Vulture Capitalists Swallow A Couple Of Companies

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To many Americans Romney is the face of vulture capitalism

Rumors of the demise of Toys ’R’ Us have been circulating for six months or more since they filed for Chapter 11 bankruptcy. Almost as if a songbook was sent out for news readers across the land there was a chorus of “online shopping took them down.”

Online shopping is the easy target – gee look at the lazy Americans, can’t even get off their fat duffs to go to the store to buy the kids a toy. Like so many stories we get in these days of instant gratification, simple explanation, no in depth news online shopping tells only a small piece of the story. Also like so many stories the American public is more than happy to have one simple storyline to consume and regurgitate.

Therefore while the whole story of the Toys ‘R’ Us demise is only partially online shopping and more a story of greed known as vulture capitalism or leveraged buyout. Thanks to the media the villain in the story will be the amorphous “online” community including Amazon and its owner and current Trump enemy Jeff Bezos.

Also thanks to the media the damage done once again by vulture capitalist companies like Mitt Romney’s Bain Capital came in, ravaged their victim and leave a carcass behind without getting any of the blame.

nakedcapitalism.com did a story specifically on Toys ‘R’ Us shortly after they declared chapter 11 bankruptcy last September pointing out that Toys ‘R’ Us’s problems were due more to vultures. Here the article is quoting from yet another article on wolfstreet.com.

“After extracting enough cash from Toys R Us and loading it up with a debilitating pile of debt, the three PE firms tried to unload it to the unsuspecting public in an IPO in 2010. They were hoping for an additional payday, the icing on the cake, so to speak. But they had to scuttle their efforts due to “challenging market conditions.”

Yet toy industry sales have been “robust,” growing by 5% in 2016, and by a compound annual rate of 5% since 2013.

Incapably managed by the PE firms, Toys R Us has been losing market share in its struggle with online retailers, particularly Amazon, and with Walmart at every level, and with other toy stores. Nevertheless, if the company weren’t overleveraged and didn’t have PE firms leeching off it, its slowly declining revenues and thinning profits turning to losses wouldn’t be the end of the world.”

The article also went on to note that Toys ‘R’ Us was very aware how the leveraged buy out (LBO) would damage their ability to respond to competition due to the nature of their financial arrangements:

  • making it more difficult for us to make payments on the debt, as our business may not be able to generate sufficient cash flows from operating activities to meet our debt service obligations;

  • increasing our vulnerability to general economic and industry conditions;

  • requiring a substantial portion of cash flow from operating activities to be dedicated to the payment of principal and interest on our indebtedness, and as a result reducing our ability to use our cash flow to fund our operations and capital expenditures, capitalize on future business opportunities and expand our business and execute our strategy;

  • exposing us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest;

  • causing us to make non-strategic divestitures;

  • limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements and general corporate or other purposes; and

  • limiting our ability to adjust to changing market conditions and to react to competitive pressure and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.

Thursday another company filed bankruptcy yet it got little media play maybe because there wasn’t a story that could be played up as new vs. old or bad vs. good. In this case we have a couple of unlikable players who I believe most would be cheering to fail. 

On the one hand we have what was once Clear Channel Communications (CC) which was most noted for gobbling up radio stations in the 1990s after the telecommunications Act of 1996. CC turned many of those once local based stations into a major part of the right wing echo chamber. CC reincarnated into iheartradio after an LBO by Bain Capital and Thomas Lee Capital.

So here you have Romney’s former firm Bain Capital and Clear Channel, a couple of American villains facing off. Bain used Rush Limbaugh as their bargaining chip in the buyout. This was shortly before Limbaugh became the toxic asset he is today broadcasting on 100 watt stations that barely cover small towns:

“Bain Capital like every company going to a bank in this case several banks for a loan had a business plan you give us X amount of dollars and we pay you back plus interest in a certain time.

How do you plan to pay us back the bank asks? Bain replies well Rush Limbaugh is our biggest cash generating asset.

And thats where everyone who boycotted, joined FlushRush, wrote and read articles gets to take a bow. :)”

There are many lessons in these similar stories. One is that the surface stories we get from the media often hides or ignores details they don’t want us to know. Why? Could be the influence of money, could be sloppiness, could be fear of exposing the real behind the scenes movers and shakers.

A second lesson is about those behind the scene movers. The vulture capitalist companies have been wreaking havoc behind the scenes around the world for decades with little impunity. One of the reasons the Puerto Rico is broke and does not have the resources to respond to the devastating hurricanes is because of vulture capitalists. Many emerging countries have fallen victim to these firms causing eventual serious problems.

And with these bankruptcies thousands of people will be out of work, businesses will be left with unpaid bills and leasing companies and malls will be left with empty buildings and store fronts.

About Dave Bradley

retired in West Liberty
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