Friday, March 16, 2018

Bain Capital and the Destruction of Toys R Us

In case the news reports wasn't enough, Toys R Us has released the official press release on their impending shutdown. As for what really caused the companies downfall - its turns out to be intentional debt caused by Bain Capital, KKR & Co. and Vornado Realty Trust. If you remember any company, remember Bain Capital. You might remember them when Mitt "companies are people too" Romney ran for President. In short the company is pure evil. They are anti-capitalism at its worse. They exist to profit off the destruction of companies by burying them in debt. If anything TRU was supposed to have died around 2010 and just lived longer then intended. The graph, via, shows the point the debt became the companies death point. That jump from 2005 to 2006 is when Bain Capital bought the company and turned it private by borrowing $5.3 billion off of TRU's assets to then make a $6.6 billion purchase of the company. That debt was immediately added to TRU's ledgers when the purchase went through. Despite its average ~$10 billion per year in sales. That level of debt means the company didn't stand a chance because all profits go to private shareholders (Bain, etc.) and paying off the debt. Nothing else, like improving stores, advertising and a host of other things heathly companies do to compete, TRU simply didn't have the money or the ownership will to do it. In short the company was bought for the express purpose of eventually forcing it into bankruptcy.
But what's fascinating -- or unsettling -- is that overall revenue at Toys "R" Us didn't fall all that much, even during and after the recession. In the 12 months leading up to the LBO, the chain generated $11.2 billion of sales, versus $11.1 billion in the 12 months through October 2017, according to data compiled by Bloomberg. The high was $13.9 billion for the year ended January 2012.

The overarching problem was costs -- and importantly, interest expense on borrowings. By 2007, just before the financial crisis hit, the retailer's interest expense spiked to 97 percent of its operating profit. For the latest reported 12-month period, pretax income was negative $492 million. According to a Bloomberg News story last year, KKR and Vornado previously wrote down their investments in Toys "R" Us to zero, so the bankruptcy didn't affect their earnings.
The takeaway - if you know or work for a company that is bought by Bain Capital then kiss it goodbye. It will be destroyed, that is what Bain does.

Press Release:
WAYNE, NJ – March 15, 2017 – Toys“R”Us, Inc. today announced that it has filed a motion seeking Bankruptcy Court approval to begin the process of conducting an orderly wind-down of its U.S. business and liquidation of inventory in all 735 of the Company’s U.S. stores, including stores in Puerto Rico. Toys“R”Us will provide more details about the plans for the liquidation of its U.S. stores and going out of business sales in the near term.

Toys“R”Us also announced that it is pursuing a going concern reorganization and a sale process for its Canadian and international operations in Asia and Central Europe, including Germany, Austria and Switzerland. The Company’s international operations in Australia, France, Poland, Portugal and Spain are considering their options in light of this announcement, including potential sale processes in their respective markets. The Company’s stores in all these international markets are currently open and serving customers.

In connection with the sale process, the motion the Company filed with the Bankruptcy Court included bidding procedures for the Canadian operations. The Company also disclosed that it is engaged in discussions with certain interested parties for a transaction that could combine up to 200 of the top performing U.S. stores with its Canadian operations. While discussions continue on this potential transaction, Toys“R”Us is seeking court approval to implement the liquidation of inventory in all the U.S. stores, subject to a right to recall any stores included in the proposed Canadian transaction.

The previously announced administration of the UK business continues.

Dave Brandon, Chairman and Chief Executive Officer, said, “I am very disappointed with the result, but we no longer have the financial support to continue the Company’s U.S. operations. We are therefore implementing an orderly process to shutter our U.S. operations and will pursue going concern sales or reorganizations of certain of our international businesses, while our other international businesses consider their options.”

Brandon continued, “There are many people and organizations who have remained in our corner every step along the way. I want to thank our extraordinary team members who helped build Toys“R”Us into a global brand. I also want to express my appreciation for my colleagues on our board who have continued to provide support to sustain the brand and our operations throughout the restructuring process. I would also like to thank our vendors who we owe a great deal of gratitude to for their decades of support. This is a profoundly sad day for us as well as the millions of kids and families who we have served for the past 70 years.”

The Company and its advisors are working to minimize the impact of the U.S. liquidation on the Canadian and other international markets. As part of these efforts, the Company is implementing a transition services arrangement for the next 60 days and is developing plans for a potential shared service function to support the international operations going forward.

Additional information regarding the Company’s restructuring process can be obtained by calling the Company’s Information Hotline, toll-free in the U.S. and Canada at (844) 794-3476, or sending an email to Court filings and other documents related to the court-supervised process in the U.S. are available on a separate website administered by the Company’s claims agent, Prime Clerk, at

Kirkland & Ellis LLP is serving as principal legal counsel to Toys“R”Us, Alvarez & Marsal is serving as restructuring advisor and Lazard is serving as financial advisor.

