Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.
For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year.
But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.
Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years.
I think I speak for everyone when I say how much I enjoy it when the invisible hand of the free market gives me the finger. How ’bout we let some dope smokers out of jail and round up some of these pricks? Plus, we could auction off their private islands and country club memberships and help balance our budgets.
And has that WATB Jake Desantis quit his job at AIG yet?
asiangrrlMN
Not to mention this bit of non-regulation:
Betsy linked to it yesterday. The dangers of eating ground-up beef.
Free market, bitchez.
Bootlegger
Oh, but it’s where they put that finger, or an occasional fist, that really hurts.
mrami
According to his LinkedIn page, Jake DeSantis quit back in May
Incertus
@Bootlegger: Beat me to it. Great minds and all that.
gopher2b
They need to extend the fraudulent conveyance period for this kind of stuff to years not months.
The Dangerman
I predict one of these fuckers is going to end up looking like Mussolini and swinging from a lightpost. It’ll only take one.
gnomedad
I don’t mean to pick on John here, but I wince when liberals (and I count myself as one; don’t know if John does) beat up on the “invisible hand” meme. Adam Smith’s insight that the profit motive and competition, properly structured, can bring social benefits is perfectly sound. The problem is that the wingers ignore the other half of the equation: you need a regulatory infrastructure to set boundaries and get the incentives right. If these guys had their way, football would be played with automatic weapons.
That said, the wingers will call us soshulists whatever we say or do, so maybe I’m being anal retentive here.
racrecir
Bud Fox: Why do you need to wreck this company?
Gordon Gekko: Because it’s WRECKABLE, all right?
Zam
@The Dangerman: Meh, more likely to be an ACORN guy. These fuckers have too many mainstream defenders to bring the kind of hate ACORN is getting.
PeakVT
And to top it all off, the jokers who wrecked the company almost certainly have a lower effective income tax rate than the laid-off workers did. They haven’t even done their fair share to help pay for the judicial system that enabled them to loot the company legally.
At least pirates are honest about what they are doing.
Miss T
WATB could also be What a Total Bastard
namekarB
As usual, Atrios pretty well sums it up.
Brick Oven Bill
Get out of the stock market, the average PE ratio is 11, here the same corrupt forces are in play.
Consider a self-employed plumber who takes a salary of $75,000, and whose company clears $40,000/year after expenses. If this self-employed plumber was to be offered $440,000 cash to walk away, he would…
TAKE IT.
Thus, the stock market is over-valued by approximately one-half. This money is pocked by the system. The reason stocks have been rising is because of the printing of trillions by Obama’s Treasury Department, which, surprise, distributes these funds to banks, reducing the value of the dollar. The stock market is indexed in dollars and is therefore rising.
The market is up 20% or so since January. Goldman Sachs is up around 300%.
Marianne19
From Goodfellas
And, finally, when there’s nothing left, when you can’t borrow another buck from the bank or buy another case of booze, you bust the joint out.
Xecky Gilchrist
If the Wall Street tycoons didn’t have such burdensome 15% taxation on their capital gains, they wouldn’t be forced into a life of crime to support their cocaine, hooker, vacation-home, and yacht habits.
r€nato
This situation with Simmons is pretty much a textbook example of the kind of predatory capitalism which Michael Moore’s new film is all about.
I suspect that Moore would go one step beyond and say that all capitalism is predatory. I won’t go that far… yet.
But the current American interpretation of what capitalism means, is deeply dysfunctional and needs to be changed.
gnomedad
@r€nato:
Predation is the game, “capitalism” is the excuse, and teabaggers are the useful idiots.
EdTheRed
Hmmmmm…maybe we can use this technique for good instead of ebul:
Blue Horseshoe loves Halliburton.
cbear
@The Dangerman: Too right.
I have been saying for years—that unless and until we start treating these fucks exactly like the guy that robs a 7-Eleven, this shit will go on endlessly.
