Toys R Us -- ruining a company is very lucrative

Qhue

Qhue

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Toys ‘R’ Us, Seeking Stability, May Close 200 More Stores

This is a nice example of why the financial industry, and private equity firms in particular, are the root of pretty much all evil in the world.

In 2005 some executives from a small group of private equity firms took Toys R Us private by loading it up with massive debt to the tune of 5 billion dollars. For this all the executives involved were rewarded with multi million dollar payouts and massive bonuses.

A primarily brick and mortar business in 2018 is already in a bad situation, but having an additional $500 million a year in INTEREST payments on this massive debt load cripples the company and sends it into bankruptcy protection. While undergoing this bankruptcy and debt restructuring they are compelled to close initially 200 and now another 200 stores laying off thousands of workers...but not before the executives involved each receive million dollar bonuses.

The financial industry is some sick racket where doing poorly still nets you a bonus even while you are unable to pay severance to the actual workers whose lives you've ruined by shutting down all these stores. I mean christ who wouldn't want to be an abject failure at their job and still be able to buy a new summer home every year...
 
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Lanx

Lanx

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Qhue said:
Toys ‘R’ Us, Seeking Stability, May Close 200 More Stores

This is a nice example of why the financial industry, and private equity firms in particular, are the root of pretty much all evil in the world.

In 2005 some executives from a small group of private equity firms took Toys R Us private by loading it up with massive debt to the tune of 5 billion dollars. For this all the executives involved were rewarded with multi million dollar payouts and massive bonuses.

A primarily brick and mortar business in 2018 is already in a bad situation, but having an additional $500 million a year in INTEREST payments on this massive debt load cripples the company and sends it into bankruptcy protection. While undergoing this bankruptcy and debt restructuring they are compelled to close initially 200 and now another 200 stores laying off thousands of workers...but not before the executives involved each receive million dollar bonuses.

The financial industry is some sick racket where doing poorly still nets you a bonus even while you are unable to pay severance to the actual workers whose lives you've ruined by shutting down all these stores. I mean christ who wouldn't want to be an abject failure at their job and still be able to buy a new summer home every year...
Click to expand...
damnit, the one by me isn't closing, no sales =(
 
Drakain

Drakain

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I used to be a ASM with Sears over 10 years ago. Before the merger with Kmart, Eddie Lambert became CEO and effectivey crippled the company. There was a huge article in the NY Times about how even if the company went under, he's still makes boat loads of money. Sadly, Toys R Us seems to be in a similar situation.

Realistically I'd prefer to shop online, but there's something to be said about taking your kids into a true toy store.
 
Lanx

Lanx

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Drakain said:
I used to be a ASM with Sears over 10 years ago. Before the merger with Kmart, Eddie Lambert became CEO and effectivey crippled the company. There was a huge article in the NY Times about how even if the company went under, he's still makes boat loads of money. Sadly, Toys R Us seems to be in a similar situation.

Realistically I'd prefer to shop online, but there's something to be said about taking your kids into a true toy store.
Click to expand...

this may sound silly, but imagine if amazon creates a VR Toy store app
 
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F

Fulorian

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k^M said:
How did they load them up with debt?
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Never heard of a leveraged buyout? 'Buy' a company on credit, but not your credit, no - the acquired company takes on the debt. So after you've juiced up your short term return on equity from the leverage, you can project out 10,000 years of compounding returns modeled on the good times and sell that out to investors, and then shrug your shoulders and walk away when it turns out leverage is -gasp- risky,
 
jayrebb

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Fulorian said:
Never heard of a leveraged buyout? 'Buy' a company on credit, but not your credit, no - the acquired company takes on the debt. So after you've juiced up your short term return on equity from the leverage, you can project out 10,000 years of compounding returns modeled on the good times and sell that out to investors, and then shrug your shoulders and walk away when it turns out leverage is -gasp- risky,
Click to expand...

Mitt Romney didn't want to talk about this during his campaign trail.

Howard Stern went ahead and exposed the whole thing and explained what a leverage buyout is to everyone during the election cycle-- since the media didn't want to touch it, with Romney being the face of leverage buyouts.
 