Wednesday, March 14, 2018

Toys 'R' Us Shutting Down, Closing All Stores

After filing for bankruptcy and trying to come up with solutions to save the company by selling it, Toys R Us has officially thrown in the towel. Today the company announced it was closing all 800 of its United States Toys R Us & Babies R Us locations. It had previously announced it was closing all its United Kingdom locations. The 60 year old company has "$7.9 billion in debt against $6/6 billion in assets" and owes money to more then 100,000 creditors. The closure will lead to the loss of 33,000 nationwide. End result is the company will likely cease to exist worldwide by beginning of the summer.

The cause is many and varied but the always higher prices on toys compared to competitors (like Target and Wal-Mart) and the last decade virtually ignoring online retail combined with toys being replaced by tablets, computers, phone and other virtual means made this slide all but inevitable. “We know that customers are willing to pay more for an enjoyable experience — just look at the lines at Starbucks every day — but Toys R Us has failed to give us anything special or unique,” Kelly O’Keefe, a professor of brand management at Virginia Commonwealth University, told The Washington Post this year. “You can find more zest for life in a Walgreens.” I can't really disagree with that assessment.

To compound this sad day, the incompetent corporate management that pushed the company over the cliff will likely get hefty bonuses for their failures. The amounts have not yet been disclosed and usually have to be approved by the bankruptcy court that almost always rubber stamps such requests. As for the 33,000 about the enter the job market...good luck.

No indication on when the clearance will begin but likely either this weekend or next so keep an eye out. If you have any TRU gift cards, go immediately to the website or store and try to use them now as they are probably not even a few days away from being useless. Usually when chains at this scale shut down, they actually sell of their entire inventory to other companies who bring in their own employees (or temporarily hire ex-employees of that chain) to then sell of that inventory. As a result the first few weeks of clearances is when everything gets marked up to over MSRP and then "discounted" back to normal sell prices so if go to a closing store, do your homework on what a good deal is, don't assume the % means you got one.

It is a sad day to see this piece of childhood disappear. “I don’t wanna grow up, I’m a Toys R Us kid" describes me (maybe a little closely) and I don't bother to go there anymore as always fail to find what I was looking for at a reasonable price and now its online only. I still remember a time when an entire aisle was nothing but G1 Transformers boxes, another GI Joe figures, another of Lego, and so forth. Another aisle was nothing but boxes of Nintendo and Sega games. A child's paradise of potential. Somewhere along the way those in charge forgot that and it became something boring, lifeless and of no value. To know the incompetence will be rewarded just makes it a little bit worse.

Saturday, March 03, 2018

Transformers Avoids Razzie Awards "Wins"

The "winners" of the Golden Raspberry Awards were announced and despite multiple nominations, Transformers: The Last Knight managed to avoid getting an award. If interested in the meh video announcing the winners, click here but below is the summary.

- Worst Picture: The Emoji Movie
- Worst Director: Tony Leondis – The Emoji Movie
- Worst Actor: Tom Cruise – The Mummy
- Worst Actress: Tyler Perry – Boo 2! A Madea Halloween
- Worst Supporting Actor: Mel Gibson – Daddy’s Home 2
- Worst Supporting Actress: Kim Basinger – Fifty Shades Darker
- Worst Screen Combo: Any two obnoxious emojis – The Emoji Movie
- Worst Prequel, Remake, Rip-off or Sequel: Fifty Shades Darker
- Worst Screenplay: The Emoji Movie

Friday, February 16, 2018

Transformers 6 Dropped From Schedule For A "Reset"

Today Hasbro provided a little peak into their future plans for the Transformers movie franchise. This weekend is the start of Toy Fair 2018 in New York and the toy company hosted their Investor Preview Day that shows off their upcoming plans for their various toy properties (such as getting hold of the Power Rangers license) and of course Transformers. Hasbro CEO Brian Goldner said "We’re actively developing live action and animated films, and have dated several under this new agreement. We’re excited about this year’s Transformers: Bumblebee, as we work with the new Paramount team to reset the future direction of Transformers. We’ll be partially financing the production of these films, and Bumblebee is the first under the new agreement."

In the long term what that means was not revealed but in the short term it means that Transformers 6 is no longer in the works for what was going to be a 2019 release. In the short term Hasbro is planning a China exclusive animated series in 2019 called "Nesha and the Transformers" while western countries will get "Transformers: Cyberverse" cartoon and toy line that will likely replace the "Transformer: Generations" line that was represented by the Prime Trilogy of toys.

On to the speculating. I am going to go ahead and take "reset" to essentially mean "reboot." In short, the "Bay-verse" will end with Bumblebee: The Movie. The Transformers Writers Room of scripts have probably been trash canned too since they were mostly devised with the Bay-verse in mind. While not saying it, likely the next Transformers movie will not come until 2021 at the earliest to provide breathing room for that "reset" in consumer minds. Any new movies will likely ignore the Bay-verse. For reference, see the various Spider-Man reboots. When the deal between Hasbro and Paramount was renewed, it apparently gave the toy company greater control and say over the movies but since we have not yet seen a movie with Hasbro in greater control of the creative process, we have little to go on for what the result will look like in movie form. All we really have is the various cartoons and IDW comic books from the last decade or so to go by. Those results vary wildly depending on franchise and target audience but the Transformers cartoons over the last few years have hit the "all ages" note fairly well.
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