Next time Mittens gets called to a church position, would somebody please delay the sustaining process until he explains how he felt justified sacking all those toy store employees?> It would be so much fun to watch.

Mitt really really likes to fire people.

https://www.youtube.com/watch?v=dBOqLxzGTx8

He can't be any clearer than that.

He is a weenie.

I don't believe TRUs was profitable;
Doesn't that count for something?

All those empty stores are being taxed, use some Utils & debt payments, I wouldn't blame WMR 100%

I don't blame him 100%.
The stores had issues and online shopping has been harsh competition but he is kind of like a circling vulture always ready to tear things apart for fast cash.
I don't consider him a businessman really--- just an opportunist.

Mitt Romney,the serial killer of toys!

As a good mormon, how come Romney didn't d.i.s.c.e.r.n. the online shopping change in our economy???


ask him that re: Toys r US

What do you mean you don't blame him 100%? His business plan in a nutshell. KB Toys is a perfect example. Leverage a buyout of a good company. Use their assets and inventory as collateral to take out billions in loans. Use that cash to pay yourself and board members huge "bonuses", saddling the once profitable company with huge debt. Start cutting people and salaries at that company. End up filing bankruptcy after you've plundered the company for all it's cash. The banks write off the unpaid loans, leaving us taxpayers to eat the write off. Rinse and repeat. It's legalized theft and extortion.

Exactly.
Bain (along with two other private equity firms) "bought" TRU for $6B. $5.3B of that was borrowed money that was shoved onto the TRU books as debt. Their debt payments cost them over $400M per year, leaving nothing to spend to improve stores or buy inventory. Meanwhile, Bain & friends collected over $470M in "fees" and interest payments.

That $5.3B in loans now goes under the bankruptcy, Bain & pals keep the $470M they made, and TRU gets liquidated. Bain & pals lose NOTHING, but they made almost half a billion dollars by wrecking the company.

To quote CNN Money: Amazon didn't kill TRU. The private equity firms that did the "buyout" did.

I worked for a company that was bought by a Bain subsidiary in the late 1990s. It was saddled with debt, staffing was cut, and when it was unable to meet product deadlines (crucial in the software world), the company was shut down.

It was an interesting process to watch, and I mean that sincerely, though not in a good way. There was a lot of rather entertaining gallows humor when the word got out. I've been in other companies that had major layoffs or shut down entirely, but this one was singularly memorable in a darkly humorous way.

It turns out that when the entire site (entire company?) is shutting down, they are required by federal law to give the employees notice that it is coming. Seems like it was either 2 weeks or two months - I don't remember exactly anymore.

In any case, I did my part to make Lord Romney rich and famous. I can imagine what it is like around TRU these days.

"Although he had left open the possibility of returning to Bain after the Olympics, Romney made his crossover to politics in 1999. His separation from the firm was finalized in early 2002. Romney negotiated a ten-year retirement agreement with Bain Capital that allowed him to receive a passive profit share and interest as a retired partner in some Bain Capital entities, including buyout and Bain Capital investment funds, in exchange for his ownership in the management company. Because the private equity business continued to thrive, this deal would bring him millions of dollars in annual income."

Romney had a ten-year "retirement deal" that gave him profit shares and interest from 2002 - 2012.

Bain bought out TRU in 2004. Romney received profit sharing from that buyout, and the buyout was done using the methods Romney had established as Bain's CEO for almost 15 years.

I was just writing up what Hie said. Romney definitely benefited from the deals undertaken till 2012.

He may well also still have a stake. What he gave up was direct managerial control. It is common for people like that to make limited partner investments in funds after leaving the company itself. And the lifespan of such investments is often well over a decade. So if Romney was among the limited partners--pension funds, rich individuals--who invested money in funds after 2002, he probably still has a stake in Bain's activities.

There is, in the current context, no question that he was personally and financially involved in the Toys-R-Us debacle.

Bear in mind, I'm no fan of the Mittster.

But he left Bain in 2002, and Bain acquires TRU two years later. TRU was run as a for-profit company for 15 years, which suggests it was not targeted for dismemberment. Over the course of a decade and a half, it fails, a long time line if cannibalizing the parts was Bain's goal.

Now it is a failed outfit, and the bankruptcy process will pick what meat is to be found on the bones.

