This isn’t going to be a long one. The way today’s private-equity and other takeover artists work is simple: They buy up a company, and then load it up with debt to pay for having bought it. They generally take healthy companies (ToysRUs was running a profit), then once it’s taken over, they slash and cut. The business will often go bankrupt — if it doesn’t, it operates as a shadow of its former self; its products are worse, it has fewer employees, and so on.
This is now being done to the Chicago Tribune Newspaper.
Just a couple days ago, Tribune had no debt, $250 million in cash and had trimmed expenses by more than 30% in one year.
Now owned by Alden, Tribune has $278 million in debt and is looking to cut more, via buyouts offered to newsroom employees. https://t.co/HQehCTplww
— Jon Harris (@ByJonHarris) May 26, 2021
I don’t think a lot of commentary is necessary. This should be illegal. You should not be able to stiff the company you bought with a huge loan to pay off the expenses you incurred buying it out (while you also pay yourself bonuses in the tens of millions).
Just make it illegal. It has destroyed innumerable companies, and the overall affect is to reduce employment and economic activity. It’s nothing but damage to the economy at this point. Private equity doesn’t take over badly-run companies and make them better now (if it ever did, which is questionable), it just damages or destroys companies so that the people who take them over can have a third super-yacht and a tenth vacation home, and in many cases, be invited to the island run by whoever has replaced Epstein.
These people literally act as parasites. Make what they do illegal, and find a way to take back their stolen wealth.
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someofparts
Something snapped for me when I heard that Congress wouldn’t give NASA more money, but a whopping 71 senators voted to give Bezos $10 billion because he lost business to Elon Musk.
This is war and these people are the enemy.
Plague Species
The mafia called it a Bust Out. Private Equity is the mafia sans the gabagoo and the pishadoo. The mafia gone legit.
https://www.youtube.com/watch?v=qgVtn-HZELw
nihil obstet
Corporations are man-made monsters that have become slaves to the ruthless. We need to wipe them out. Then we can decide whether to start over.
The joint stock company formed for a project like a railroad or mine too expensive and risky for a single investor makes sense if you’re not a socialist. What sense does it make to have laws protecting and extending the power of an organization with no social purpose? I’d first narrow the range of activities a single corporation can carry out. If there’s a hot opportunity outside that range, then investors can form a new corporation with no overlap between the new and a currently existing corporate board.
Corporate executives must be held responsible for crimes committed by the corporation. The corporation itself must lose money, more money than they gained by the crime. The executives must be barred from any compensation supposedly earned during the period of the crime. The executives must also be criminally liable for crimes carried out by the corporation. It should be a responsibility of the job that they impose a corporate structure that insures legality of operation.
It’s all simpler if we have worker co-ops, but in terms of how to lead people to think differently about corporations, we might come up with more ways of reining in corporate privilege.
Willy
Your average person doesn’t know any of this. And the rest meekly say that there’s nothing we can do. To get rid of the second problem, we need to handle the first. Power in numbers.
edmondo
Yeah. I can’t wait to find out where Mitt Romney stands on this issue! This is the kind of shit that pays for his car elevator and the operations of the Mormon Church. The Mormon Jesus worships capitalism, not charity.
Stirling S Newberry
PE did take over failing companies – then they repealed the administrative mechanisms. This is more remunerative though not profitable. It has been a long time since PE has done what they are best at – take a small mom-n-pop shop to the big leagues. (Chey Boy-ar-dee for example)
coloradoblue
One of these vulture groups took over the Denver Post, and immediately cut 30% of the staff. The number of pages also almost instantly dropped. The paper is a vague image of what it used to be, and a good percentage of the coverage is from the NY Times or the AP.
Two years ago, to save money, I switched from delivery to on-line, at a then reasonable, monthly charge of about $15. The next year it was $21. Now it is $26, about a 60% increase in two years. The cost to send me those ones and zeroes hasn’t gone up 60% in two years. Pure greed for a continually shittier product. Truthfully, if it wasn’t for the sports pages, I’d have already cancelled.
And it’s past time to cancel all these vultures.
