the area the HQ used to be. I know a lot of middle management who got screwed very hard by these guys.

DOGE used this same model on the US government.

Capitalism is not rational

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.
Every time I read something like this, it makes me want to burn money.
- Well, money is only as valuable as we think it is, and what goods or services it can be traded for.
  The money itself carries very little value itself, only what we assign to it, or associate to it.
  If the economic system based on the currency currently in use collapses, the money you have won't be worth the paper it's printed on.

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.

Often private equity is invested in their competitors. One of the problems of rich people having ungodly sums is they like to "invest" in competitors and sell them for parts so they can raise prices.
Also Red Lobster.

Also pensions, airlines, and restaurants.

And fucking hospitals
Major reason why the only move is not to play in this economy.
If you're not breaking the law or screwing someone else over, you're the one getting fucked.

I spent weeks waiting in line at my TRU for a switch and they sold out of it and every game every day. The day after I finally got mine and BOTW, they closed the store.

They were making hand over fist money when they closed

Same with Sears, right?

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.
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.

Why did they have to pay off the loans that were used to buy them? That’s something the buyer should be responsible for.

Probably because the C suite assholes who negotiated the buyout agreed to place the burden of the loan on their own company and shaft their employees. It's basic capitalism, really.
- Basic? It seems this kind of wizardry only happens to companies who are in their own kind of abomonative category. I've never seen this happen to small to large businesses. They are also capitalism, that doesn't make sense
The exact workings im not familiar with but it's called "leveraged buyout" where the net worth of the firm which is bought is the collateral.
So .. you buy firm A with money you lended. When the sale gors through all belongings of firm A are yours! So you sell them off, you know what? You want to make a profit so you sell EVERYTHING.
Now firm A is but a husk of it's former self. So now is the time to put it in some holding company or something. Now the husk of firm A is indebted to you.
Oh noes! It goes bankrupt! With your investment firm as the biggest lender to it!
should
Yep.

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.

Leveraged buyout is insane and should be so very very illegal.

All we really need is to make sure the people investing in and making these decisions get financially destroyed

They told US TARGET killed Geoffrery!!!

Weird. I heard Tyrion did it, but he did claim he was innocent!
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.

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).

Rumours of Geoffrey's death where exaggerated

It looks like he’s flashing us.

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.

yea shame - fuck bain and the mormons lol

That's why the Canadian toys r us is doing great.

Too bad we can't say the same for Sears

TRU currently exists outside US but by retailers in other countries using the brand for their toy stores.

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

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.

TRU is still in Canada, but its starting to rapidly die all of a sudden.

Should have paid them back in Geoffrey Dollars.

I think the real reason they died is because they had high markups and hence, nobody could afford to shop there. The one we had in our next town over was very expensive and even though it was cool, we could never go there because it was expensive. With the high markup comes the low volume, and hence debt. The high markup only works with the most popular of a category, but it still kills your brand if it's anything more than premium price for premium products. Wallmart and other box stores, and eventually amazon also killed it because it's a crowded market. Cool concept for a store though. Reminds me of the time before national and international corporatism when you could have little mom and pop stores like that, with hand picked toys that were really cool.

This is a well studied case. It was private equity that killed them.
- I don't know anything about them tbh.
Not at all.
Just go look it up it was a leveraged buy out (LBO) and was the main factor in its collapse.
Edit: 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.
- FYI, the moment I realized this was copy pasta from before, I stopped reading. Helps to reword your point.
- Yeah publicly traded companies are almost always terrible. I guess they were already dead when they went public and all the finance people started to get their fingers in it. Not much you can do there except maybe support local noncorporate businesses or find noncorporate large companies like steam.
Toys R Us was no more expensive than anywhere else. They charged the manufacturer's list price, with occasional sales, like everyone else. Perhaps Walmart or Target had the same items at slightly lower prices, but not significantly, and a few aisles of selection couldn't compete with TRU's giant stores full of toys.
It's a shame that a company that held a unique position in the marketplace, was destroyed not by their own bad business practices, but because of the predatory actions of financial sociopaths.
- We should note that Toys R Us was also struggling at the time, although they would have had a better chance of success by not having 300-400M a year in debt payments to make; they could have used that to improve customer service and stuff.
  I’m not defending the LBO here, just adding a little context.
- Probably a bit of both. I distinctly remember that everything I looked at in there was more expensive than normal around 2000. Maybe it was different later.

I highly recommend the book, 'Bad Company' by Megan Greenwell, which covers this exact topic. Great read.

Mitt Romney worked for Bain Capital.

The thing that blow my mind is, who is loaning these Private Equity firms all this money?

They have to know how it works.

A song as old as time

I just love private equity