The "conventional wisdom" explanation is that TRU is yet another big box destroyed by Amazon. I don't buy this (pun intended). When I buy a toy, I want to examine the product, get a feel for it and determine that it is right for the child. Looking at images on-line and checking reviews doesn't work. TRU was a retailer that should have been resistant to internet retailing.

So I agree with Hie and Lots Wife that some other factor(s) is (are) involved, but am not persuaded that Bain bought it to devour it--15 years is too long a time line. To be sure, Mitt has corporate blood on his hands, but not in this corpricide.

When you consider that Bain, over those 15 years, got paid interest & fees on the loans they brokered, and put no money in, it's not all that surprising (or unbelievable).

It's Bain's typical pattern. They leverage a buyout & take a company private, loading it up with debt. If it manages to survive despite that burden, they take it public again, and make a killing on the IPO. If it doesn't, they keep their fees & interest, dump the debt in bankruptcy, and pocket hundreds of millions while losing nothing.

They "win" either way.

It's the epitome of vulture culture.

Bain would have put its own equity into the deal. The debt would have come from banks and other lenders, so effectively TRU and its owners (including Bain) paid interest and fees rather than receiving those income flows.

I sincerely doubt this was a net positive deal for Bain. They would have earned some dividends and fees over the years, but probably nowhere near the cost of the lost principal.

The problem as I see it is that the costs of the failure were disproportionately borne by others. If the deal had worked, Bain would have made out like bandits. But it failed and Bain only suffered a fraction of the losses: the rest were socialized.

ificouldhietokolob Wrote:
-------------------------------------------------------
> It's the epitome of vulture culture.

It is possibly human nature when untampered by more altruistic inclinations in human cultures in my opinion.

If I'm correct, Mittens is giving into "the natural man" and giving some of his profits to a church supposedly ushering in Jesus coming again.

And my Christian friends run to the parable of the talents. I don't think Jesus meant take from others to increase them?



Edited 1 time(s). Last edit at 03/19/2018 01:38PM by Elder Berry.

You are right that the goal was not to destroy the company.

It's easy to see how this happened. There is a flaw in the corporate legal system, moral hazard. If investors take a high-risk gamble and it pays off, they pocket the rewards. If the high-risk gamble fails, they declare bankruptcy and workers and taxpayers pick up the bill. Heads, I win; tails, you lose.

In this case, it probably went like this--and I am making up the numbers. Bain looked at TRU and saw a stock price of $5 billion. They calculated that given what they saw as future earnings potential, a combination of better financing and better management implied a true value of $8 billion. So they bought it at $5 billion, 20% in their own money and 80% in bank loans. Then they set about improving the operations to drive the price to $8 billion.

The problem in situations like this is that if you get the original earnings projections wrong, you fail. And online retailing has brutalized retail in general and toys in specific; caffiend is unusual in wanting to see toys before buying them, something that most people generally do not do. So Bain's projections proved too optimistic. Rather than rising, the stock price (again, I have not looked the actual numbers) fell from the original $5 billion to $4 billion or less. TRU told its owners that it was effectively bankrupt and Bain and the others authorized its declaration of such.

The costs and benefits worked thus. If TRU had gone from $5 billion to $8 billion, Bain's $1 billion investment would have produced a 300% return. Because TRU failed, Bain lost $1 billion and the other $3 billion in losses were borne by workers, suppliers, and the US treasury. Bain incurred 25% of the losses produced by its failed investment.

Assuming that Bain had never bought the company and its debt ratio had not risen to 80% of the balance sheet, TRU would probably have survived albeit in smaller form.

Except...the articles I've read don't show Bain putting any of their own capital in. It was all loans, and the loans were all dumped onto TRU, not Bain. Bain acted as broker and manager, not funding source.
And they collected $470M in fees and interest.

So they made almost half a billion, and lost nothing.
The banks that made the loans got interest paid ($400M a year, according to the articles), and part of the principal -- and once TRU is entirely liquidated they likely won't lose much of the principal, and what little they do lose is more than covered by the interest they already got paid.

That's not how private equity works. A typical deal would be to buy a company for $5 billion, most of it through debt incurred by the target company. The PE fund controls the remaining equity and gains all upside from appreciation. I sincerely doubt that the Bain Capital charter permits it to act in the capacity you suggest.

