
Warren unveils detailed plan to stop PE ‘looting’ U.S. companies - howard941
https://www.washingtonpost.com/us-policy/2019/07/18/elizabeth-warren-detailed-attack-private-equity-unveils-plan-stop-looting-us-companies/
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civicsquid
I didn't know what "PE looting" meant when I saw this title, so here's what I
would say it is based on the article:

When a private equity (PE) firm buys a company (usually taking on large debts
to do so) and strips any valuable assets from it. The firm then neglects the
purchased company and lets it sink, sometimes with the debt that was used to
buy it in the first place.

If I misinterpreted please feel free to give feedback. I'm always curious to
learn more about these types of financial distortion devices that are in play.
I also figured a lot of people probably didn't know what this term meant
either.

~~~
xkcd-sucks
From the specific items in the article:

>For example, private equity firms often sell off a company’s real estate —
and then lease it back from the new owners. While this may seem an odd
maneuver, the practice allows the private equity firm to distribute a quick
real estate profit to their investors. The Warren proposal would block such a
maneuver for the first two years after a company is purchased.

>Another piece of the legislation would essentially block companies from
taking “monitoring fees” or “transaction fees” out of the companies they buy.
These fees simply force companies to turn over money to the private equity
firms.

>Finally, what may be the most critical piece of the proposal would rein in
one of private equity’s characteristic methods of investment: They use a lot
of debt to buy companies. That debt often becomes a burden to the company and
has played a key role in many bankruptcies. The proposal would make the use of
debt far less attractive for private equity firms because it would hold the
private equity firms — and not just the company — responsible for its
repayment.

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LorenPechtel
Good. If they draw out money and then the company soon is in financial trouble
that basically proves the drawing out the money was unsound. Yet they do that
sort of thing again and again.

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cascom
I don’t think Warren is a dummy - so this is just populist pandering

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satya71
These seem very sensible proposals to me. e.g., Toys R Us was a perfectly
viable business, if not for the ridiculous debt-load. Thousands of low-paid
workers lost their jobs, so that some PE partner could make a few million
bucks.

~~~
DLA
No! Toys R Us was not at all a “perfectly viable business”, rather a deeply
troubled retailer with long history of decline, mismanagement, terrible
earnings, and a disaster of a balance sheet! [1] And “if not for the
ridiculous debt-load” is like saying Flint Michigan had delicious water except
for the poison. Debt load destroys companies unless they are growing revenues
and can service and retire the debt.

Thousands of workers lost jobs because the company leadership and market
pressures crushed the company; oh, and that debt.

Enter PE and a much needed restructuring. Now Toys R Us is reformed into more
of an experience vice pure retailer. [2]

While not as large as it once was there are jobs there now whereas absent the
reforms PE brought there would very likely be only some real estate for sale
and a footnote in business history. And no jobs.

So yeah, blame PE.

[1] [https://www.retaildive.com/news/inside-the-20-year-
decline-o...](https://www.retaildive.com/news/inside-the-20-year-decline-of-
toys-r-us/526364/)

[2] [https://www.cnbc.com/2019/02/11/toys-r-us-executives-plot-
re...](https://www.cnbc.com/2019/02/11/toys-r-us-executives-plot-retailers-
comeback-with-tru-kids.html)

~~~
xkcd-sucks
The former Toys R Us liquidated its stores, and a different company called Tru
Kids acquired the Toys R Us brand name. There are a few people in common
between the two companies, but intuitively it doesn't seem that the original
Toys R Us survived. At the end of the day, people owed money didn't get paid,
and a historically uninvolved PE firm did get ppaid.

The article [1], rather, seems to present the 2005 buyout as the terminal blow
to a weak company; it was only after 2005 that maintenance of the physical
stores was neglected.

Also, it's not clear how the specific reforms proposed by Warren prevent
restructuring and changes in management.

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throwaway3627
Corporate pension defaults, i.e., Sears, are another problem; retirees were
promised an income beyond their working years, and then vulture capitalists
come in and sell-off their formers employers in pieces.