Last night 60 Minutes had an interview with some fuck named Dreir, who was a mini-Madoff (he only stole $3-400 million), and the fucking interview was in his APARTMENT where he was under house arrest as he awaited sentencing.
The gist of the interview was how far this poor fuck had fallen, and how he fucked up because his peers had bigger houses and yachts than his $18 milllion yacht and his $20 million house(s) and he felt inadequate, and how contrite he was, and on and on and on…
All I could think about was, WHY THE FUCK IS THIS FUCK IN HIS APARTMENT!!!
Jeebus, I wanted to reach through the screen and strangle this fuck, and fucking Steve Croft, who didn’t seem to think that little fact was worth mentioning.
Aw crap, now I’m all peeved and shit again.
MattF
Yeah, well. ‘Financier’ is a fancy synonym for ‘wealthy pickpocket’. The surprise here is that there are formerly-wealthy bond purchasers who don’t know that.
R. Porrofatto
I’ve been using the word like “parasites”, “predators”, “thieves” and the like to describe Wall Street’s function in our economy ever since I first read about what exactly a leveraged buyout was back in the 80’s. “Wait… you mean I buy the company using the company’s own assets to collateralize the loan, raid the pension fund for all it’s worth, lease the company’s own plant back to itself, sell off whole chunks to its competition, and so on, and this is all fucking legal?” All I usually get is that “what are you, a commie?” look in return. It’s all gotten much worse since then with even more deregulation and thievery, not to mention the pressure to outsource jobs and such to jack up the stock price for the finance boys’ bonuses. Or the entire banking casino CDO/Default swap/derivative/free money rackets. Et fucking cetera.
I swear, if working Americans ever got a gander at the lifestyles of even Wall Street’s lowly middle managers for whom they are sacrificing their own lives … oh who am I kidding, they’d probably still support repealing the Estate Tax, crushing unions, and nod as they listen to Sean Hannity tell them why they don’t deserve unemployment insurance.
Penfold
@racrecir:
Wall Street is such an excellent film.
@gnomedad:
Yeah, this is an interesting point. Though, it may be a purely “academic” one in both the literal and rhetorical/vulgar sense of the term: That is, no one in the contemporary political realm, right or left, usually addresses what Smith said, as opposed to what the contemporary right claims Smith said, and to a certain degree it’s probably not worth while for the left to bother, since it would only be distorted by the right anyhow, as you point out.
maya
However, what you’re leaving out of the equation is that these buyouts, or hostile takeovers, are almost always financed by (the promise of) high yielding junk bonds. Some retired Death Panel believer idiots who want to beat the 1-3% yields of insured investments, like savings and CDs, buy this shit up all the time. They never learn. Then they get stuck holding the worthless bag of crap and we’re supposed to feel sorry for them. None of this is anything new.
Comrade javafascist
Nobody could have predicted that when you spend 30 years demonizing regulation and taxes you only end up enabling a criminal class of bankers to loot the entire system and screw the rest of us. And we end up thanking them for hiring us at <1% of their annual salary. Hey, geniuses at Reason: Start stocking up on Pitchfork manufacturers stocks.
maya
However, what you’re leaving out of the equation is that these buyouts, or hostile takeovers, are almost always financed by (the promise of) high yielding junk bonds. Some retired Death Panel believer idiots who want to beat the 1-3% yields of insured investments, like savings and CDs, buy this shit up all the time. They never learn. Then they get stuck holding the worthless bag of crap and we’re supposed to feel sorry for them. None of this is anything new.
Catherine F.
I’m pretty much convinced that these bastards are actually just like those guys in The Simpsons, sitting around a table, toasting, “Gentlemen, to evil!”
Brick Oven Bill
Correction: The Average P/E Ratio is 21, I misread the graph. Our plumber would most definitely take $840,000.
Penfold
@Comrade javafascist:
Somebody like Paul Krugman probably did, but they’re just shrill, and they only said that because they hated Reagan, so best not to listen.
