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How vulture capitalists ate Toys 'R' Us

theweek.com

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Re: How vulture capitalists ate Toys 'R' Us

#71

Post by refurb »

listenallyall wrote: post #43

TOY shares had fallen from $40 to the low teens by 2004. By announcing a sale of the toy business, the stock rebounded and ultimately the sale to private equity closed at $26.75 per share. That Board knew they had a declining asset on their hands and sold out, at a large premium, rather than watching their equity slowly decline over the next decade. Anyone who despises private equity should be celebrating this story,…

Exactly. Everyone craps all over LBO deals and complains when the funds earn huge payouts.

Well, they earn huge payouts because of the risk involved, which is plainly clear in this case.

Re: How vulture capitalists ate Toys 'R' Us

#72

Post by jimmaswell »

rayiner wrote: post #67
listenallyall wrote: post #43

TOY shares had fallen from $40 to the low teens by 2004. By announcing a sale of the toy business, the stock rebounded and ultimately the sale to private equity closed at $26.75 per share. That Board knew they had a declining asset on their hands and sold out, at a large premium, rather than watching their equity slowly decline over the next decade. Anyone who despises private equity should be celebrating this story,…

Yeah, seriously, the author is nuts. I've got a 5-year old and I can't remember the last time I've been to Toys R Us. She knows how to pick stuff out on Amazon; for trinkets there's Target, and a lot of her "toys" now are on her iPad/digital. Suburban big-box retail stores aren't a growth area, and toy stores selling Chinese-made junk are probably among the worst situated. Unlike, e.g. clothes or food, there is littl…

A problem is that in a retail store, you might walk by something new and want to try it. On Amazon et al you're largely going to stick with what you know, and the site's recommendations are probably not going to stray much.

Additionally, walking out of a store with something is a nice experience, maybe reading the manual on the way home, instead of waiting a week to get something unless you have prime or pay for faster shipping.

Amazon is definitely convenient, but it's sad to see Toys R Us go. Stores like that provide a real added value in my opinion.

Re: How vulture capitalists ate Toys 'R' Us

#73

Post by s17n »

benmmurphy wrote: post #23
JumpCrisscross wrote: post #2

> if Bain, KKR, and Vornado had never come along, Toys 'R' Us wouldn't be doing stellar, but it probably could've muddled through I'm rarely a defender of leveraged buy-outs, but in this case, I think it was a good thing. Private investors took a moribund business and attempted a turnaround. If they succeeded, everybody would have won. If they failed, a long and tortured slide into irrelevance got aborted and cut sho…

do you know how creditors protect themselves from abusive owners generally? like if i was loaning a business a large amount of money like 80/20 in this case then i would be worried the owners might find a way to siphon the money i loaned them out of the business in a way that benefited them personally.

Creditors get paid before owners take profits legally. So your bad owner would have to be cooking the books. Eventually the creditors would sue the owners, and ultimately recover whatever money hadn't already been burned on thousand dollar bottles of wine etc.

Re: How vulture capitalists ate Toys 'R' Us

#74

Post by refurb »

chongli wrote: post #35
jerf wrote: post #25

Earlier quoted context omitted.

OK, what are you looking for? Rich people get one shot at doing something, and if they fail, the government comes riding in and takes all their stuff? You have to be careful when you get vindictive at rich people; they're also the employers, and it's hard to build a system where such people aren't "the rich". (If you hard-core leveled everyone in the world to equal wealth, nobody would be able to employ anybody else…

OK, what are you looking for? Rich people get one shot at doing something, and if they fail, the government comes riding in and takes all their stuff? I can't speak for the person you replied to, but how about this? Less downside for the workers. We're talking about thousands of people losing their jobs. These people then go into a smaller labour market where they compete with other vulnerable retail workers, affecti…

Toys R Us was going under if this LBO didn't happen.

So in essence they are no worse off than if it didn't happen.

Re: How vulture capitalists ate Toys 'R' Us

#75

Post by harryh »

chongli wrote: post #65
harryh wrote: post #38

Earlier quoted context omitted.

Poorly performing companies going out of business in order for new, better companies to flourish is a necessary step for the creation of a healthy job market.

I don't see it. Working at Toys R Us may not have been great, fine, but it sure beats pissing in bottles in a sweltering/freezing Amazon warehouse. Amazon is a lot more profitable than Toys R Us ever was but that doesn't mean they make the job market, let alone society, healthier.

I bet you spend more money at Amazon than you did at Toys R Us. You might not see it, but your wallet does.

Re: How vulture capitalists ate Toys 'R' Us

#76

Post by merb »

nradov wrote: post #49
JumpCrisscross wrote: post #14

Earlier quoted context omitted.

