We got a number of emails yesterday regarding the negative description of how a private equity deal – like the one in which Morgan Stanley is buying Tops Markets – works.
MNB user Dan Jones wrote:
All Private Equity Deals are not so bad as the one described by your reader yesterday…
I went to work for Borden when it was owned by KKR. Borden was badly/criminally mismanaged before it was taken private. KKR invested millions into fixing the Borden brands. They were also very up-front about the desire to fix and sell the business. To that end they did three things that were very smart:
1) Valued the company conservatively – gave employees a chance to buy in to the organization at the conservative price
2) Provided fair severance packages for all employees – so that good people would not leave before the company was sold
3) Got out of the way, so that managers could make good decisions, and fix and grow the business.
The sale process certainly was distracting, but we were all rooting for great values, because we had money involved – and it had potential to be “change your life” money. Now, to be clear, I was middle management – nothing more.
I am sorry that your other reader did not have a good experience with Morgan Stanley, but I look back at my years with KKR as some of the most satisfying in my entire career. The brands benefited, employees were treated fairly, and I got a real career lesson in fixing, building, and selling brands.
MNB user Michael E Julian wrote:
Having been in the LBO business in the eighties, the Private Equity (PE) model of today is basically the same. By that I mean the end result for the investment group is to make a significant return on the original investment.
Before condemning these financial engineers we should realize that in order for the ‘equity guys” to be able to buy your company someone had to sell it, that someone is often a “family owner” or a public company. Rarely are these previous owners seen as the bad guys. In only a few remote cases has the seller made provisions for the employees. I remember 1996 when Bill Goodman sold AMF for an incredible amount of money he actually took a percentage of the profits he made and shared them with every employee including the receptionist.
Getting back to the point, the PE model works for the investors, I believe the better model would be for every employee to be a potential beneficiary of the payoff in the 3-5 year time horizon. This would not be all that impossible to do as proved by Bill Goodman. While it does not answer the long-term concerns of people’s careers it would at least give everyone some payoff for the hard work and stress that these deals create. As long as there is a return on investment opportunity and no alternatives to financial buyers can be found, the PE model will continue. Maybe an enlightened PE firm will hit upon this employee involvement idea and find that the results are better, quicker and will result in a more attractive property to sell to a new long term buyer.
Another MNB user wrote:
Free at last from Ahold is a good thing for Tops. Ahold is still reeling and pulled more cash out of BI-LO in its last couple years than one could imagine. We could not even fix a broken sink in some of out stores bathrooms it was so tight. Granted, PR companies are what they are and they will need a good CEO to restructure and generate cash internally, because rest assured it will not come from the PE company. So far that plan is working for us here at BI-LO rather well. Fifty-plus capital projects are either underway or planned for remainder 2008. But like you said, nearly two years into it, the first thing everyone does everyday they come to work is to look around for the other shoe.
Another MNB user wrote:
The person who sent in their assessment in "Your Views" is probably going to be very close to what really happens. The whole point of a private equity group buying a company is to buy low and sell for a profit. This usually involves window dressing the financials. When does a private equity group really improve sales? Sure they can make acquisitions, close and consolidate stores, etc to make it look like sales and sales per unit are really going up, while market share falls.
Private equity groups like to hire former CEOs of the company or some other grocer and are basically hiring the name and not the person. The big decisions are made by the private equity group.
Roundy’s was bought by a private equity group that also owned Jay's Potato chips. All of a sudden the stores are wall-to-wall potato chips. Those are private equity decisions and not sound marketing strategies.
Since sales are probably not going to improve (really do you think Wegmans and Wal-Mart are just going to give it back?), financial window dressing will come from labor cuts, raising prices, and sale/leaseback schemes. Lets be realistic, jobs will be cut. They always come in an say no big changes and then beginning the next day, people are escorted to their cars to go pursue personal interests. Eventually sales fall to Winn Dixie-esqe levels and the company is sold again.