GregB
You’d think at least one of the invisible hands would give us a reach-around whilst the other holds onto our shoulder.
-G
Warren Terra
BOB, you are insane as usual. I’m a near economic illiterate, but even I can tell that is a company is really booking $40,000 in profit every year after expenses then taking it over intact for $440,000 would be a great deal for the investor – that’s a 9% return annually, plus in theory the investor can resell it to recoup the principal later; it might even gain in value. Now, to be sure, you play a little game by having the company’s main asset – its founder and most dedicated employee – disappear with the takeover, which disrupts the whole idea because a sane investor probably wouldn’t offer the same money for the company under those circumstances. But another plumber, able to take the departing plumber’s place, might even be willing to buy the first plumber out for that price.
J
If I didn’t know the term should only be applied to unions or people from the lower orders, I’d say this was a textbook case of parasitism.
aimai
Remember when we all noticed that the entire Bush Economy and War Machine was essentially a Mafia Bust Out operation? I remember watching the Sopranos episodes where Tony et al would take over a legitimate business and leverage it to the hilt and then rip it off, burn it down, and otherwise gut it and think ” oh! I get it! in the real world the US treasury is the little sporting goods store!”
aimai
Warren Terra
I see that while I was writing Bob changed his P/E ratio from 11 to 21. Assuming the Earnings really are Profits (and I can’t remember whether they are), this would still be about a 5% return annually, which would in theory still be pretty darn good. Now, minority shareholders obviously don’t get to realize all of that (per-share) profit for themselves; they may in fact get none of it. But Bob decided to make an example about buying out a business, and it stands to reason that a sole businessowner would get to do whatever they wanted with the company’s annual profit.
Penfold
Interestingly, the S&P 500, arguably the most useful/representative of the main indices, has seen it’s average PE shoot into the triple digits due to massive earnings falloffs. But even discounting this arguably outlier, P/E ratios have been high considering we’re in the midst of an extended real recession. But, when all the money goes to the top, it’s easy to keep those equity prices inflated.
Comrade Dread
Capitalism (like Democracy and a Republic form of government) is grand, IF you remember that people are easily prone to corruption, abuse, greed, and all of the normal foibles humanity is prey to and you do your best to build a system of strong checks and balances to prevent the worst of the abuse.
Unfortunately, we don’t have even an adequate regulatory structure in place and the regulations that are in place are often written by the industry they’re supposed to regulate.
Comrade javafascist
@Penfold (kaw, chief!)
But Krugman, et al. are DFHs so we can ignore them (and don’t call me uncivil for using an acronym with a swear.) Too bad the village hasn’t yet noticed the country is about 60% DFHs now.
r€nato
@aimai:
the only difference between Simmons and the Mafia bustout you described, is that the former is perfectly legal.
Years from now, our descendants will marvel that anybody at all bought into this, ‘let big business self-regulate and everything will turn out fine’ bullshit, let alone millions of voters.
Origuy
I’ve decided that Brick Oven Bob is an AI, probably a research project by a team of people. The program analyzes the posts in a thread and generates something remotely on topic. However, as the thread diverges from the original topic, BOB’s generated posts get more and more bizarre. The occasional sane posts, as well as the completely off the wall ones, come when one of the team tweaks the parameters of the algorithm too far.
Mnemosyne
@Catherine F.:
Heard the ADM tapes, have you?
Brick Oven Bill
Re: Main Asset
Goldman Sachs’ P/E ratio is 41.4. They have little equipment, and little skilled labor. They do have the Treasury Department and the printing presses however. This is a pretty good asset, and may explain why their stock has tripled since Obama took office.
Notice that this was not a step jump in stock price, but rather a steady ramping up, likely as it sunk in the Obama would really let these guys run things.
Origuy
Sorry, that was Brick Oven Bill. I really need preview!