> early failure really is worse for both society and the companies workers The assets don't disappear. They're just being re-purposed earlier. Toys 'R' Us locations nationwide are being purchased and turned into new, arguably more-useful, things.

Are you sure about that? When big box stores fail they often sit empty for years causing blight in the area.

luckly in europe most store's will directly go to the irish "smyths toys"

Re: How vulture capitalists ate Toys 'R' Us

#77

Post by smcl »

harryh wrote: post #38
chongli wrote: post #35

Earlier quoted context omitted.

OK, what are you looking for? Rich people get one shot at doing something, and if they fail, the government comes riding in and takes all their stuff? I can't speak for the person you replied to, but how about this? Less downside for the workers. We're talking about thousands of people losing their jobs. These people then go into a smaller labour market where they compete with other vulnerable retail workers, affecti…

Poorly performing companies going out of business in order for new, better companies to flourish is a necessary step for the creation of a healthy job market.

It probably feels very good to type a comment like that while imagining some invisible force gently guiding these newly unemployed people to their new careers. However in reality thousands of people have now lost their income and likely their health insurance, and will have to compete in what in many places is a pretty brutal and not at all healthy job market.

It sucks, and there’s nothing you or I can do about it ... but pretending that this is actually a good thing for anyone but a handful of rich guys who will have made out like bandits on the whole debacle is just fantasy.

Re: How vulture capitalists ate Toys 'R' Us

#78

Post by ISV_Damocles »

jimmaswell wrote: post #72
rayiner wrote: post #67

Earlier quoted context omitted.

Yeah, seriously, the author is nuts. I've got a 5-year old and I can't remember the last time I've been to Toys R Us. She knows how to pick stuff out on Amazon; for trinkets there's Target, and a lot of her "toys" now are on her iPad/digital. Suburban big-box retail stores aren't a growth area, and toy stores selling Chinese-made junk are probably among the worst situated. Unlike, e.g. clothes or food, there is littl…

A problem is that in a retail store, you might walk by something new and want to try it. On Amazon et al you're largely going to stick with what you know, and the site's recommendations are probably not going to stray much. Additionally, walking out of a store with something is a nice experience, maybe reading the manual on the way home, instead of waiting a week to get something unless you have prime or pay for fast…

What you've described doesn't sound like a value-add at all to me. In stores they can manipulate your senses to get you to make emotion-based purchases whether or not it makes economic sense or if you're going to actually get your money's worth out of the product.

You only think it's better reading the manual on the way home and not waiting a few days because you're still riding that emotional high.

I much prefer the Amazon approach where feasible, because that detachment helps you keep a more level head while purchasing, which reduces the expenditures on frivolities and you'll have more savings for more meaningful things later.

Re: How vulture capitalists ate Toys 'R' Us

#79

Post by peacetreefrog »

jimmaswell wrote: post #72
rayiner wrote: post #67

Earlier quoted context omitted.

Yeah, seriously, the author is nuts. I've got a 5-year old and I can't remember the last time I've been to Toys R Us. She knows how to pick stuff out on Amazon; for trinkets there's Target, and a lot of her "toys" now are on her iPad/digital. Suburban big-box retail stores aren't a growth area, and toy stores selling Chinese-made junk are probably among the worst situated. Unlike, e.g. clothes or food, there is littl…

A problem is that in a retail store, you might walk by something new and want to try it. On Amazon et al you're largely going to stick with what you know, and the site's recommendations are probably not going to stray much. Additionally, walking out of a store with something is a nice experience, maybe reading the manual on the way home, instead of waiting a week to get something unless you have prime or pay for fast…

True, but apparently that value was less than the cost to provide it.

Toys R Us is a pretty basic economic transaction. They sold toys, and the people buying them get the value. We're not dealing with public goods or externalities or any other type of market failure where this type of value might be tricky to pick up.

Re: How vulture capitalists ate Toys 'R' Us

#80

Post by Retric »

JumpCrisscross wrote: post #47
Retric wrote: post #45

Earlier quoted context omitted.

No. I am complaining that the company needs to generate profit to pay back loans, and the size of profit generated is insufficient to pay interest on these loans. If the company had successfully paid back the loans then they would not have failed, but often when that happens private equity simply takes out more loans until the company fails. In such cases failure is both profitable and by design because they effectiv…

> when that happens private equity simply takes out more loans until the company fails This is incorrect. "PE-backed firms are no more likely to default than other firms with similar leverage. Distressed PE-backed firms restructure more out of court, restructure faster, and are more likely to remain an independent going concern following the restructuring, compared to leveraged borrowers that are not PE-backed...Henc…

compared to leveraged borrowers is hardly a reasonable comparison as as toys r US did not fall into that category before the buyout.
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