OAKLAND, Calif. — On the eve of the 1986 leveraged buy-out of Safeway Stores Inc., the board of directors sat down to a last supper. Peter Magowan, the boyish-looking chairman and chief executive of the world’s largest supermarket chain, rose to offer a toast to the deal that had fended off a hostile takeover by the corporate raiders Herbert and Robert Haft.
“Through your efforts, a true disaster was averted,” the 44-year-old Mr. Magowan told the other directors. By selling the publicly held company to a group headed by buy-out specialists Kohlberg Kravis Roberts & Co. and members of Safeway management, “you have saved literally thousands of jobs in our work force,” Mr. Magowan said. “All of us — employees, customers, shareholders — have a great deal to be thankful for.”
Nearly four years later, Mr. Magowan and the KKR group can indeed count their blessings. While they borrowed heavily to buy Safeway from the shareholders, last month they sold 10% of the company (but none of their own shares) back to the public — at a price that values their own collective stake at more than $800 million, more than four times their cash investment.
Employees, on the other hand, have considerably less reason to celebrate. Mr. Magowan’s toast notwithstanding, 63,000 managers and workers were cut loose from Safeway, through store sales or layoffs. While the majority were re-employed by their new store owners, this was largely at lower wages, and many thousands of Safeway people wound up either unemployed or forced into the part-time work force. A survey of former Safeway employees in Dallas found that nearly 60% still hadn’t found full-time employment more than a year after the layoff.
James White, a Safeway trucker for nearly 30 years in Dallas, was among the 60%. In 1988, he marked the one-year anniversary of his last shift at Safeway this way: First he told his wife he loved her, then he locked the bathroom door, loaded his .22-caliber hunting rifle and blew his brains out. (3)
And The Audit likes the cut of the jib of the young fellow who wrote about a lady from Montana who set aside grocery money to buy a long-term care policy for when she got old, then got old.
But when she filed a claim with her insurer, Conseco, it said she had waited too long. Then it said Beehive Homes (her nursing home) was not an approved facility, despite its state license. Eventually, Conseco argued that Mrs. Derks was not sufficiently infirm, despite her early-stage dementia and the 37 pills she takes each day.
After more than four years, Mrs. Derks, now 81, has yet to receive a penny from Conseco, while her family has paid about $70,000. Her daughter has sent Conseco dozens of bulky envelopes and spent hours on the phone. Each time the answer is the same: Denied.
The young man seems like a self-starter; he reviewed 400 insurance cases, among other things, so he could say this:
“Yet thousands of policyholders say they have received only excuses about why insurers will not pay. Interviews by The New York Times and confidential depositions indicate that some long-term-care insurers have developed procedures that make it difficult — if not impossible — for policyholders to get paid…. In California alone, nearly one in every four long-term-care claims was denied in 2005, according to the state.”(4)
Audit fans, that denial rate means that 25% of all California insurance claimants are either a.) ignorant or b.) dishonest. For insurers, there is no third choice.
If you think all this is all too Mother Jones-y, let me say, first of all, it’s my magazine. The Great One said so, so back up.
But actually I would do it this way solely for the most crass, nakedly careerist of motives. The Audit senses another shift, this one in the public’s reading tastes, including among the Acura buyers and Fidelity investors who are Portfolio’s target demographic. Readers will want to know both how Mike Bloomberg does it and that they’re reading the next Ida Tarbell.
Tell you what, Great One: I’ll do it for a tenth of what it’s costing Conde Nast and cut you in for a piece of the gross. My extension is 42373.
1. For a “table map” of media celebrities at Michael’s — no kidding — click here and scroll down.
2. Fast Food Nation, Eric Schlosser, Houghton Mifflin, 2001.
3. “The Reckoning: Safeway LBO Yields Vast Profits But Exacts a Heavy Human Toll,” Susan Faludi, Wall Street Journal, May 16, 1990.
4. “Aged, Frail and Denied Care By Their Insurers,” Charles Duhigg, New York Times, March 26, 2007.