Private Equity Retail ‘Abuses’ Spur Senator to Plan Legislation
(Bloomberg) -- Wisconsin Senator Tammy Baldwin is adding her voice to a growing list of politicians admonishing private equity’s stewardship of debt-laden retailers. And she says she is trying to do something about it.
“There are definitely active discussions” toward legislation that would address the collapse of struggling companies tied to buyout firms, Baldwin said in an interview Thursday following the release of a letter chiding Sun Capital Partners Inc. for its management of bankrupt retailer Shopko Stores Inc. “Legislation will be designed so this doesn’t happen again.”
Baldwin is the latest elected official to accuse private-equity firms of loading debt onto struggling retailers while reaping the benefits at workers’ expense. The issue burst into the public sphere last year when Senator Elizabeth Warren helped lobby for the creation of a hardship fund for workers after the collapse of Toys “R” Us Inc., and surfaced again after Sears Holdings Corp. filed for bankruptcy in October.
“I am no stranger to taking on powerful sectors of the economy,” Baldwin said of the private-equity industry. “I’m very aware how powerful they are, how many lobbyists they employ. But workers deserve a champion on their side.”
Click here to see a copy of Baldwin’s letter
Shopko -- which filed for bankruptcy in January and is in the process of liquidating -- promised employees severance pay during the company’s wind-down, Baldwin wrote in her letter. “Now, as Shopko’s final stores prepare to close this Sunday, June 23, these workers, many of whom have dedicated decades of their careers to serving Shopko customers, learned that they won’t receive any severance after all.”
Kristi Van Beckum, who worked as a store manager for Shopko in its home state of Wisconsin, is among workers who have organized to demand severance through the group United for Respect.
“When they took over our payroll got drastically cut, our retirement plan got cut, and we had high turnover among executives,’’ she said.
Shopko workers penned their own severance demands earlier this month.
Sun Capital said in a statement that funds it reserved for administrative claims in the court process will be sufficient to cover severance payments for workers laid off after the bankruptcy.
“Sun Capital has agreed to contribute $15.5 million to Shopko, which is more than enough to pay severance claims and the $2.7 million claim by the state of Wisconsin,” the statement read, referring to a March court claim from the state’s department of revenue. “This money is being contributed under a chapter 11 plan that provides for paying all administrative and priority claims.”
Baldwin asked Sun Capital to establish a fund for unpaid workers and to pay the state of Wisconsin $13.5 million in taxes and penalties.
Shopko, based in Green Bay, employed about 15,000 people and operated more than 350 stores at the time it filed for bankruptcy. The company said in March it would liquidate after failing to find a buyer to operate the chain. Another Sun Capital-owned retailer, Gordmans Stores Inc., went bankrupt in 2017 and shuttered.
“Sun Capital’s actions and the bankrupting of Shopko are not a surprise to anyone familiar with the abuses of the private equity playbook,” Baldwin wrote. “I will continue to work with my colleagues in the Senate to address the forces in our economy that hollow out Wisconsin companies and communities by putting profits for executives over investment in workers.”
(Adds comments from Baldwin starting in second paragraph.)
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