Tuesday, March 19, 2019

Shopko sunk by vulture capitalism and bad Wisconsin business policies

As this week dawned, we knew that a major Wisconsin retailer was in big trouble, and this story from Monday is worth thinking about as you pass by a Shopko “Store Closing” sale in your community.
In a motion filed in bankruptcy court [last] Tuesday, a committee representing some of the company's largest landlords and suppliers said $67 million in special dividends and fees constituted a "fraudulent conveyance" while another $50 million in dividends were "illegal."

The creditors committee is seeking a Nebraska bankruptcy judge's permission to attempt to recover those claims, which could add millions of dollars to Shopko's balance sheets at a time when unsecured creditors, those who do not have a claim to collateral, face a real chance of not receiving anything of what the Ashwaubenon-based retailer owes them for inventory, services and leases.

In February, Shopko's two independent directors identified $179.5 million in dividends paid to Shopko's private equity owners — Sun Capital, Waverly Securities, KLA Shopko LLC and H.I.G. Sun Partners Inc. — between 2007 and 2015. The company borrowed money to pay the dividends, according to court documents.
Your hometown...hedge fund play?

While a “fraudulent conveyance” merely allows for a court to recover some of that money to shore up its balancer sheet, it’s still a reflection of horrible priorities, where hedge funders got paid while Shopko went under and screwed over many people in the process with job and business losses.

Then that was followed by worse news yesterday, where we found out those creditors aren't likely to get much of anything, because the other 120 Shopkos in America will also be no more within 3 months. And that the job losses will also happen at the company's GB-area's corporate offices.
Employees at Shopko headquarters, in Ashwaubenon, found out about the liquidation during an emergency meeting on Monday. Individual stores had team meetings to pass along the same information. An employee who works at the headquarters said longtime employees teared up as managers told them the news.

The liquidation will leave big holes in tow Green Bay area shopping malls: Bay Park Square in Ashwaubenon and East Town Mall in Green Bay. But it also means big impacts in smaller communities like Oconto and Sister Bay, where there isn't another large retailer or a pharmacy to take over prescriptions.
In addition to loss of one of the few sizable corporate headquarters that are in the Green Bay area, there are now going to be large amounts of empty retail spots in Wisconsin communities, which increases the property taxes that homeowners will have to pay as a result. And as the article alludes to shopping opportunities will be significantly reduced in some smaller communities.

The liquidation announcement was an abrupt reversal from what was expected from Shopko this week.
The bankruptcy court had scheduled an auction for Tuesday morning in the hope of driving up the price of initial bids that were submitted last week. On Monday, it announced the auction was canceled and a bankruptcy consultant would oversee liquidation over the next 10 to 12 weeks.

The court filing indicates all store closures will be completed by June 16.
Remarkably, it was barely 7 years ago that Shopko was merging with Pamida and moving corporate jobs from Nebraska up to Brown County. Naturally, that move included a waste of WEDC tax dollars.
The merger, expected to be finalized by next month, will create one of the largest U.S. retailers and shift 120 jobs from Pamida's headquarters in Omaha, Neb., to Green Bay, where 600 work in the Shopko headquarters.

With annual revenues of $2 billion, Shopko has 149 stores in 13 states. Pamida has 193 stores in 17 states and annual revenues of about $1 billion. Its 14 stores in Wisconsin include locations in Reedsburg, Adams and Lancaster.

Both companies are owned by affiliates of Sun Capital Partners, a private investment firm in Florida. Financial details of the merger were not disclosed.

However, the Wisconsin Economic Development Corp. will provide $2 million in tax credits based on creating 129 jobs over the next three years, said Tom Thieding, a spokesman for the WEDC.
Huh, you mean a "jobs announcement" made before Scott Walker's recall election didn't quite work out? Imagine that.

Yesterday was a sad one for a lot of Wisconsin communities, and the end of Shopko will leave a major gap in a lot of parts of Wisconsin going forward. But this also illustrates yet again why we shouldn’t be trusting our state’s corporate leaders and their GOP-puppets on economic policy, as all they care about is short-term headlines and rent-seeking, and it fails in the long-run.

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