I'll read up a bit and see what I can find.

Yes, it's a standard private equity deal as I outlined above.

Bain, KKR and Vornado put $1.3 billion of their own money into the purchase, with the other $6.2 billion raised from banks and other lenders. Since TRU was generating about a billion a year in pre-tax profit, Bain thought it could pay the $400 million annual interest, invest in expansion, and still yield $200 million a year in net annual profit. Meanwhile the investment would push up both the profits and the enterprise value.

The gamble didn't work. The financial crisis and online competition undermined profitability, forced TRU to reduce investment in its business, and ultimately left it unable to service its debt. The investors received $470 in dividends, interest, etc., between the purchase and the bankruptcy, leaving a net loss for Bain, KKR and Vornado of about $800 million.

https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-vornado-suffer-wipeout-in-toys-r-us-bankruptcy

Thanks for finding that. None of the articles I found mentioned the three firms putting in their own capital.

So...$1.3B / 3 (assuming it was equally split, it may not have been) would be $430M each.

The $470M they already took / 3 would be $156M each.

Meaning each of the three may have lost about $274M.

Pardon me if I don't weep for them :)

The actual percentages would not be equal; one of the firms would have taken the lead and invited the others in. But yes, the losses would probably have been in the hundreds of millions each.

And there is no need for sympathy. Bain will have done several such deals every year, and most of them would have paid off handsomely. Eating the occasional loss is part of the business.

And on point...Romney's profit-sharing 10-year deal has already expired, and even if it hadn't, we can probably assume losses weren't attached to the deal. So he got part of the interest/fees from the TRU deal, but none of the downside.

Smart? Sure, great deal if you can get it.
Ethical?

Um...

But I do think he should shut down losing businesses.

The company would not have been a money-losing business if Bain and its partners hadn't changed its capital structure so dramatically.

Companies and people in general must cut their losses.

See above.

You don't need to read the audit report-you have Google. Look at the articles in the WSJ, Forbes, Financial Times, etc. They weren't a "losing business" until Bain started sucking cash out and taking out loans against them.

Moreover, an audit report would not have the relevant information. Audits don't normally discuss long-ago changes in capital structure or corporate strategy, let alone those of a parent company.

I repeat.

1) Auditors do not review changes in capital structure that occurred 15 years in the past.

2) Auditors do not review or opine on corporate strategy.

3) Auditors do not review past changes in capital structure or investment strategy on the part of outside investors.

Ask your husband.

Audit reports indicate if a business is viable. If someone embezzled or did other illegal acts, they need to be prosecuted. Making poor choices is stupid but not illegal.

I don't like Romney. He's an untrustworthy stuffed shirt and likely stupid about many things. Unfortunately, people in business have a right to be stupid.

I know this because I went with DH to a lawyer to discuss how he and many others were being treated by a former employer. A third of the employees were also getting help from that lawyer. He said courts can do nothing about stupid and unfair employers and business owners. Everyone who is stupid has a right to act stupidly.

Cheryl, we usually agree on much. However, auditors are not judge jury and executioner. Ever heard of Enron? Ever hear of the huge accounting and auditing firm Arthur Anderson? They're both gone, and some of their execs went to jail. Auditors, are susceptible for hedging towards their clients, no matter how much wrong is uncovered. If your husband is an auditor, you should be aware of this.

I did not!

Audit reports are are as valid as the auditor is competent and honest. Anyone who reads them needs to use their good sense about this.

Of course I've heard of Arthur Anderson. My husband worked for Arthur Young many years ago and he was ethical. Nowadays, since Arthur Anderson and other scandals, auditors must undergo more extensive ethics training classes.

They are less ethical than they once were, but there have always been dishonest firms and individuals.

Non-viable businesses need to be closed. It doesn't help anyone to throw good money after bad. It's sad for employees, but that's a unfortunate fact of life. Most of us have had to find new job situations in our lives. It can be difficult but we somehow manage.

"Non-viable businesses need to be closed. It doesn't help anyone to throw good money after bad."

Cheryl, the entire point of this mini-thread is that KB and ToyRUs were viable businesses, that didn't need to be closed, before Romney and Co. did what they did.