Saturday, January 14, 2012

The New York Times on Bain Capital and KB Toys

In yesterday's post, I quoted a passage from Wikipedia's entry for KB Toys. On closer examination, that passage doesn't conform to Wikipedia's standards for citation style, so it's likely to be edited. The facts contained in it, however, are just fine, and they link to the following New York Times article.

Buyout Profits Keep Flowing to Romney

Here's the relevant section about KB Toys.
One lucrative deal for Bain involved KB Toys, a company based in Pittsfield, Mass., which one of the firm’s partnerships bought in 2000. Three years later, when Mr. Romney was the governor of Massachusetts, the company began closing stores and laying off thousands of employees.
While Bain’s deals typically yielded enormous profits for its investors and partners, several have led to serious financial problems — and sizable layoffs — at companies it acquired.

The 2000 purchase of KB Toys, then one of the country’s largest toy retailers, became one of the most contentious.

As in most Bain deals, the partnership put up a small fraction of the money — in this case $18 million — and borrowed the rest of the $302 million purchase price. Just 16 months later, the toy company borrowed more to pay Bain and its investors an $85 million dividend.

That gave Mr. Romney and the other partners a quick 370 percent return on their money. But it also left the toy company with a heavy debt burden. Before long, the company began closing stores around the country and laid off 3,400 workers. It filed for bankruptcy protection in 2004.
Also, that first bankruptcy didn't kill off KB Toys. The second one did. From Wikipedia.
K·B closed 156 stores on November 8, 2007. The Gordon Brothers Group[3] handled the liquidation of these stores. On February 9, 2009, K·B closed the remaining stores following the second bankruptcy filing in four years. In addition, K·B Toys' website was closed down.

The K·B Toys brand and related intangible assets were sold by Streambank LLC to Toys R Us on September 4, 2009 for a reported $2.1 Million. Because K·B Toys' 460 stores had been closed and liquidated, the sale applies mainly to the company's logo, website, and trademarks/intellectual properties. Toys R Us remains unsure of how the K·B name will fit into its future business plan.[2] So far, Toys R Us uses the K·B Toys brand in self-manufactured toys, under the name "KB Classics" with the K·B Toys logo.
None of that prevents me from thinking of Willard as the rat whose company killed off my kids' toy store, as the Ann Arbor location was gone by 2004.

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