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I wonder to what extent can Sears' creditors go after Seritage. It can't be as simple an algorithm as: 1. Buy a company 2. Spin off major assets into another
by emiliobumachar 8y ago
I wonder to what extent can Sears' creditors go after Seritage.
It can't be as simple an algorithm as:
1. Buy a company
2. Spin off major assets into another company
3. Have the original take debt and pay the money to the spinoff
4. Bankrupt the original, but keep the healthy spinoff
without paying any of the debt
5. Profit!
... can it?
- NeedMoreTea 8y agoWhy? It's a model that's worked successfully for decades, though you forgot 1a Have the company take on debt to pay for the takeover. It's also ridiculously destructive and abusive to all except the asset stripper.
- i_feel_great 8y agoWhy do others hang on when they see this coming, if they stand to lose?
- parrellel 8y agoRampant bullshitting.
- narrator 8y agoTo be fair, it also benefits the people who buy the assets if they paid a good price for them.
- aedron 8y ago"Leveraged buyout". I.e. borrow cash to buy out a company, using the company's own assets as security for the debt. Gotta love these innocuous sounding financial engineering terms. Barbarians at the Gate is a classic business book about such a case (the takeover of RJR Nabisco).
- charlesdm 8y agoAs long as you have someone willing to lend you money, yes.
- pjc50 8y agoOr you could lend it to yourself, which is what's happening in these situations. Something similar happened to Maplin: https://leftfootforward.org/2018/03/revealed-how-private-equity-contributed-to-maplins-demise/ https://leftfootforward.org/2018/03/revealed-how-private-equ... - a shell company called Rutland charging usorious rates of 15% to the trading business. It also functioned as a tax dodge: in the unlikely event of Maplin making an operating profit, the interest repayments would not have been taxable whereas other means of profit-taking would have been.
- charlesdm 8y agoAs per OECD recommendations (and this was enacted into law in 2017 by the UK) the deduction of interest expenses is limited up to 30% of corporate EBITDA (above a £2m de minimis). While that allows for some tax avoidance, in the grand scheme of things it does not allow for a lot.
- shaki-dora 8y agoNo, of course not. Among other things, you have a fiduciary duty not to sell assets under value.
- yourbandsucks 8y agoAyy lmao
- zaphirplane 8y agoSimilar to what happened to tos r us, also sold of the Realestate and owned by funds
- Quequau 8y agoThat's not all that dissimilar from the machinations that metal mining industries use to avoid long term ecological liabilities. So it probably is that straight forward.
- bduerst 8y ago>3. Have the original take debt and pay the money to the spinoff I asked this same question of my accounting prof in grad school. His answer was "You guys are very good at coming up with ways to commit fraud". Basically shareholders will sue the crap out of you - diverging debt is a very careful and meticulous process, and bag holders have legal recourse to come after you.
- baud147258 8y agoBut what if the majority shareholder is the one doing it? From what I've understood, Lampert (and/or his fund) is the biggest shareholder
- bduerst 8y agoIt's assumed you're a minority shareholder doing the suing, since the majority is required to approve the split to begin with. Individual shareholders have contractual rights that are guaranteed by the shareholder's agreement with the corporation, and shareholders will sue if there is negligence or other violations of this agreement. There are also varying degrees of control/rights depending on the class of equity - it's one of the reasons Warren Buffet only buys preferred stock.