Tuesday, September 15, 2015

Turn Arounds and Politics

Back in the 80s I did a few turn arounds. There was a simple formula:

1. Fire half the people. I used SSNs to make the decision, even numbers out. That reduced costs.

2. Raise the prices, that gave you some revenue for a short time.

3. Rush to find a buyer.

It works and private equity folks do it all the time. I left that when I did one in Memphis. I got to see what firing some of these folks meant. People with a spouse in the midst of cancer treatment, a child needing extensive care, etc. The stories were too many to take. They were real.

Now we have the tale of a couple of Private Equity folks taking companies like Kraft off the market. Guess what; they fired a ton of people and now are cutting off the health care plans for all the retirees. As reported in insurancenewsnet they state:

Global food giant Kraft Heinz Co. is going after retiree benefits as the recently merged company accelerates cost cutting to try to boost profitability. The company, which was created through the July combination of Kraft Foods Group and H.J. Heinz Co., is eliminating a group health insurance plan for about 15,000 Kraft retirees and will give them money to buy coverage on a private exchange. The company is also allowing some retirees to cash out their pension plans. Heinz retirees experienced similar cuts in 2013 and 2014. The moves are the latest efforts by Kraft Heinz and Highlight the belt-tightening that is typical of corporate shake-ups implemented by Brazilian investment firm 3G Capital, which partnered in 2013 with Warren Buffett's Berkshire Hathaway to buy Heinz. Berkshire and 3G engineered the merger of Kraft and Heinz to create the world's fifth largest food and beverage company, which is expected to have annual sales of about $28 billion.

Yes indeed, one of the folks on the Private Equity side is that bastion of Liberal Democrat doctrine, the man from Nebraska. So what do we see? Tens of thousands of folks now scrambling to get coverage  and many in the midst of life threatening situations. A quick calculation shows that these poor folks will go from a costs 0f approzimately $2,000 per year plus out of pocket per person to well over $10,000 per year per person, assuming they can even get a plan. And what of that poor person in the midst of cancer therapy? I remebered that, I got the guy another job, and carried his plan. I guess I am just not cold enough for that business.

One is reminded of Tennessee Williams and "relying on the kindness of strangers". Blanche DuBois did not make it through so well. Thus one should think twice when some well heeled Private Equity person tells us how we should manage our lives; what of the impact they had on the lives of the many?

What could or should have been done? Tell the folks a year ahead of time, give them so room to maneuver, but don't drop it on them at the end of the year. Will one year cost that much? Especially if the tax rate for these guys is so low.