The Scourge of Private Equity

[eliteballer]

https://slate.com/business/2022/11/a...te-equity.html

Private equity firms have sucked hundreds of billions of dollars out of American companies since the pandemic began. There may be no less blatant case that these extractions have helped drive America’s broader inflation crisis than Albertsons, the grocery conglomerate whose private equity owners, namely Cerberus and Apollo, announced on Oct. 14 an audacious plan to sell the company to the grocery chain Kroger for $25 billion. That deal would create a 5,000-store, $220 billion colossus that the two companies promised would invest billions of “cost savings from synergies” to “enhance the customer experience” and “[raise] associate wages” and oh, by the way, also in the more immediate term spend “up to $4 billion” on a special dividend to Albertsons shareholders payable Nov. 7, a move the companies explained would commensurately reduce the price Kroger pays for Albertsons to $27.25 a share.

If you shop (or used to shop) at an Albertsons-owned supermarket—Safeway, Jewel-Osco, Vons, and Acme are the company’s other biggest brands—you know where that $4 billion is coming from. Albertsons has been far and away the most aggressive markup-wielder of the major grocers. Its 27 percent gross margins tower over Kroger’s 22 percent and Costco’s 13 percent.

Now in its defense, Albertsons needs to gouge customers because 16 years of private equity ownership have left the company with $7.2 billion in long-term debt, $5.5 billion in operating lease obligations, billions more in underfunded pension obligations and $1.75 billion in a debt-like “hybrid” bondage to Apollo. The company spent more than $1.5 billion on rent and interest expenses in 2020, and those costs are likely to rise fast as interest rates continue to rise. That is the mathematically inevitable result of allowing a specialized class of money managers to use anonymous LLCs to acquire companies with minuscule down payments and nothing on the line if the burden of servicing that debt drives the company into bankruptcy—a business practice that was opposed by 71 percent of Americans all the way back in 2019, before the avalanche of supply-chain snafus, rampant shortages, runaway inflation, and overall dysfunction that was worsened over the last two years by that practice’s proliferation throughout the economy.

And sabotaging its own massive supermarket chain could be Cerberus and Apollo’s whole intention, as the attorneys general of Washington, D.C., Illinois, and California pointed out in their federal lawsuit, because these firms can only get their $25 billion if the deal goes through, and antitrust regulators have been known to award “failing firm defense” exemptions to anticompetitive mergers if the acquired firm is in severe financial distress. From the lawsuit:

Now in its defense, Albertsons needs to gouge customers because 16 years of private equity ownership have left the company with $7.2 billion in long-term debt, $5.5 billion in operating lease obligations, billions more in underfunded pension obligations and $1.75 billion in a debt-like “hybrid” bondage to Apollo. The company spent more than $1.5 billion on rent and interest expenses in 2020, and those costs are likely to rise fast as interest rates continue to rise. That is the mathematically inevitable result of allowing a specialized class of money managers to use anonymous LLCs to acquire companies with minuscule down payments and nothing on the line if the burden of servicing that debt drives the company into bankruptcy—a business practice that was opposed by 71 percent of Americans all the way back in 2019, before the avalanche of supply-chain snafus, rampant shortages, runaway inflation, and overall dysfunction that was worsened over the last two years by that practice’s proliferation throughout the economy.

And that there is the real showstopper. Because the devolution described above, wherein the current norm that views every realm of commercial activity as first and foremost a vehicle for shareholder cash extraction, ultimately strips our workplaces and vital infrastructure of their ability to function normally—well, welcome to America, where everything from the hospitals to the airlines to the dental clinics to the railroads to Boeing has been brought to its knees by the same predictable cycle of gratuitous junk debt imposed to fund gratuitous shareholder payouts that must then be paid off through round after round of gratuitous layoffs and price hikes. Our ruling class spent $882 billion on stock buybacks in 2021—but couldn’t be bothered to fix the leaky roof of the plant that produces a quarter of the nation’s infant formula. Private equity is a misleading euphemism for the malign force responsible for this great ponzification of our institutions; in the 1980s everyone just called it “corporate raiding” because that’s what it was.

[Chick Stern]

Cerberus is evil and destroys all it touches

[eliteballer]

https://www.yahoo.com/finance/news/p...180041614.html

[Lakers Legend#32]

Poopsie would say, "Shut Up ******."