Ven
Exactly coloradoblue.
In addition to Ian’s points, the other aspects of PE playbook is price inflation. And in order to achieve this they do buy and build, in order to develop oligopolistic pricing power.
Plus of course benefiting from the tax shield of all that debt.
The funny thing is, a number of independent studies have demonstrated that PE, as an asset class, delivers returns (before fees) barely better than stock market indices, and after fees much worse. And in case you think some top tier PE funds may be different – well, again studies have shown that firms never maintain top tier performance; ie it’s luck.
And bare in mind that finance theory states that PE, as an illiquid investment should earn far higher returns to justify investment in them.
So all those mega public and college pension funds still giving money to PE, so that they can kick employees out of a job . . .
I suspect that pe would have thinned out by now given its poor performance, had it not been for the QE that made even more cheap money available.
Plague Species
Perhaps pe is also about money laundering. Unremarkable return on investment but it gets the money clean. The lack of return is the price to pay for that cleaning.
somecomputerguy
This is choosing to cash out all future returns from a firm, now.
This is what killed Blockbuster. How many successful businesses would be immune to this?
I suspect that any business that makes things, or provides a needed service (as opposed to a payday lending shop), i.e., that is socially productive as well as profitable, is especially vulnerable to this.
Any iota of value going to the customers is NOT going to the shareholders, and is by definition waste or theft. Just like the money going to the ungrateful mooching employees, for their “paychecks”.
Finance capitalism buys the factories early capitalism built, and shuts them down, to hold as real-estate assets.
Does any business other than payday lending really make sense anymore?
Bust Out. Thanks for finding that term.
different clue
LBE ( Leveraged Buy Out) was an earlier iteration of Private Equity.
If we can’t yet make it illegal, perhaps we could outlaw the various tax advantages which have been legally granted to use of debt in these operations.
Chiron
@Plague Species
Wall Street since the 80s is a continuation of the early 20th century Cosa Nostra.
DMC
I am compelled to agree with PS and Chiron. There is a sequence in the movie “Goodfellas” in which is described how gangsters take over a business, sell off its assets, acquire a bunch of things that they can resell using the business’s credit and when no one will extend them any more credit, burn the place down for the fire insurance. Private equity is doing exactly the same thing, and yet it’s legal. Kind of makes you wonder who’s running things.
someofparts
“Kind of makes you wonder who’s running things.”
Jeff Bezos of course. In a few years, he will finish buying everything. Then instead of elections, we will have a coronation and Bezos will be our first King of America.
bruce wilder
“Equity” ironically once meant fairness and justice and in finance stood for the owners’ commitment to pay their debts.
responseTwo
I remember first hearing the leveraged-buyout message on business reports back in the early 80’s? Was this type of finance leaching part of the Reagan/Gipper revolution?
Soredemos
But have you ever considered their point of view? Sometimes one of your superyachts is in for repairs or refurbishment, and the second one is being leant to one of your not-quite-as-rich-as-you friends (and really, what kind of asshole wouldn’t share?). What are you supposed to do then? Use a lesser normal yacht? Priorities, man, god.
different clue
ResponseTwo,
I remember a book called Barbarians at the Gate about the Kohlberg-Kravis-Roberts LBO ( Leveraged Buy Out) of Nabisco several decades ago, perhaps during the Gipper period. Here is a link to a very short summary of the book.
https://prasadcapital.com/2010/08/27/book-summary-barbarians-at-the-gate/#:~:text=Book%20Summary%3A%20Barbarians%20at%20the%20Gate.%20Key%20takeaways%3A,private%20equity%20firm%2C%20and%20a%20few%20%E2%80%98smaller%E2%80%99%20players.
different clue
@somecomputerguy,
Since a number of businesses have not yet been taken over by LBO-PE sharks and Bust-Out guys, perhaps those businesses could be studied for anything they might have in common in their method of legal organization, structure, etc. That might give us a clue as to what kinds of business organization might confer immunity or resistance to such attack.
Of course a business too small to attract the Bust-Outers attention might have the immunity of invisibility in plain sight.