
Behind the financial maneuvering at Hostess - redcastle
http://www.nytimes.com/2016/12/10/business/dealbook/how-the-twinkie-made-the-super-rich-even-richer.html
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mjevans
I'm going to use just 'back of napkin' numbers to make the outcomes easier to
compare and for each I'll round in ways that I assume (but might be wrong
about) being more fair.

    
    
      800,000,000 : Top investment firm guy
      200,000,000 : Some random high investment firm guy?
      ___,_50,000 : Lets call this 'middle class' in a small town
      ___,_20,000 : Hourly worker: $10 / hour * 40 hours * 50 weeks
    

Is it really possible for any person to be worth 10000 or more times some
random other person? That disparity is ludicrous and in my opinion practically
slavery.

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throwaway76543
How many $10 hour workers without a financial education do you need to hire to
effectively handle investments?

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anarazel
I'm a bit confused to why leveraging up companies this badly, without
commercial need, isn't a violation of fiduciary duty of company leadership.
I'm pretty sure that it'd be in several countries, e.g. Germany. You might not
get into trouble without a bankruptcy, but there were one, you'd likely be
personally liable to some degree.

EDIT: grammar

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hendzen
They are the owners of the company. The leverage is just a technique to move
future cashflows in to the present so they can pay their investors and move on
to the next company. Would it be better to just allow the company to go
completely out of business?

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Retric
If the owners want to realize those future cash flows they can sell. Leverage
unlike sale forces otherwise healthy companies into bankruptcy. The advantage
is you can leverage more than the value of a company and then extract it
without selling.

PS: Remember you can profit from preforming a useful economic function, or
fraud making profit a poor yardstick for anything else.

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lambertsimnel
While I'm familiar with the idea that healthy companies can be so leveraged
for quick profits that they go out of business, I don't understand the
mechanism. Is the idea that such over-leveraged companies cease to be
otherwise healthy before they go out of business? If so, why? Is the
management worse while they are over-leveraged? Is it a matter of market
conditions worsening?

Why would an otherwise healthy company be liquidated if it couldn't service
its debt? Wouldn't lenders rather sell the company as a profitable going
concern than accept what's left after liquidating it? A reasonable valuation
for a genuinely healthy company would be greater than book value.

I'm also confused about the practice of backs selling repossessed buy-to-let
homes during a crash, evicting tenants in the process. Why sell low, rather
than continue to collect the rent?

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Retric
Profits fluctuate.

If a company generates -1 to 10 billion per year and has 2 billion cash on
hand and assets worth 5 billion, they can handle several bad years and will
tend to be profitable and very stable. If someone then says they can probably
make debt payments of 5 billion a year then they might be able to do that for
a while, but it will eventually cause them to fail.

The important consideration is you have already made back your investment at
this point so the owners don't care. In fact if the company fails that
suggests you succeeded in extracting more money than it was worth.

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lambertsimnel
I thoroughly agree with your 1st & 3rd paragraphs, but the situation described
in your 2nd paragraph sounds like one in which the lenders are irresponsible,
whereas the owners of the borrower alone seem to usually be blamed.

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Retric
The second paragraph was exaggerated for effect. However, companies are not
limited to bank loans, so it may be the bond market taking on these risks.
Further, there is an information asymmetry with loans so a company may be
cyclical in nature yet look really good over the last five+ years.

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owyn
So this investment group managed to find value in a company which previous
managers had not, that's fine. But they also captured all the rewards, which
none of the actual workers could do. 2.3 billion divided by 1200 is about 2
million per worker, yet they make $10 per hour. While this is legal, it seems
wrong. There are plenty of frameworks (stock options, employee ownership,
unions etc) that would have accomplished this but it seems like only in the
tech industry is it assumed that the people doing the work deserve some of the
rewards. As events like this are more common it should be just as common for
non-knowledge workers to be able to benefit from turn around a like this.

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jjoonathan
> only in the tech industry is it assumed that the people doing the work
> deserve some of the rewards

That's only because the supply/demand situation of tech laborers gives us
bargaining power at the moment. It won't last forever.

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vinceguidry
> That's only because the supply/demand situation of tech laborers gives us
> bargaining power at the moment. It won't last forever.

Tech is unique in the job market in that it's much easier to move up the value
chain relative to other types of jobs. There is very much a tech underclass of
easily-replaced workers. As time goes on, more and more of these sectors
become commodified. IT workers used to be really highly paid, now they're
replaceable. PHP was once in high demand, now it's only a little better than
being a IT worker.

The question here is whether there will always be a sector for tech workers to
move to where they can easily leverage themselves a seat at the table. I find
it hard to believe that it'll suddenly go away anytime soon.

