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Toys 'R' Us Founder Charles Lazarus Dies at 94

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Re: Toys 'R' Us Founder Charles Lazarus Dies at 94

#51
post #15
post #14

What poor timing, oh well he had a great life and great accomplishments during his prime. > saddled with more than $5 billion in debt Wow, I haven't yet followed the story of Toys R Us but that is a huge amount of debt. I can't imagine what severe mismanagement happened at the company to allow this. Must have had some ex-government workers managing finances (/s)... > Since Lazarus stepped down as chief executive offi…

Two words: leveraged buyout. I'm not sure what purpose they serve other than to create debt. Working at a company that was acquired by a smaller fish with a $4 billion loan, it made things painful when cuts were constantly made to pay interest on debt. Somehow, the situation benefited the shareholders that signed off on the deal.

well actually the heavy debt based corporate actions can really hurt share holders if as often happens it goes pear shaped and the share holders get 90% wiped out by the bond holders

The ones who win are the corporate finance companies who make $ by arranging these complex financial instruments.

Re: Toys 'R' Us Founder Charles Lazarus Dies at 94

#52
post #32

Earlier quoted context omitted.

There is no* risk for the acquiring company. *Obvious simplification is obvious. The risk is they can't keep acquirred company alive long enough to extract a profit before the husk of a company finally implodes.

Unless the acquired company is obviously healthy enough to service the debt through to maturity, or the bank is really stupid, the acquiring company has to put up non-trivial collateral. Or put another way, if the acquiring company has no risk, then the bank putting up the leverage has it. The risk doesn't just disappear.

There was very little risk for the acquiring company or banks who loaned the money. Bain partnered with the real estate company Vornado Realty Trust in the Toys-R-Us deal. The bank loans were secured by Toys-R-Us assets that will be auctioned off, and Vornado will re-develop the land that Toys-R-Us stores sit on - everybody wins. Except for the 30,000 Toys-R-Us employees of course.

Re: Toys 'R' Us Founder Charles Lazarus Dies at 94

#53
post #15
post #14

What poor timing, oh well he had a great life and great accomplishments during his prime. > saddled with more than $5 billion in debt Wow, I haven't yet followed the story of Toys R Us but that is a huge amount of debt. I can't imagine what severe mismanagement happened at the company to allow this. Must have had some ex-government workers managing finances (/s)... > Since Lazarus stepped down as chief executive offi…

Two words: leveraged buyout. I'm not sure what purpose they serve other than to create debt. Working at a company that was acquired by a smaller fish with a $4 billion loan, it made things painful when cuts were constantly made to pay interest on debt. Somehow, the situation benefited the shareholders that signed off on the deal.

I think you have confused cause with effect.

Debt is cheaper than equity. The purchaser isn't diluting their equity returns as much so in theory they're getting a higher return. Interest is usually slightly higher than usual corporate lending so banks win. The profits should be more positive so the purchasee employees should be better off.

So a LBO is a generally good idea other than its much more complicated and only scales to large purchases (like a nationwide toy store, perhaps)

The effect you're probably confusing with the cause, is a deal thats dead, zero-sum or worse, with a pure equity structure might barely flip slightly positive if you do some financial alchemy and run it as a LBO... however thats exactly the kind of situation thats highly likely to crash and burn, no matter what you do. Essentially you get to try doing nothing and go out of business two years ago, do a pure equity deal and go out of business last year, or do a LBO and go out of business this year, or maybe, possibly, LBO has the best chance of making it.

Its a common pattern often seen in military or business argument, a small scale tactic that maximizes success (minimalizes failure, I guess) when in retreat somehow gets blamed as the sole cause of the entire retreat itself. Smoke grenades screen a retreat better than clear air, therefore the war was lost or maybe a bad idea to start because we tossed smoke, well, it doesn't really work that way.

In a very wide sense you are sort of correct that a deal or a company thats only microscopically barely alive by using every trick in the book including LBOs is correctly perceived as a dead company walking; just remember that almost all companies that successfully LBO are never talked about, therefore in a weird survivorship bias like scenario the general public will never hear about LBOs except in the case of a dead company. A good analogy would be lots of people who die immediately spent some time in a ICU, therefore there seems no purpose to ICUs other than death. However, many/most people only spend a little while in ICU and then recover but you'll never hear about it, they'll just call it post op recovery or critical care or some similar euphemism.

Another weird medical analogy is doctors play an odds game. If the medical advice is the lowest risk treatment X is 90% success and 10% fatal, one patient dying doesn't disprove that advice, especially if 9 or more live, also you're only likely to hear about the fatalities which causes a false belief that docs are always wrong.

Re: Toys 'R' Us Founder Charles Lazarus Dies at 94

#54

Earlier quoted context omitted.

https://en.m.wikipedia.org/wiki/Lazarus_taxon

I understand the "Lazarus" reference. I just don't understand how the death of someone who hasn't been involved in the company for 20 years would presage anything about its future.

I see. Please take my first comment with a pillar of salt.

