Private property men try to rob a supermarket chain before selling it

 The Albertsons/Kroger merger tells you a lot about our cash extraction economy.



Earlier this week, four prosecutors filed two separate cases in an effort to prevent a group of private equity firms from extracting $4 billion from the supermarket chain they own. It was a frankly shocking turn of events, given that, as anyone who has ever worked can attest, corporate looting is literally what private equity firms do.


What happened Thursday night remains insane: A judge agreed to Washington AG's proposal to issue a temporary restraining order, ordering private equity guys to delay the takeover of the money, set to go down on Monday, pending the outcome of the initial November hearing. 10.


Private property men try to rob a supermarket chain before selling it




Private equity firms have sucked hundreds of billions of dollars from American companies since the pandemic began. 



There may be no less obvious case that these extractions helped drive America's broader inflation crisis than Albertsons, the grocery group whose private-equity owners, namely Cerberus and Apollo, announced on October 14 a bold plan to sell the company to grocery chain Kroger. for $25 billion. 




This deal will create a 5,000-store behemoth, valued at $220 billion, which the two companies promised will invest billions in “cost savings from synergies” to “enhance the customer experience” and “[raise] partner wages,” and by the way, also in the near term, spend” up to $4 billion” in a special dividend to Albertsons shareholders due November 7, a move the companies said would reduce the price Krueger pays for Albertsons to $27.25 per 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 comes from. Albertsons has been, far and away, the most aggressive label maker among major grocers. 




Its gross margins of 27 percent towered above 22 percent at Kroger and 13 percent at Costco. A San Francisco Chronicle survey of prices for 15 basic grocery items found that Safeway was the top grocery chain from 10 regions, including Whole Foods; A retail watcher user in Irvine, California, compared the prices of an order of Albertsons groceries they bought in 2019 to the same order in 2022 and found that prices rose 75 percent in three years. 






This manipulation helps explain the puzzling contrast between the price hikes Americans have been forced to endure on groceries (a 13.5 percent increase in August 2022) versus those for restaurant food (an only 8 percent increase in the same month). One industry is highly concentrated and monopolistic, while the other is fragmented and competitive.




Now in its defense, Albertsons needs to convince clients that 16 years of private equity ownership has 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 Dollars in Debt - Like Apollo's "Hybrid" Slavery. 




The company spent more than $1.5 billion on rental and interest expenses in 2020, and those costs are likely to rise rapidly as interest rates continue to rise. That's the inevitable arithmetic consequence of allowing a specialized class of money managers to use anonymous LLCs to take over companies with little down payment and nothing at stake if the burden of servicing that debt drives the company into bankruptcy — a business practice opposed by 71 percent of Americans all along. Way back in 2019, before the collapse of the supply chain, rampant shortages, runaway inflation, and general dysfunction that had been exacerbated over the past two years by the practice's spread throughout the economy.





Thanks to the pandemic and the cost-of-living crisis of the past year and a half that helped fuel it, Albertson is in a much stronger position than most private equity portfolio companies, having taken the debt-to-earnings before interest, tax, depreciation and amortization ratio (i.e. EBITDA) from 6.7 in 2018 is barely solvent to 3.5 less manageable in 2022, creating a cash stock of $3.39 billion. 






But its bonds still have "junk" credit ratings, and its leases are likely inflation-linked. The $4 billion in stock today will almost certainly dry up Albertsons workers and clients. Stores may close; An ice cream of $10.85 can go up to $13; And as the Washington state lawsuit notes, expect it to start taking road trips to find baby formula, because the Albertsons' likelihood of paying its sellers on time would be $4 billion less.





Sabotaging their own mega supermarket chain could be the entirety of Cerberus and Apollo, as prosecutors in Washington, D.C., Illinois and California pointed out in their federal lawsuit, because these companies can only get $25 billion if the deal goes through, and the regulators are known to Antitrustists grant "failed company defense" waivers for anticompetitive mergers if the acquired company is in dire financial distress. From the lawsuit:





The discovery would reveal that the "special dividend" reflects a calculated effort to leave Albertson aggrieved enough for the defendants to later argue (to regulators or the court) that Kroger should be allowed to acquire a "failing" or "failed" company lest it cease to operate anyway, But it still deserved its hard assets and Kroger's gains from neutralizing its rival.




Now, as Washington State's AG points out in his state's lawsuit, the parties involved here are all too familiar with the pleasures of "failure" on one's path to monopoly. 




Back in 2014, when Albertsons acquired the then publicly traded Safeway, it volunteered to liquidate 143 stores in overlapping areas to a Seattle-based "competitor" called Haggen, a regional chain of 18 stores in the Pacific Northwest that had (surprise , surprise) was recently acquired by a private equity firm. Hagen paid about $300 million to the stores, then turned around and sold the underlying real estate to about half of the stores for about $300 million, which the private equity firm used to pay a special dividend for itself. 




The Hagen deal collapsed within weeks, and by the end of 2015 the entire chain was in bankruptcy court, suing the Albertsons for willful vandalism of stripped-down stores (by tampering with their computer systems, raiding all of the stores' canned and boxed merchandise.) and leaving Hagen with all perishable inventory) and then sell half of them for pennies on the dollar to… 




Albertsons. (The Albertsons settled that lawsuit for $5.75 million, a large sum given the apparent joint liability of Hagen Private Equity owners.) "The similarities with the Albertsons Safeway merger are troubling," the lawsuit says. "The Attorney General's Office is deeply and rightly concerned that the past may be a precursor."