Penfold
@Comrade javafascist:
LOL. Also, nice to see someone call out the DM reference. :)
@Origuy:
I know this has been discussed at length for a while around these parts, but I do really think BOB is a spoof. Some of the stuff he says just seems too intentionally funny to be real winger rhetoric. Somebody in another thread a couple days ago also pointed out his use of “teabagger” as evidence.
Penfold
@Penfold:
intentionally was supposed to be italicized for emphasis. HTML fail.
kay
This story was just crazy-making to me. They took a good company with a good product and bled it dry.
It’s scary, because it’s as if we’re consuming actual accrued and appreciating assets that were created long before we decided to throw everything at the finance sector, and nothing real or sustainable is replacing them.
Once it’s gone, it’s gone. What collateral are we planning on borrowing on, once we burn through every tangible and ongoing entity that was built in the last 100 years? I have no idea.
freelancer
I never understood why the French cut off Marie Antoinette’s head, NOW I FUCKING GET IT!
Barbara
I am going to go out on a limb and state that I am not sure that the Simmons (or PEF generally) situation is all that representative of any evil other than excessively easy money. I am not sure what kind of regulation would have avoided the situation, or that Simmons didn’t benefit to some degree from some of the transactions (not all — obviously — the turnover rate could not have been healthy). If you read the entire article, it’s clear that some of the owners benefited the company, while others simply made commercial or marketing mistakes that any company might make.
It’s just another example of how tolerance for excessive debt levels has toxic repercussions for the rest of us.
Sanka
Spare us the sanctimonious dribble. As you sit around your home, tapping away at the computer, petting your dog and feeding your cat, having plenty to eat, and a roof over your head.
Remind us again, exactly how the free market “gives you the finger”? I’d say you’re pretty well off all things considered.
You should thank your lucky stars that the innovation and techgnology, hell the very keyboard that you so diligently tap away on as you spew your self-congratulating and faux-populist nonsense, are the products of the free-enterprise system you try to denigrate.
J
Shorter Sanka:
You should be cringingly grateful to your betters, Mr. Cole.
In a world ruled by natural justice your organs, along with those of most of the worthless, idlers who comment on this blog, the present author’s included, would long ago have been harvested to prolong the lives of deserving billionaires.
Svensker
@freelancer:
This.
Svensker
A friend of mine’s dad had a medium-sized company outside of Grand Rapids that had been making moderately priced nice quality furniture for the last 40 years. Dad wanted to retire but was worried about his employees — until he found a finance company that was willing to buy him out, and swore they would keep Dad on as a consultant for the first 2 years and keep all the employees. They did. At the end of the 2 years, they laid Dad off, and sold the company to another group of investors. Five years later, the company was gone, completely looted. Thrown away like a spent condom. All the jobs were gone. The day after they closed the plant, friend’s dad had a heart attack. Fortunately, he was on Medicare so he was able to get decent treatment.
We have laws that make it illegal for people to shoot each other, or break into each other’s homes and steal stuff. No one screams that those laws make us “unfree”. What’s wrong with laws that prohibit financial looting and shooting?
Brachiator
@gnomedad:
I’m not sure that a regulatory system can set incentives.
Part of the interesting thing about the Simmons situation is that it is another instance of the tax system giving an incentive to propping a business up and selling it for a huge capital gain, rather than running it as a going concern.
Brachiator
@kay:
By the way, this story reminded me of the film Goodfellas, and how the Mob (’cause there’s no such thing as a mafia) would “invest” in a legitimate business, gut its assets and inventory, and then torch it and collect the insurance on the arson damages.
Corner Stone
@Origuy: You mean like the teams that competed for the Netflix prize?
I’d have to say the idea is inspired, but the outcome still rather faulty. Or fawlty, depending on your viewpoint of whether the BoB persona is spoof AI or troll AI.
Zak44
The Simmons story makes it clear that we are all in thrall to a mendacious corpocracy.