Hey, its the way it is in this business and its been going on for a long time. The competition is going to sleep easy.
And MNB user Dean Lustig offered the following advice:
While the approach of slash jobs, and get more growth type tactics have been around forever, the Bottom Line is be prepared. Everybody is vulnerable, so keep your resume updated, and no matter your age and responsibilities-review your skill sets to learn more and adapt. Above all else, push yourself to get outside your everyday environment to Network, Network, Network, by keeping a database complete with contact information. Leaving should be a personal decision, and staying informed by (reading Morning News Beat) and gaining new skill sets or networking with vendors or clients to learn more about what they do to serve them better, is a very proactive approach.
Thanks for the plug.
Regarding ConAgra’s new salmonella-related troubles, MNB user Scott Svarrer had some thoughts:
ConAgra obviously has some problems with their poultry supply and/or food handling practices which has resulted in this pot pie recall. However, I think the biggest problem with Banquet Pot Pies is that they have microwave directions. The packages for their 7 oz pot pies read "Cook Thoroughly" but also read "Microwaveable in 4 Minutes" (while cooking in a conventional oven at 400 degrees requires an agonizing wait of approximately 30 minutes). Salmonella bacteria is killed by thorough cooking, so in my opinion no raw poultry product should have microwave directions. Microwave ovens do not cook evenly which means they do not cook thoroughly (at least not any microwave that I have ever used).
It would be interesting to know how many cases of salmonella poisoning resulted from consumers eating microwaved pot pies. Just last week I had large 16 oz Bell & Evan's chicken pot pie which had microwave directions that read "Not Recommended". To me, this demonstrates a company that cares about its customers and the quality of its product. My pot pie cooked in the oven for about 60 minutes and I was not the least bit worried about Salmonella poisoning. ConAgra must know that cooking a pot pie in a microwave oven for 4 minutes increases the chance that some salmonella bacteria will not be killed. But will ConAgra dare to follow the example of a responsible company like Bell & Evans and remove the microwave directions from their pot pies; or will they continue to risk the public's health by catering to consumers who can't wait 30 minutes for a meal?
We had a story yesterday about increasing depression in the workforce, which led one MNB user to write:
Depression is not new and I question whether there's been a surge in the number of cases versus just more people reporting it now that Prozac is fashionable. Perhaps if mental illness were viewed and treated as the disease that it is, insurance companies would provide benefits that would adequately treat the disease - therapy (and not just 5 session per year) and medication when warranted. Too bad we only notice it as a problem when it involves production and the bottom line.
Not surprisingly, I got a ton of email about my story last Friday about Al Gore sharing the Nobel Price for his work on the global warning issue.
Now, I have to be honest here. I can't and won’t post a number of the emails- at least the ones criticizing Gore, and me for agreeing with him on global warming – because so many of them lapsed into profanity, vulgarity, and personal attacks that I thought crossed the line. (Gore gets attacked not just on political grounds, but also on religious grounds, which I find fascinating. I also got a piece of this, with one person suggesting that by agreeing with Gore’s view of the planet, I essentially was doing the work of the devil.)
I will, however, post two – one anti-Gore, one pro-Gore – as a way of illustrating the issues.
MNB user Don Longo wrote:
What happened to your cynicism? Really surprised that that you aren’t more cynical about the global warming scare-mongers. And, even if you swallow Gore’s apocalyptic vision of the future, you have to agree that this was a political film, not a scientifically accurate one. Scientists have pointed out numerous outright inaccuracies in the film.
And MNB user Chris Colombana wrote:
I had to chuckle at your response to the announcement of Al Gore's winning of the Nobel Peace prize. I feel very much as you do on this issue. I'm not the biggest fan of Gore as a politician, but I certainly did respect him for his work in “An Inconvenient Truth.” Work, it should be reminded, he's been involved in for decades.
