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Here is an Example of why Shareholders are bad for America.


shintao
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Sears, once a giant of America’s consumer-led economy, was run into the ground by hedge-fund king Eddie Lampert. In 2005, Lampert, a former Yale roommate of Treasury Secretary Steven Mnuchin, arranged the merger of Sears with discount retailer Kmart, and immediately started shifting revenue to shareholders. He spent $6 billion on stock buybacks to reward investors and prop up the share price.

 

More important, Lampert personally lent billions to Sears Kmart, increasing corporate debt. As in-store sales lagged, Sears sold off major assets like Craftsman brand tools and Land’s End outdoor equipment to service the loans. Lampert also split ownership of 266 Sears and Kmart buildings into a real estate investment vehicle called Seritage. Last year, Sears and Kmart stores paid $200 million in rent on these properties they once owned, eating up operating revenue.

 

As Sears closes hundreds of stores and considers bankruptcy, Lampert will likely come out ahead. He enjoyed fees from all the lending to Sears, and he’ll recoup more money in any restructuring, even if Sears has to sell off inventory to do it. As a shareholder of Seritage, Lampert’s hedge funds can profit from higher rents charged to new retail outlets that move into the shuttered Sears locations.

 

The mismanagement of Sears reflects an ongoing pattern: private equity takeover artists that benefit from hobbling the companies they purchase. Golden Gate Capital and Blum Capital, the two firms behind footwear chain Payless, paid themselves $700 million in dividends in 2012 and 2013, all on the back of the company. Payless filed for bankruptcy this year, closing 400 stores. Toys“R”Us filed for bankruptcy in September, unable to sustain between $400-$500 million in annual interest payments on $5.2 billion in long-term debt. Buyout managers, including Bain Capital and longtime firm Kohlberg Kravis Roberts, stripped out nearly $2 billion in cash while debt levels rose.

 

This is a robbery in progress. Private equity firms borrow massively to buy companies, and use corporate cash reserves to pay themselves back. Workers who supply the value to the business see nothing; in fact, to service the debt, companies usually cut staff. When the retailer collapses under the borrowing weight, all workers lose their jobs. And even when sales go up, like they have by 5 percent annually in the toy sector over the past five years, dominant toy sellers like Toys“R”Us cannot compete because of the debt burden. The company’s profitability was increasing when it filed for bankruptcy.

 

 

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More important, Lampert personally lent billions to Sears Kmart, increasing corporate debt

 

That was stupid of SK to take on more debt.

 

They deserve to die.

 

shiitto thinks they were stupid too.

 

Now he can't get the cardboard boxes he needs for the expansion of his hovel.

 

Trickle down stupidity.

 

 

kj

 

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