Re: Toys 'R' Us Founder Charles Lazarus Dies at 94

#55
post #53
post #15

Earlier quoted context omitted.

Two words: leveraged buyout. I'm not sure what purpose they serve other than to create debt. Working at a company that was acquired by a smaller fish with a $4 billion loan, it made things painful when cuts were constantly made to pay interest on debt. Somehow, the situation benefited the shareholders that signed off on the deal.

I think you have confused cause with effect. Debt is cheaper than equity. The purchaser isn't diluting their equity returns as much so in theory they're getting a higher return. Interest is usually slightly higher than usual corporate lending so banks win. The profits should be more positive so the purchasee employees should be better off. So a LBO is a generally good idea other than its much more complicated and onl…

What does this mean:

> Debt is cheaper than equity

You have to pay interest on a debt, not so with equity. I am having a hard time relating your military and medical analogies to Bain/Vornado buying Toys-R-Us and then saddling it with $Bs in debt.

Re: Toys 'R' Us Founder Charles Lazarus Dies at 94

#56
post #14

What poor timing, oh well he had a great life and great accomplishments during his prime. > saddled with more than $5 billion in debt Wow, I haven't yet followed the story of Toys R Us but that is a huge amount of debt. I can't imagine what severe mismanagement happened at the company to allow this. Must have had some ex-government workers managing finances (/s)... > Since Lazarus stepped down as chief executive offi…

I'm going to recommend this article, which another user had shared in a related thread:

https://www.rollingstone.com/politics/news/greed-and-debt-th...

Re: Toys 'R' Us Founder Charles Lazarus Dies at 94

#57
post #14

What poor timing, oh well he had a great life and great accomplishments during his prime. > saddled with more than $5 billion in debt Wow, I haven't yet followed the story of Toys R Us but that is a huge amount of debt. I can't imagine what severe mismanagement happened at the company to allow this. Must have had some ex-government workers managing finances (/s)... > Since Lazarus stepped down as chief executive offi…

>I'd be curious to read more about how they messed it up so badly. They failed to embrace online, that was their downfall. They didn't take it seriously, opting to let someone else handle online for them, one of the largest players in the ecommerce space: Amazon. It goes back to the year 2000 when Amazon and Toys R Us signed a 10 year agreement that would make Toys R Us the exlusive vendor of toys on Amazon. So what…

It's funny, I was pretty young back then and I though Amazon WAS TRU because of those site redirects. It remember going on the site and thinking how incredible it was, they had everything compared to other store websites and even other stores in person. It really left an impression on me and was a gateway that guided me to primarily shop at Amazon for years after - really just until recently.

Re: Toys 'R' Us Founder Charles Lazarus Dies at 94

#58
post #14

What poor timing, oh well he had a great life and great accomplishments during his prime. > saddled with more than $5 billion in debt Wow, I haven't yet followed the story of Toys R Us but that is a huge amount of debt. I can't imagine what severe mismanagement happened at the company to allow this. Must have had some ex-government workers managing finances (/s)... > Since Lazarus stepped down as chief executive offi…

>I'd be curious to read more about how they messed it up so badly. They failed to embrace online, that was their downfall. They didn't take it seriously, opting to let someone else handle online for them, one of the largest players in the ecommerce space: Amazon. It goes back to the year 2000 when Amazon and Toys R Us signed a 10 year agreement that would make Toys R Us the exlusive vendor of toys on Amazon. So what…

Lesson there: don't outsource your sales.

Re: Toys 'R' Us Founder Charles Lazarus Dies at 94

#59

Earlier quoted context omitted.

Unless the acquired company is obviously healthy enough to service the debt through to maturity, or the bank is really stupid, the acquiring company has to put up non-trivial collateral. Or put another way, if the acquiring company has no risk, then the bank putting up the leverage has it. The risk doesn't just disappear.

There was very little risk for the acquiring company or banks who loaned the money. Bain partnered with the real estate company Vornado Realty Trust in the Toys-R-Us deal. The bank loans were secured by Toys-R-Us assets that will be auctioned off, and Vornado will re-develop the land that Toys-R-Us stores sit on - everybody wins. Except for the 30,000 Toys-R-Us employees of course.

If you can buy a company with the sum of money you can raise by mortgaging the real estate it occupies, the implication is that the company is worth less than this real estate. Considering the kind of real estate Toys-R-Us shops occupied, this is not a good look for them, nor does it speak well for the employees' prospects had the LBO not happened.

Re: Toys 'R' Us Founder Charles Lazarus Dies at 94

#60
post #48

Earlier quoted context omitted.

It's just like a mortgage. Even though it's you buying the house, it's in a way the house that ends up owning the mortgage (in many jurisdictions, you can walk away from the house and mortgage, and the bank had no leverage against your person, they can only repossess the house).

No, there the house is collateral. In this case, instead of the lender simply taking over the acquired company, the acquired company declares bankruptcy and is liquidated.

But a bank will just hand over money for an LBO without taking collateral?
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