The Parasites of Western Economy, Part 5: Company Asset Strippers and Conspirators

by tonytran2015 (Melbourne, Australia).

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(Blog No.74).

#parasite, #asset stripping, #private equity,

The Parasites of Western Economy, Part 5: Company Asset Strippers and Conspirators.

A company operates to generate profits to be distributed to its shareholders. Unfortunately, the sheeplike shareholders have allowed their own dividend incomes to be reduced over long periods. This injustice is spotted by PE that moved in and took away the unjustly accumulated assets.

Generations of shareholders lost the assets owned but hidden from them. They blamed the PE but the it was really their management who set up the scene.

1. Steps leading to an Asset Stripping.

1. Company directors pay themselves and their associates extravagant fees and bonuses at the expense of shareholder dividends.
2. Company accountants receiving directions from their bosses and hides real situations from shareholders.
3. Dividend payouts are kept small under the guise of “retaining for future expansion”, so that directors payments can be made huge but admittedly some capital is actually accumulated “for future expansion”.
4. Earning/Price is now much smaller than Governments Bond rates (adjusted for inflation effect).
5. Company assets become unknown after years of obfuscation by accountants Earning capacity becomes uncertain but shareprices depend on it
6. Shareholders have been betrayed of trusts, got tired with begging for their rightly entitled dividends so they sold away shares at low prices.

7. PE (Private Equities) move in, buy enough shares to control the company.

8. Controling shares direct this asset rich company to enter into one sided loan agreements with the PE to siphon away the assets.

9. The company is then deregistered or declared bankrupt after its huge assets have been siphoned, making huge profits to the PE owning the controling shareholders.
10. The controling last shareholders are called the Asset Strippers. They siphon away the huge asset contributed by previous generations of shareholders leaving other creditors to the company with losses and company employees with unemployment and distress.
2. Are only Asset Strippers to be blamed.

Private Equities only do the economically logical thing of taking away the asset that did not produce adequate dividends.

The real villains are the directors who betrayed their shareholders trust and caused shareholders to sell out. Shareholders have already given up on (or have been robbed of ?) their capitals when they accepted minuscule dividents for their capital contributed at IPO (Initial Public Offer).

3. Avoiding losses caused by Asset Stripping.

1. Dont own any shares if you can.

2. Investors should not buy shares in any company unless they fully know its operation and director payments (see [2], A satirical guide to signs of an impending crash for small investors ).

3. Investors have to be very wary of companies with (Earning/Price + Growth rate) much lower than Government Bond rates. They may be the target of some PE take-over.

4. Company creditors should register their secure loans to the company. Reliance on the reputation of some 100 years old company names is not good enough for the present time. The current time is no time for inexperienced trade suppliers.

5. Company management should pay out all earning as dividends, declare its director payments and its assets to shareholders.

6. A company should not keep its assets hidden, should return surplus capital to shareholders to keep its Earning/Price higher than the (inflation adjusted) rate of Government Bonds. This will keep PE Asset Strippers well away.

4. Conclusions.
Private Equities are often blamed but the real villains are the directors who denied shareholders of their dividends and capital returns therefore drove shareprices to fractions of their true value.

References:

[1]. brick and mortar retail meltdown fueled by asset stripping details emerge in bankruptcy courts by wolf-richter,

https://straightlinelogic.com/2017/07/31/brick-and-mortar-retail-meltdown-fueled-by-asset-stripping-details-emerge-in-bankruptcy-courts-by-wolf-richter/, http://wolfstreet.com/2017/07/31/asset-stripping-pe-firms-fuels-brick-mortar-retail-meltdown/

[2]. tonytran2015, A satirical guide to signs of an impending crash for small investors, survivaltricks.wordpress.com, https://survivaltricks.wordpress.com/2017/01/25/a-satirical-guide-to-signs-of-an-impending-crash-for-small-investors/ , Jan 25, 2017?

Added after 2017 December:

[3]. https://vikinglifeblog.wordpress.com/2017/12/03/one-or-the-other/

Vulture fund killed Sears

[4]. https://riggedgame.blog/2018/10/17/sears-didnt-die-vulture-capitalists-killed-it/

[5]. https://m.huffpost.com/us/entry/us_5bc4b346e4b0bd9ed55c8a58?utm_source=nextdraft&utm_medium=email

[6]. Where the Vulture Funds Nest in Brexit Britain by True Publica, https://www.globalresearch.ca/vulture-funds-nest-brexit-britain/5695074

Over to Ireland and focusing on a nest of just 15 Irish subsidiaries of global vulture funds where it was found that they pay just €250 a year in tax. This is despite the companies having in their control €10.3 billion worth of loans and debt located in Ireland, where in total, the 15 companies have paid just €8,000 in tax between them in a year. It is estimated that the loss to the Irish Exchequer is up to €500 million in just two years.