The person who wrote you a few days ago to share their disappointment in your views on this matter is a perfect example of what scares me most about this issue. People like that individual have made this an entirely political issue, and it is anything but. They are so blinded by their party lines that they dig their heels in and refuse instantly to believe any data presented on this issue. One can only hope that most intelligent people can grasp that there is an unprecedented change taking place in the world regardless of who they vote for, and that it's ALL of our responsibility to start thinking about what we can do about it.
I’m not smart enough to be able to understand everything that all the various scientists say, but I have made the calculated judgment that it simply makes sense that if mankind keeps spewing stuff into the atmosphere, it is going to have an impact. I’ve said this before and I’ll say it again – there were scientists who said that smoking couldn’t hurt you or kill you, and in the long run it has been proven that they were driven by financial and political impulses, not science. I think the metaphor holds.
Does Gore’s work have a political component? Of course it does. But I think it is fair to say that if you had suggested to Gore ten years ago that he would get both an Academy Award and a Nobel Prize for his work in this area, he would have been incredulous. Furthermore, his rehabilitation is one of the most unlikely political events of the past hundred years, so I’m not sure suggesting that all his motives are political carries water.
I do cast aside my cynicism sometimes. Believe it or not, I often start from the premise that people – no matter what their political affiliation – have decent motives. These motives sometimes get washed away in the tides of self-interest and ego, but people generally start from the right place.
I also am swayed by the fact that not only do a lot of scientists agree with Gore – like the United Nations Intergovernmental Panel on Climate Change, which shared the Nobel Prize with him – but companies like Wal-Mart also have signed on. And Wal-Mart certainly would not be described as being sympathetic to Gore’s politics.
I have conservative friends who believe that one of the worst decisions made by the right wing was to allow Gore’s side of the aisle to co-opt the global warming issue – that conserving the planet ought to be a conservative issue. (Again, I’m fascinated that I could be described as doing the devil’s work by being concerned about the future of the planet and our impact on it.)
But I suppose that the debate will continue, and it seems unlikely at this moment that either side will be able to convince the other. Politics will dictate response, and people will only get angrier. No matter what happens to the earth, the political climate will remain virulent.
Too bad.
MNB user Dan Jones wrote:
All Private Equity Deals are not so bad as the one described by your reader yesterday…
I went to work for Borden when it was owned by KKR. Borden was badly/criminally mismanaged before it was taken private. KKR invested millions into fixing the Borden brands. They were also very up-front about the desire to fix and sell the business. To that end they did three things that were very smart:
1) Valued the company conservatively – gave employees a chance to buy in to the organization at the conservative price
2) Provided fair severance packages for all employees – so that good people would not leave before the company was sold
3) Got out of the way, so that managers could make good decisions, and fix and grow the business.
The sale process certainly was distracting, but we were all rooting for great values, because we had money involved – and it had potential to be “change your life” money. Now, to be clear, I was middle management – nothing more.
I am sorry that your other reader did not have a good experience with Morgan Stanley, but I look back at my years with KKR as some of the most satisfying in my entire career. The brands benefited, employees were treated fairly, and I got a real career lesson in fixing, building, and selling brands.
MNB user Michael E Julian wrote:
Having been in the LBO business in the eighties, the Private Equity (PE) model of today is basically the same. By that I mean the end result for the investment group is to make a significant return on the original investment.
Before condemning these financial engineers we should realize that in order for the ‘equity guys” to be able to buy your company someone had to sell it, that someone is often a “family owner” or a public company. Rarely are these previous owners seen as the bad guys. In only a few remote cases has the seller made provisions for the employees. I remember 1996 when Bill Goodman sold AMF for an incredible amount of money he actually took a percentage of the profits he made and shared them with every employee including the receptionist.
Getting back to the point, the PE model works for the investors, I believe the better model would be for every employee to be a potential beneficiary of the payoff in the 3-5 year time horizon. This would not be all that impossible to do as proved by Bill Goodman. While it does not answer the long-term concerns of people’s careers it would at least give everyone some payoff for the hard work and stress that these deals create. As long as there is a return on investment opportunity and no alternatives to financial buyers can be found, the PE model will continue. Maybe an enlightened PE firm will hit upon this employee involvement idea and find that the results are better, quicker and will result in a more attractive property to sell to a new long term buyer.
