Every Guitar Center I've visited in the last year or two had that 'going out of business' feel. Not surprised to find out Bain Capital was involved.
The structure of the Sears deal was really interesting and suspicious. Sears bought a small number of Kmart stores for an enormous cash price, which sent Kmart stock into orbit, then Lampert used the inflated Kmart stock to acquire Sears. Pretty shady.
Another difference is Lampert is a black sheep, but Mitt Romney is for some reason still socially accepted despite having wrecked dozens of American companies.
Our democratic governor Deval Patrick went to work for Bain after he left office.
How does this work exactly? Why would the company lend an acquirer money?
Guitar Center voted to give Bain Capital money by one person wearing two hats.
They find a public company that's not doing great. Maybe they're just stagnant or they had a down year. Either way, you find someone who wants to sell a publicly traded company.
Then they put up a small amount and have the company itself take out a loan to buy back its stock.
So now the company is paying interest on the debt it took on to buy itself and also paying "management consulting fees" to places like Bain Capital.
In short: Toys R Us should have never had to close its doors. https://theweek.com/articles/761124/how-vulture-capitalists-...
"""In connection with the execution and delivery of the merger agreement, Parent and Merger Sub entered into a debt financing commitment letter with J.P. Morgan Securities Inc. and JPMorgan Chase Bank, N.A. to provide up to $1.815 billion in debt financing, consisting of (1) a senior secured asset-based revolving facility with a maximum availability of $375 million, (2) a senior secured loan term facility in an aggregate principal amount of $800 million, (3) a senior unsecured bridge loan facility in an aggregate principal amount of up to $300 million and (4) a senior subordinated unsecured bridge loan facility in an aggregate principal amount of up to $340 million. """
As to the question of why company management would agree to do this, it's because they personal get paid a huge amount of money to execute the merger. Guitar Center's old CEO got paid $25 million by immediately paying out all his future stock grants on the date of the merger.
"""Each stock option to purchase our common stock outstanding immediately prior to the merger, whether or not then exercisable or vested, will become fully vested and will be deemed to be exercised and canceled at the effective time of the merger, and each holder of such stock option will be entitled to receive a cash payment..."""
In practice it’s a little different as you arrange the debt financing before buying the company, but conceptually it works the same way. As the new owner of the company you can saddle it with debt (as long as lenders are willing to lend you the money).
So from the point of view of a bank or bond-holder, it's not such a bad deal if the company survives. It's not a bad deal either for the past owner who does cash out. Then, after the acquisition, they put the debt on that company's books because they were technically costs incurred from that company, and there is nobody to stop them anyway.
* Are their success stories quiet and their failures heavily publicised?
* Are they not as creative/clever at strategy as they could be, resulting in them exhausting options and going for "run into the ground" too early or too frequently?
* Do they pick an unusually large number of unhealthy firms that are prone to this endgame? In which case, why aren't they getting better at due diligence?