Another Times report from the day before, about a 22-year-old woman paralyzed as a result of eating an e.coli-contaminated burger, makes it even clearer. And shows how, when companies say “jump!” the only response from the supposed regulators is to ask “how high?” on the way down.
The story is here, but if you have a weak stomach, you may want to skip it:
http://www.nytimes.com/2009/10/04/health/04meat.html?
For my money, the most revealing passage in the whole report is this:
“Dr. Kenneth Petersen, an assistant administrator with the department’s Food Safety and Inspection Service, said that the department could mandate testing, but that it needed to consider the impact on companies as well as consumers. ‘I have to look at the entire industry, not just what is best for public health.’”
No, Doctor Ken, you don’t. You’re the damned food safety inspector. The ONLY thing you should be looking at is “what is best for public health.”
Corner Stone
I’m a little confused here. Does this story indicate who are the “Makers” and who are the “Takers”?
Dr. Morpheus
But, if you do that, it’s no longer Capitalism.
It’s Something Else.
SBW
I haven’t popped in here for a while, so I don’t know if Sanka is some sort of internal joke, if not:
Don’t be an idiot.
If the computer is new, chances are it was manufactured in China, an authoritarian industrial state, with prices kept low by labor oppression, grotesque safety and environmental standards, and currency manipulation. The software was probably a split between Indian developers, trained in state-funded schools, and American developers, many trained in public universities. The computer was then delivered to the United States via shipping methods requiring cheap, plentiful energy sources kept available by the United States military.
Safely in John’s house, the computer is powered on — I am originally from Kentucky, so I assume the power source in WV would also be coal (yes, dirty) — which was mostly likely discovered by public university trained geologists, extracted by public university trained mining engineers, and is only mined in safe conditions due to the oppressive hand of government. Lets not forgot coal, like many other products, is transported by rail lines created via generous government welfare handouts to private companies.
John is able to surf the web due to the work of thousands of computer scientists and other professionals, many full time academics at public universities. A flashy web page is one thing, hell, even Google, but the underlying structure to even get to this point is much more impressive. And most of the work creating it was public, not private.
As John munches on his food — grown no doubt by farmers receiving government subsidies to last through lean years, and processed to health standards mandated by the government (I bet you don’t like the FDA, huh?) — he should thank the almighty free market for making his life possible.
Ah yes, the free market. Is there anything it can’t do?
Well, I consider the ‘free’ market similar to the yeti or Loch Ness monster, that is, a myth of its respective culture.
Brachiator
@Svensker:
This reminds me of the unfolding stories about a spate of suicides at France Telecom.
http://news.bbc.co.uk/2/hi/8252547.stm
http://www.guardian.co.uk/world/2009/sep/09/france-telecom-staff-suicides-phone
Things got so bad that the senior management was finally replaced:
http://www.ft.com/cms/s/0/84acfc7c-b17d-11de-a271-00144feab49a.html
slippy
@Sanka: Yes, because we should never be concerned that the fundamental processes underlying our economy are theft, rape, and pillage. Having a shred of empathy for the employees or even the shareholders of Simmons is just gauche and means you’re not with the program.
You are morally bankrupt, and you have my permission to DIAF. Also, too.
JHF
Well, dang. How ‘BOUT it, then?1?
polyorchnid octopunch
You know, that sounded a lot like what Conrad Black went to jail for at Hollinger. I wonder if they’re going to take these guys down the same way?
I’d be awfully surprised if they did, but maybe I’m just cynical.
Obama Death Panel Chairman (formerly glocksman)
When can we start shooting them?
I’m being sarcastic, but personally I think sometime in the future we’ll see some poor middle aged sap who lost his job, wife, and family snap, and decide to use the last of the gas in his old pickup to park on the hill overlooking the gated community where the financiers who ruined his life reside.
He’ll be looking down there with his last nice possession: a Remington Model Six .30-06 rifle equipped with really good Nikon optics that he inherited from his father.
And 100 rounds of ammunition.