Khane

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Over-leveraging debt is what this country was built on.

Why not buy, package, and re-sell debt? Even bad debt that will likely default! You're not gonna be footing the bill when it all goes to hell anyway.
 
Qhue

Qhue

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The funny thing is that many people in the massive behemoth that is the financial services 'industry' see themselves as doing a universally positive good. Divesting a company of toxic assets, 'migrating' debt, leveraged buyouts -- all of these things bring in amazing short returns and that is the sole thing they are focused on.

I have a couple good friends who are in the thick of this stuff and have asked them what they think happens to that debt or the toxic assets and they just shrug. That's someone else's problem and, under a perfect dome of denial, their consciences are clean.

Now not everything in the realm of the financial world is a scam. There are legitimate ways to improve a company: through mergers that increase efficiency by spreading administrative costs or internalizing a supply chain; by taking on debt to launch a new product or manufacturing process that makes a lot more profit in the near future; by replacing bad management at a golden goose company with people that can actually improve the goose rather than just raking in profits despite their collective failure. Unfortunately those means are few and far between.
 
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norp

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I used to play the Pokemon card game at Toys R Us in like 1997. They had a league with badges and everything. I pinned them to my vest. Rest in peace.
 
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OU Ariakas

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Qhue said:
Toys ‘R’ Us, Seeking Stability, May Close 200 More Stores

This is a nice example of why the financial industry, and private equity firms in particular, are the root of pretty much all evil in the world.

In 2005 some executives from a small group of private equity firms took Toys R Us private by loading it up with massive debt to the tune of 5 billion dollars. For this all the executives involved were rewarded with multi million dollar payouts and massive bonuses.

A primarily brick and mortar business in 2018 is already in a bad situation, but having an additional $500 million a year in INTEREST payments on this massive debt load cripples the company and sends it into bankruptcy protection. While undergoing this bankruptcy and debt restructuring they are compelled to close initially 200 and now another 200 stores laying off thousands of workers...but not before the executives involved each receive million dollar bonuses.

The financial industry is some sick racket where doing poorly still nets you a bonus even while you are unable to pay severance to the actual workers whose lives you've ruined by shutting down all these stores. I mean christ who wouldn't want to be an abject failure at their job and still be able to buy a new summer home every year...
Click to expand...

Qhue said:
The funny thing is that many people in the massive behemoth that is the financial services 'industry' see themselves as doing a universally positive good. Divesting a company of toxic assets, 'migrating' debt, leveraged buyouts -- all of these things bring in amazing short returns and that is the sole thing they are focused on.

I have a couple good friends who are in the thick of this stuff and have asked them what they think happens to that debt or the toxic assets and they just shrug. That's someone else's problem and, under a perfect dome of denial, their consciences are clean.

Now not everything in the realm of the financial world is a scam. There are legitimate ways to improve a company: through mergers that increase efficiency by spreading administrative costs or internalizing a supply chain; by taking on debt to launch a new product or manufacturing process that makes a lot more profit in the near future; by replacing bad management at a golden goose company with people that can actually improve the goose rather than just raking in profits despite their collective failure. Unfortunately those means are few and far between.
Click to expand...

A quick glance at Toys'r'us balance sheets shows them as a 12-15 Billion dollar company. Their total liabilities are around 8 billion which is admittedly highly leveraged but shows Toys'r'us turning profit up until a few years ago despite the new debt.

Do you think that private equity firms are actually always good for nothing or do you think that in some specific cases they are bad? There are definitely bad actors in every industry but if Toys'r'us was going under and these firms had an idea of how to turn that around then what is the issue? The firms put up almost 2 Billion of their own money and had banks cover the remaining loan so in the event of default it will fall back on those entities and no one else. A few questions:

- Would it have been better for Toys'r'us to close all its stores 12 years ago or be acquired by PE in an attempt to rehabilitate it into a successful company?
- You talk about severance packages but are you sure that there are none are receiving it?
- If the executives were retained or brought on post acquisition with contracts that included bonuses for hitting milestones that were achieved then what is the issue if they bring value to the company?
- If closing stores that under perform and cost more to maintain than they add to the bottom line is always morally wrong then how will any brick and mortar store ever be justified in becoming a leaner company?
 