But even if the seizure of the $4 billion cash wasn't part of a diabolical conspiracy to circumvent antitrust law to force an illegal merger, the D.C. lawsuit maintains that it, in and of itself, constitutes an illegal restriction on commerce under Section 1 of the Sherman Act :


But whatever the motive, antitrust laws don't matter: Defendants have an agreement that, as detailed here, will have an anti-competitive effect between supermarkets in the District of Columbia, California, and Illinois, and that is sufficient basis for this court to stop paying private profits, protecting consumers and workers In all states... 



By stripping the Albertsons of necessary cash while a deteriorating bond rating makes access to capital more difficult for Albertsons, this agreement between Kroger and Albertsons reduces Albertsons competitiveness on price, services, other measures of quality and innovation. 



As it increases Albertsons' influence, empirical economics suggests that this decrease in Albertsons' competitiveness will reduce the intensity of price competition at the market level.





And that there is a real supply factor. Because the mandate described above, where the current standard of viewing every area of ​​business as first and foremost a way to extract shareholder cash, ultimately strips our workplaces and critical infrastructure of their ability to function normally 




- well, welcome to America, where everything from hospitals to airlines to dental clinics to railroads to Boeing has been brought to its knees by the same predictable cycle of junk debt imposed to fund unwarranted shareholder payments that must then be repaid through a round After another, free layoffs and price hikes. 



 

Our ruling class spent $882 billion on stock buybacks in 2021 — but it couldn't bother fixing a leaky cap on a factory that produces a quarter of the nation's infant formula. Private property is a misleading euphemism for the malign forces responsible for this great simplification of our institutions; In the '80s everyone called it a "corporate raid" because that's what it was.



For years, the grieving community of union activists and money practitioners has been working tirelessly to criminalize its worst abuses. 



They made overland trips to New York to rally outside KKR headquarters and Apollo and were caught outside BlackRock; He testified at congressional hearings and rallied around a powerful law, the Stop Wall Street Looting Act, that would actually target the problem at its root in the systematic violation of bankruptcy law.




And over the years, the struggle to "make theft illegal again" culminated in almost nothing. Private equity is stronger than ever; The "Stop Wall Street Looting" Act won't come out of the committee, with Democrats in control of both houses of Congress. 




What I've learned in years of interviewing workers at companies controlled by private equity is that, no matter how bad things look in the gutter, they can always go wrong. (Just take it from residents of the KKR-owned chain of nursing homes where health inspectors have repeatedly found no staff at all during their visits to facilities after the famous private equity firm immortalized in Barbarians at the Gate added an additional $2 billion in debt to the balance sheet.)





But what if "looting Wall Street," as state agents are now arguing, is actually illegal? Because it stifles the resources needed for enterprises to “competitively” in the marketplace, thus violating a whole host of long-overlooked taboos on anticompetitive trade restrictions?




What this argument lacks in Old Testament moral outrage, it makes up for in its appeal to a very important group of lawyers: antitrust enforcers. 




Unlike bankruptcy or securities law, antitrust law enforcement is the work of elected officials, and many have found it to be an increasingly useful tool for attacking the uncontrolled power of corporations that abuse their constituents. 




And antitrust law also happens to be in the midst of a kind of renaissance, driven by a small group of scholars who at one point realized that their forefathers had left them a toolkit to counteract abuses of corporate concentration and monopoly power, and that these were politically famous tools, most of which were not actually abolished It has only been marginalized and forgotten as a combination of the antitrust dogma of Robert Burke's "consumer welfare standard" and the de facto "philanthropy" of monopolies like Walmart and Amazon Sherman's Law into the proverbial trash.





But while antitrust proponents have been astonishingly successful in deflecting political sentiment around Big Tech and other high-profile monopolies like Ticketmaster and the airline cartel, private equity and the attendant bonus problem pose a new challenge, because where monopolies are related to size and power, Wall Street looting often leaves smaller firms and weaker. 





It also happens in part by design: the founding fathers of private equity were masters of exploiting antitrust enforcement to synthesize diverse conglomerates that had just evaded a strict merger ban violation in the 1960s, in swallowing up the unwanted divestments of those conglomerates in the 1970s and 1970s. . 1980s, and in snapping down companies that were second or third in an industry and therefore less likely to invite scrutiny than the big, big-name companies. 






Albertson and Krueger, for their part, have made the need to "compete with Walmart" a cornerstone of their public argument that their merger would in fact be beneficial to competition, rather than undermining it.





In the real world, Walmart, though brutal, competes more for your business than Safeway — its CEO even credited the influx of "high-income value-seeking customers" for the recent surge in its grocery sales over its recent Call earnings — while Avoiding competition altogether is the central occupation of private equity, whose hypothetical strategy of using brutal staff cuts and price hikes to fund massive cash payments will not work if markets are legitimately “competitive.” 




Take it from Apollo Advisors, which declared in its 2020 annual report: “We seek to focus on investment opportunities where competition is limited or non-existent.” (Potentially, antitrust regulators will take them at their word: On Thursday, Bloomberg broke the news that the Justice Department is investigating Apollo's financing of 64 TV stations on suspicion of conspiring to raise cable TV fees.)







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