Private equity's favorite shell game is to take over profitable businesses, sell off their assets, con banks into loaning them hundreds of millions of dollars, cash out in the form of bonuses and dividends, then let the businesses fail and default on their debts.
The result is the retail apocalypse, where predatory giants like Walmart and Amazon are able to topple their vulture-capitalist-weakened prey, creating a feedback loop that enriches the shareholder class and destroys American businesses, leaving workers high and dry.
The (current) poster child for this con game is Toys R Us, whose private equity owners borrowed more than $5 billion to buy the company (with a $400 million annual debt service plan). The new owners quickly took the company into bankruptcy, defaulting on that giant debt, after paying themselves $200 million (including tens of millions in performance bonuses to the C-suite in the same year the company declared bankruptcy).
Now the company has announced that it will also default on all severance payouts to the company's 30,000 employees, including employees who worked at the company for decades, skipping Christmas and Thanksgiving with their families to staff the stores, now slated to get literally not one penny.
Let’s hear from 33-year employee Cheryl Claude of South River, New Jersey, who has never worked anywhere else: “I spent every holiday, leaving my kids home for the holidays, Thanksgiving, Christmas, birthdays, everything to be at work and give my one-hundred percent to get nothing is incredible.”
And Shkeanah Best, another company employee laments, ““We’re not receiving anything. Just unemployment and I don’t want to go that route. You don’t know how long it’s going to last. Unemployment doesn’t pay anything. It’s crazy how a big franchise is closing its doors and not offering us anything.”
Over to the Post again:
In the case of Toys R Us, financial filings show that the company was handing over $400 million a year to pay back its debt, often at the expense of turning a profit. Recently, it was burning through $50 million to $100 million in cash each month as it tried to dig its way out, according to court documents filed in March. The retailer also paid $470 million in advisory fees, interest and other payments to Bain Capital, KKR and Vornado since 2005. The firms did not respond to requests for comment.
“Something is seriously wrong with this type of economy,” [Menendez] (D-N.J.) said at the Friday event. “How many employees at Bain are now worrying about how they’ll pay for day care? How many employees over at KKR don’t have the cash to fill up their gas tank to go out looking for jobs?”
Private Equity Kills Toys R Us, Workers Get No Severance [Jerri-Lynn Scofield/Naked Capitalism]
‘How can they walk away with millions and leave workers with zero?’: Toys R Us workers say they deserve severance [Abha Bhattarai/Washington Post]
(Image: Mike Kalasnik, CC-BY-SA)