Zaara

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Same shit happening over at Barnes & Noble atm. 1,800 full-time employees shitcanned across all stores despite having been told they would be no lay-offs, 10,000,000+ payouts to the revolving door of jackasses coming in the last few years to 'restructure the brand.'
 
Vinen

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Lol@ anyone who is still at B&N and thought their career wasn't over when Amazon became popular.
 
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OneofOne

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Hope they go out of business sooner rather than later. They are a relic who isn't able or willing to keep up with the times. Took my son in a few times to the local one, but their prices are horrible compared to even other B&M stores, nevermind Amazon. That same store just moved a mile down the road into a completely new shopping plaza just built, because apparently the location next to an always-packed Target, across from an In & Out that's got a giant FULL parking lot from open to close, just wasn't cutting it.
 
OU Ariakas

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Zaara said:
Same shit happening over at Barnes & Noble atm. 1,800 full-time employees shitcanned across all stores despite having been told they would be no lay-offs, 10,000,000+ payouts to the revolving door of jackasses coming in the last few years to 'restructure the brand.'
Click to expand...

Again, you have company with gross income north of 1 Billion dollars a year that was 2 Billion a few years ago. Paying a new CEO every few years to turn that around is literally paying someone 1 or 2% in a contract to hopefully boost gross income 10 or 20%. The number may look large but it is a bargain to B&N, a company with a dying business model, to try and find the innovation that does work.
 
Chanur

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Gross income doesn't mean anything to how profitable they are.
 
OU Ariakas

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Chanur said:
Gross income doesn't mean anything to how profitable they are.
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Gross income is essentially their margin; improving that by 10% would have a more profitable long term effect than any one positive year of net income due to real estate sales/savings or large tax write offs. I was giving an example of a way an executive might be compensated that sounds absurd but may be of value to a struggling company.
 
Qhue

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OU Ariakas said:
A quick glance at Toys'r'us balance sheets shows them as a 12-15 Billion dollar company. Their total liabilities are around 8 billion which is admittedly highly leveraged but shows Toys'r'us turning profit up until a few years ago despite the new debt.

- Would it have been better for Toys'r'us to close all its stores 12 years ago or be acquired by PE in an attempt to rehabilitate it into a successful company?
- You talk about severance packages but are you sure that there are none are receiving it?
- If the executives were retained or brought on post acquisition with contracts that included bonuses for hitting milestones that were achieved then what is the issue if they bring value to the company?
Click to expand...

The company was not in trouble before the leveraged buyout to take it private. It was losing market share to Amazon and WalMart but was still profitable. In fact they moved to issue a new IPO and take the company public in 2010 but shelved those plans in 2013 after the profits continued to dwindle. Why were their profits dwindling? Primarily because they were paying interest on the $6billion in debt they took on when they went private. There is no indication that the company fared any better as a privately held company than it would have had it continued as a publicly traded one...in fact there's a lot of evidence that the collapse of the company is a direct result of that $6billion in debt they are servicing to this day and for which they have only ever paid the interest on.

No employees of the stores that are closing are receiving severance packages despite their employee handbook specifically outlining the policy that they should. The bankruptcy is given as the reason why the employee policies are suspended.

Exactly what value do you think any of the executives bring? Were not talking about a bunch of "Steve Jobs"es who are driving company wide innovation. These are part of the wide 'executive' class whose primary function is to come into a company and last only long enough to move onto the next executive position somewhere else having not actually done anything. In this case the bonuses in question were initiated post bankruptcy as an incentive to perform well during the holiday shopping period. The intended revenue targets were not met and yet the leadership team decided to go ahead and pay "in order to retain the leadership team".

Of course the leadership is going to choose to pay themselves and utilize the bankruptcy proceedings to avoid paying the workers because they can.
 
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