Bain Capital decides to acquire Toys-R-Us so they set-up NewToyCo and invest $5B in it.
NewToyCo buys Toys-R-Us with that $5B and installs new managers at Toys-R-Us. Since the invested cash was investment and not a loan, NewToyCo owns Toys-R-Us free and clear
The new managers of Toys-R-Us get a $5B loan from banks secured by the assets of Toys-R-Us and pay a one time $5B dividend to shareholders of NewToyCo.
If everything goes well and Toys-R-Us can service the loan, Bain owns Toys-R-Us for free and sells it or takes it public. If things don't work out, they collected huge management consulting fees for s few years. Bain ran this exact same play on KB Toys with the same (bankruptcy) result.
You use that $5B to pay all the original owners (shareholders), and now have debt instead.
In this case, instead of the lender simply taking over the acquired company, the acquired company declares bankruptcy and is liquidated.
*Obvious simplification is obvious. The risk is they can't keep acquirred company alive long enough to extract a profit before the husk of a company finally implodes.
Or put another way, if the acquiring company has no risk, then the bank putting up the leverage has it. The risk doesn't just disappear.
Similarly, Toys-r-Us was part of the US culture and has been destroyed for a few million in profit because it made economic sense. Hardware stores and book stores will also disappear from our culture, is this the society we want? People band together to support opera and symphonies, I would rather save drive-ins and hardware stores since they are more important in almost everyone's lives.
Many analogous things are true for toy stores and hardware stores etc. And people are banding together to support things that aren't commercially viable, the closest thing to hardware stores in this regard is probably hacker spaces.
And to answer your question directly, yes, I strongly prefer to live in a society where businesses are allowed to fail when they've run their course rather than being kept on life-support for vague past-romantic reasons.
I completely agree non-viable businesses should fail just like we let insolvent banks and automakers...well those were an exception.
It comes down to what our core beliefs are as a society. If we want to maximize private profit, why aren't there slot machines and cigarette vending machines at every bus stop? Toys-R-Us was a viable business that was destroyed for a relatively small profit - should that behavior be: illegal, discouraged by taxes, or encouraged with government backed loans? Those are the kinds of questions we could be asking. Our current regulatory environment is not the same as what it was in the past or what it will be in the future.
https://edition.cnn.com/travel/article/abandoned-drive-in-mo...
Veering a bit off topic, but they're coming back in some locales. Multiple have opened in my area.
If you look at the top dozen economies in terms of prosperity or economic growth, you'll find a lot of different cultural approaches to that owner/operator-worker relationship, and they all have managed to generate rather spectacular results. France, US, Germany, South Korea, Japan, China, Sweden, Switzerland, Australia, Denmark - all have between slightly and very different approaches.
It also takes you down a road of other similar questions.
Joe loads up on his credit cards and puts his family at risk. Should that be illegal? Is it immoral? (arguably it's immoral)
Social contracts are a fascinating thing and they're essentially all-pervasive across everything people do. We go out and drive on the roads with a sort of social contract, that properly we're not going to act like maniacs and endanger each other.