Another MNB user wrote:
Free at last from Ahold is a good thing for Tops. Ahold is still reeling and pulled more cash out of BI-LO in its last couple years than one could imagine. We could not even fix a broken sink in some of out stores bathrooms it was so tight. Granted, PR companies are what they are and they will need a good CEO to restructure and generate cash internally, because rest assured it will not come from the PE company. So far that plan is working for us here at BI-LO rather well. Fifty-plus capital projects are either underway or planned for remainder 2008. But like you said, nearly two years into it, the first thing everyone does everyday they come to work is to look around for the other shoe.
Another MNB user wrote:
The person who sent in their assessment in "Your Views" is probably going to be very close to what really happens. The whole point of a private equity group buying a company is to buy low and sell for a profit. This usually involves window dressing the financials. When does a private equity group really improve sales? Sure they can make acquisitions, close and consolidate stores, etc to make it look like sales and sales per unit are really going up, while market share falls.
Private equity groups like to hire former CEOs of the company or some other grocer and are basically hiring the name and not the person. The big decisions are made by the private equity group.
Roundy’s was bought by a private equity group that also owned Jay's Potato chips. All of a sudden the stores are wall-to-wall potato chips. Those are private equity decisions and not sound marketing strategies.
Since sales are probably not going to improve (really do you think Wegmans and Wal-Mart are just going to give it back?), financial window dressing will come from labor cuts, raising prices, and sale/leaseback schemes. Lets be realistic, jobs will be cut. They always come in an say no big changes and then beginning the next day, people are escorted to their cars to go pursue personal interests. Eventually sales fall to Winn Dixie-esqe levels and the company is sold again.
Hey, its the way it is in this business and its been going on for a long time. The competition is going to sleep easy.
And MNB user Dean Lustig offered the following advice:
While the approach of slash jobs, and get more growth type tactics have been around forever, the Bottom Line is be prepared. Everybody is vulnerable, so keep your resume updated, and no matter your age and responsibilities-review your skill sets to learn more and adapt. Above all else, push yourself to get outside your everyday environment to Network, Network, Network, by keeping a database complete with contact information. Leaving should be a personal decision, and staying informed by (reading Morning News Beat) and gaining new skill sets or networking with vendors or clients to learn more about what they do to serve them better, is a very proactive approach.
Thanks for the plug.
Regarding ConAgra’s new salmonella-related troubles, MNB user Scott Svarrer had some thoughts:
ConAgra obviously has some problems with their poultry supply and/or food handling practices which has resulted in this pot pie recall. However, I think the biggest problem with Banquet Pot Pies is that they have microwave directions. The packages for their 7 oz pot pies read "Cook Thoroughly" but also read "Microwaveable in 4 Minutes" (while cooking in a conventional oven at 400 degrees requires an agonizing wait of approximately 30 minutes). Salmonella bacteria is killed by thorough cooking, so in my opinion no raw poultry product should have microwave directions. Microwave ovens do not cook evenly which means they do not cook thoroughly (at least not any microwave that I have ever used).
It would be interesting to know how many cases of salmonella poisoning resulted from consumers eating microwaved pot pies. Just last week I had large 16 oz Bell & Evan's chicken pot pie which had microwave directions that read "Not Recommended". To me, this demonstrates a company that cares about its customers and the quality of its product. My pot pie cooked in the oven for about 60 minutes and I was not the least bit worried about Salmonella poisoning. ConAgra must know that cooking a pot pie in a microwave oven for 4 minutes increases the chance that some salmonella bacteria will not be killed. But will ConAgra dare to follow the example of a responsible company like Bell & Evans and remove the microwave directions from their pot pies; or will they continue to risk the public's health by catering to consumers who can't wait 30 minutes for a meal?
