{"id":185650,"date":"2014-09-17T22:10:00","date_gmt":"2014-09-18T03:10:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2014\/09\/17\/it-aint-the-salt-in-the-pasta-water-and-it-aint-the-bread-sticks-its-the-looting\/"},"modified":"2014-09-17T22:10:00","modified_gmt":"2014-09-18T03:10:00","slug":"it-aint-the-salt-in-the-pasta-water-and-it-aint-the-bread-sticks-its-the-looting","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2014\/09\/17\/it-aint-the-salt-in-the-pasta-water-and-it-aint-the-bread-sticks-its-the-looting\/","title":{"rendered":"It Ain’t the Salt in the Pasta Water, and it Ain’t the Bread Sticks, It’s the Looting"},"content":{"rendered":"

Have you read the story about the hedge fund that criticized the Olive Garden restaurants for how they boiled their pasta and complained that they served too many bread sticks?<\/p>\n

Read further, past the cute suggestions about food prep, and it becomes clear that the Starboard Value hedge fund was interested in srtip mining the real casual dining chain and leaving nothing behind but its bleached bones<\/a>:<\/p>\n

Last week, you may have noticed a kooky story about a hedge fund named Starboard Value chastising Olive Garden<\/a> for handing out too many unlimited breadsticks at a time, and failing to salt its pasta water. The snarky 294-page presentation<\/a> highlighted everything wrong with Olive Garden, along with recommendations to fix it. And there was much laughter. <\/span>

<\/span> \u2026\u2026\u2026<\/span>

<\/span> Except Starboard Value does not spend its time crusading for better mid-market Italian meals for no reason. It owns a bunch of shares in Olive Garden\u2019s parent company, Darden Restaurants, and wants to take control of the company\u2019s board. The scheme it\u2019s concocted to increase its share price has little to do with breadsticks and pasta water. It really wants to steal Olive Garden\u2019s real estate, and make a billion dollars in the process. <\/span>

<\/span> Starboard Value doesn\u2019t try to hide this. Right in the executive summary<\/a>, it talks up Darden\u2019s real estate holdings the way a starving man sizes up a steak. Darden, owner of LongHorn Steakhouse, Capital Grille and other chains, \u201chas the largest real estate portfolio in the casual dining industry, owning both the land and buildings on nearly 600 stores and the buildings on another 670,\u201d Starboard Value writes. \u201cWe believe that a real estate separation could create approximately $1 billion in shareholder value.\u201d Here\u2019s the actual slide:<\/p>\n

<\/a><\/span><\/p>\n

This is a more common technique than you might realize. Private equity firms often buy businesses with lots of real estate assets, like nursing homes, restaurants or retail outlets. They then split the company in two: one owns all the real estate, and one manages the rest of the business. The operating company now has to lease back the real estate from the property company, paying rent on what it used to own. The private equity firm, meanwhile, can take profits from the lease payments or by selling the entire real estate portfolio, making back its initial investment. The more expensive the leases, the more the private equity firm makes.<\/span>

<\/span> \u2026\u2026\u2026<\/span>

<\/span> A sale-leaseback arrangement may make sense for a company with lots of real estate holdings, if it needs quick cash to make investments and cannot access a loan. Think of it like a company making a reverse mortgage. But Eileen Appelbaum of the Center for Economics and Policy Research, co-author of a recent book called \u201cPrivate Equity at Work: When Wall Street Manages Main Street,\u201d explains the key difference. \u201cIf the company does this themselves, they get to keep the money from the sale,\u201d Appelbaum told Salon. \u201cAnd they get to spend it to make improvements. In this case and the private equity case, the shareholders see the value.\u201d Basically, Starboard Value wants to strip Darden\u2019s assets, the Wall Street equivalent of pocketing the silverware.<\/span>

<\/span> Starboard Value has a history of asset-stripping. Earlier this year, it forced Wausau Paper to change CEOs and consolidate mills, moving out of the century-old headquarters that gave the company its name. Starboard Value demanded the company use some of those savings from laying off workers to pay Starboard a dividend.<\/span>

<\/span> In May, Starboard Value forced Darden to sell another of its chains, Red Lobster, to private equity fund Golden Gate Capital for $2.1 billion. The same day, Golden Gate sold the real estate of 500 Red Lobster locations to a real estate investment trust (REIT) for $1.5 billion. Darden used proceeds of the sale to give dividend payments to shareholders like Starboard Value. And Golden Gate made back most of the investment in a blink with the real estate sale. But Red Lobster now has to pay exorbitant rents on its restaurants. \u201cThe sale-leaseback will cut their net earnings roughly in half,\u201d Eileen Appelbaum estimated.<\/span>

<\/span> If Olive Garden has to cut its earnings in half to pay rent on properties it previously owned, you can forget about upgrading the menu or making any of the other improvements Starboard Value suggests. The restaurants will barely be able to keep afloat. But Olive Garden\u2019s continued existence is of minimal importance to Starboard Value. \u201cThese are shareholders, they don\u2019t really care what happens once they make their money,\u201d said Eileen Appelbaum.<\/span><\/p><\/blockquote>\n

Note here that the ratf%$S who want to dismantle the chain, and sell it for parts, much like an chop shop for stolen cars.<\/p>\n

This is what tools like Timothy Geithner call financial innovations. It’s not. It’s a pernicious form of parasitism. <\/p>\n

As the old saying goes, “The best way to rob a bank is to own one.”<\/p>\n

While a modern economy need a way to get capital from people who have it to people who need it, this has nothing to do with that.<\/p>\n

I’m not sure what the whole<\/b> solution is, but a Tobin Tax<\/a> on financial transactions would be a good start.<\/p>\n

Locking up some of these crooks would be nice too.<\/p>\n","protected":false},"excerpt":{"rendered":"

Have you read the story about the hedge fund that criticized the Olive Garden restaurants for how they boiled their pasta and complained that they served too many bread sticks? Read further, past the cute suggestions about food prep, and it becomes clear that the Starboard Value hedge fund was interested in srtip mining the …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1005,970,1004,1012],"tags":[],"class_list":["post-185650","post","type-post","status-publish","format-standard","hentry","category-business","category-corruption","category-finance","category-food"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/185650"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=185650"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/185650\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=185650"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=185650"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=185650"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}