November 2015        

Vulture capitalism at work

Alan Hanlon

Earlier this year, on 12 June 2015, Clery’s department store was closed down and the locks changed, with the loss of 130 jobs and about 300 operators of franchises.
     Clery’s was an iconic store, known throughout the country, the main shop in the main street of the capital city. Its sudden closure came as a shock to the political establishment, who had been trumpeting a message about “recovery.”
     Natrium had bought Clery’s at 2:30 a.m. on the 12th of June. It then sold the operating company, OCS Operations, to Jim Brydie, a British insolvency specialist, who then petitioned the High Court to appoint KPMG as liquidator to OCS Operations. The shop was closed by 6 p.m.
     The workers at Clery’s, some with up to forty years’ service, helped create the store’s reputation. But the likelihood of the workers getting anything from the liquidation is nil. In fact it is more than likely that the state will have to pick up the tab for the statutory redundancy.
     The major attraction for the predators, however, was probably the floor space and extracting profit. Gordon Brothers originally bought the store in 2012, when it had €20 million in bank debt. They got a write-down on the debt to €12 million. They then restructured the company into Propco (the property-owning company) and Opco (the operating company), controlled by an investment company. When Natrium bought the store Gordon Brothers are reckoned to have made a profit of about about €6½ million before costs. By separating the Opco end of the store and selling this on, Natrium hoped to crystallise the losses in the entity while at the same time retaining the actual asset (the store itself and all that goes with it).
     One franchise-holder, LS Catering Ltd, believes the whole process is flawed and has taken legal action against parties involved in the sale and liquidation. The company is seeking to have all assets brought back into the pot so that creditors will have a possibility of getting something. The workers who created the value get nothing.
     Another example of vulture capitalism at work is that of Waterford Glass. Its demise is blamed on Tony O’Reilly, the prince of Irish business. A biography of O’Reilly was written by Ivan Fallon when O’Reilly was heading towards the pinnacle of his career; there was a television programme on RTE this year; and more recently another biography, by the journalist Matt Cooper, charts O’Reilly’s rise and fall. Waterford Glass figures prominently in the “fall” bit.
     According to the Great Men of History theory, O’Reilly and his brother-in-law Peter Goulandris put an estimated €400 million into Waterford Glass, and this broke him. If only life was so simple!
     It should come as a relief to bourgeois journalists that in early May this year KPS sold Waterford Wedgwood Royal Doulton to Fiskars, one of Finland’s oldest companies, for €410 million. KPS had bought it for €107.5 million in 2009 and also took a dividend for €50 million; profit: €350 million.
     Where was our hero? What happened to the Midas touch? KPS Capital Partners basically buys failing industrial firms, turns them around, and sells them on. Its purpose is to make profit; it has no interest in employees.
     KPS bought Waterford Glass from the liquidators in 2009. Shareholders, banks and bondholders had lost an estimated €1 billion (the losses can be used against future profits and so have a value). KPS restructured the business, and sold the Waterford site. At one time Waterford Glass was largely a wedding-gift brand; this has now been broadened into a gift at any time. By 2013 sales had grown to €394 million, and it was making €50 million a year.
     Once Waterford Glass was put into liquidation this gave any vultures the opportunity to move in and extract value. The liquidated company no longer has liabilities, such as pension payments, and bank debt can be written down.
     KPS recognised when they bought the company that they were getting a global brand. The accumulated surplus value of the workers in Waterford Glass, Wedgwood and Royal Doulton was incorporated in those brands. The vultures were able to buy that value at a knock-down price and eventually, by restructuring, turn the company to profit, sell it, and extract the value in the brand.
     The deferred pay that should have been in the pension fund was written off and socialised as a debt on the state after a protracted legal battle by the workers’ union, Unite. Only now will those workers who are still alive get their pensions, while millions have been extracted by the vultures.

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