We had a story yesterday about increasing depression in the workforce, which led one MNB user to write:
Depression is not new and I question whether there's been a surge in the number of cases versus just more people reporting it now that Prozac is fashionable. Perhaps if mental illness were viewed and treated as the disease that it is, insurance companies would provide benefits that would adequately treat the disease - therapy (and not just 5 session per year) and medication when warranted. Too bad we only notice it as a problem when it involves production and the bottom line.
Not surprisingly, I got a ton of email about my story last Friday about Al Gore sharing the Nobel Price for his work on the global warning issue.
Now, I have to be honest here. I can't and won’t post a number of the emails- at least the ones criticizing Gore, and me for agreeing with him on global warming – because so many of them lapsed into profanity, vulgarity, and personal attacks that I thought crossed the line. (Gore gets attacked not just on political grounds, but also on religious grounds, which I find fascinating. I also got a piece of this, with one person suggesting that by agreeing with Gore’s view of the planet, I essentially was doing the work of the devil.)
I will, however, post two – one anti-Gore, one pro-Gore – as a way of illustrating the issues.
MNB user Don Longo wrote:
What happened to your cynicism? Really surprised that that you aren’t more cynical about the global warming scare-mongers. And, even if you swallow Gore’s apocalyptic vision of the future, you have to agree that this was a political film, not a scientifically accurate one. Scientists have pointed out numerous outright inaccuracies in the film.
And MNB user Chris Colombana wrote:
I had to chuckle at your response to the announcement of Al Gore's winning of the Nobel Peace prize. I feel very much as you do on this issue. I'm not the biggest fan of Gore as a politician, but I certainly did respect him for his work in “An Inconvenient Truth.” Work, it should be reminded, he's been involved in for decades.
The person who wrote you a few days ago to share their disappointment in your views on this matter is a perfect example of what scares me most about this issue. People like that individual have made this an entirely political issue, and it is anything but. They are so blinded by their party lines that they dig their heels in and refuse instantly to believe any data presented on this issue. One can only hope that most intelligent people can grasp that there is an unprecedented change taking place in the world regardless of who they vote for, and that it's ALL of our responsibility to start thinking about what we can do about it.
I’m not smart enough to be able to understand everything that all the various scientists say, but I have made the calculated judgment that it simply makes sense that if mankind keeps spewing stuff into the atmosphere, it is going to have an impact. I’ve said this before and I’ll say it again – there were scientists who said that smoking couldn’t hurt you or kill you, and in the long run it has been proven that they were driven by financial and political impulses, not science. I think the metaphor holds.
Does Gore’s work have a political component? Of course it does. But I think it is fair to say that if you had suggested to Gore ten years ago that he would get both an Academy Award and a Nobel Prize for his work in this area, he would have been incredulous. Furthermore, his rehabilitation is one of the most unlikely political events of the past hundred years, so I’m not sure suggesting that all his motives are political carries water.
I do cast aside my cynicism sometimes. Believe it or not, I often start from the premise that people – no matter what their political affiliation – have decent motives. These motives sometimes get washed away in the tides of self-interest and ego, but people generally start from the right place.
I also am swayed by the fact that not only do a lot of scientists agree with Gore – like the United Nations Intergovernmental Panel on Climate Change, which shared the Nobel Prize with him – but companies like Wal-Mart also have signed on. And Wal-Mart certainly would not be described as being sympathetic to Gore’s politics.
I have conservative friends who believe that one of the worst decisions made by the right wing was to allow Gore’s side of the aisle to co-opt the global warming issue – that conserving the planet ought to be a conservative issue. (Again, I’m fascinated that I could be described as doing the devil’s work by being concerned about the future of the planet and our impact on it.)
But I suppose that the debate will continue, and it seems unlikely at this moment that either side will be able to convince the other. Politics will dictate response, and people will only get angrier. No matter what happens to the earth, the political climate will remain virulent.
Too bad.
- KC's View:
