It wasn't the endless shrimp that pinched Red Lobster. How private equity rolled the seafood chain.

[Jilly_in_VA]

Angry that your favorite Red Lobster closed down? Wall Street wizardry had a lot to do with it.

Red Lobster was America’s largest casual dining operation, serving 64 million customers a year in almost 600 locations across 44 states and Canada. Its May 19 bankruptcy filing and closing of almost 100 locations across the country has devastated its legion of fans and 36,000 workers. The chain is iconic enough to be featured in a Beyoncé song.

Assigning blame for company failures is tricky. But some analysts say the root of Red Lobster’s woes was not the endless shrimp promotions that some have blamed. Yes, the company lost $11 million from the shrimp escapade, its bankruptcy filing shows, and suffered from inflation and higher labor costs. But a bigger culprit in the company’s problems is a financing technique favored by a powerful force in the financial industry known as private equity.

The technique, colloquially known as asset-stripping, has been a part of retail chain failures such as Sears, Mervyn’s and ShopKo as well as bankruptcies involving hospital and nursing home operations like Steward Healthcare and Manor Care. All had been owned by private equity.

Asset-stripping occurs when an owner or investor in a company sells off some of its assets, taking the benefits for itself and hobbling the company. This practice is favored among some private-equity firms that buy companies, load them with debt to finance the purchases and hope to sell them at a profit in a few years to someone else. A common form of asset-stripping is known as a sale/leaseback and involves selling a company’s real estate; this type of transaction hobbled Red Lobster.

https://www.nbcnews.com/business/consumer/private-equity-rolled-red-lobster-rcna153397

Disgusting. Not that I love Red Lobster THAT much, but the whole practice is disgusting.

[Silent Type]

1. Companies usually don't go to PE unless they have no other funding source. ToyzRUs could not get funding elsewhere

once their debt was downgraded to “junk” status, so they turned to PE as a last resort. That kept the place open another 5 years or so. Red Lobster is in similar trouble.

PE in these cases is kind of like going to a loanshark. PE delays the ultimate demise, but that’s about it.

[asm128]

2. Darden spinned them off, and they were purchased

"On May 12, 2014, Darden announced that as part of its spinoff of Red Lobster, it was converting the co-located Red Lobster and Olive Garden locations into standalone Olive Garden locations.[21] On May 16, 2014, Darden announced it would be selling the Red Lobster seafood restaurant chain to Golden Gate Capital for US$2.1 billion.[22] Darden announced the completion of the sale of Red Lobster on July 28, 2014".

They didn't go looking for a "loan shark"; the loan shark bought them from the parent company.

[link:https://en.m.wikipedia.org/wiki/Red_Lobster|

[Silent Type]

4. Because no one else would take them, besides corporate loansharks.

Last edited Sun May 26, 2024, 08:13 PM - Edit history (1)

In fact, Darden sold them because Red Lobster was a drain on the company. Golden Gate dumped them in 2020.

[MOMFUDSKI]

3. Mitt Romney can explain it to us best.

It is what his claim to fame is. Think his car elevator will take him to his own planet?

[Texasgal]

5. Not shocking to me...

You can best bet that your family doctor/ dentist/ optometrist has been taken over by private equity. There are very few privately owned practices around.

Low insurance reimbursements have caused many privately owned practices to sellout.

Welcome to the new America.

[pansypoo53219]

6. investors killed a very old dairy company in WI. yay! wall street shit.

[Jilly_in_VA]

8. I think I might know the one you're talking about.

I liked in WI from ages 7-30 so there's a good chance I do.

[pansypoo53219]

9. golden guernsey. it was our favorite brand.

[Jilly_in_VA]

10. Yup, that's it!

[DFW]

7. Some friends of mine in Dallas have refused offers to buy their company

For this very reason. They risked all to start it during the Reagan recession, built it into a viable company that treats its employees—maybe 800 or 900 now—very well. In their early thirties when they started it, they are in their early seventies now. They have been offered close to a billion dollars for it, which would net each of them about $300 million each (they have minority partners).

They have so far refused the offers, because they think the ones with the most solid financials are the ones most likely to either dismantle it, or else screw the employees with worse working conditions. Now, I know that neither of them are worth anywhere near $300 million, but at age 73, in good health and comfortable, which both pretty much are, neither of them needs $300 million, either. Not everyone is of the mercenary financial mentality.