(continued)
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Take a typical Bain transaction involving an Indiana-based company called American Pad and Paper. Bain bought Ampad in 1992 for just $5 million, financing the rest of the deal with borrowed cash. Within three years, Ampad was paying $60 million in annual debt payments, plus an additional $7 million in management fees. A year later, Bain led Ampad to go public, cashed out about $50 million in stock for itself and its investors, charged the firm $2 million for arranging the IPO and pocketed another $5 million in "management" fees. Ampad wound up going bankrupt, and hundreds of workers lost their jobs, but Bain and Romney weren't crying: They'd made more than $100 million on a $5 million investment.
To recap: Romney, who has compared the devilish federal debt to a "nightmare" home mortgage that is "adjustable, no-money down and assigned to our children," took over Ampad with essentially no money down, saddled the firm with a nightmare debt and assigned the crushing interest payments not to Bain but to the children of Ampad's workers, who would be left holding the note long after Romney fled the scene.
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Wrong and misleading in many respects:
- Ampad was not a typical transaction for Bain Capital.
- Without the Bain Capital involvement Ampad would have likely gone bankrupt much earlier.
- The "children of Ampad's workers" were never "left holding the note" or "assigned the crushing interest payments". That is factually simply wrong.
- Again, likening corporate debt to government borrowing is just non-sense.
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This is typical Romney, who consistently adopts a public posture of having been above the fray, with no blood on his hands from any of the deals he personally engineered. "I never actually ran one of our investments," he says in Turnaround. "That was left to management."
In reality, though, Romney was unquestionably the decider at Bain.
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Misleading. Those statements are not inconsistent at all - Pretty fundamental difference between ownership and management of a company... I might be the decider whether to invest the family savings in GE (or whatever other company) but I certainly am not involved in the management of GE.
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The private equity business in the early Nineties was dominated by a handful of takeover firms, from the spooky and politically connected Carlyle Group (a favorite subject of conspiracy-theory lit, with its connections to right-wingers like Donald Rumsfeld and George H.W. Bush) to the equally spooky Democrat-leaning assholes at the Blackstone Group. But even among such a colorful cast of characters, Bain had a reputation on Wall Street for secrecy and extreme weirdness – "the KGB of consulting."
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Conflates Bain & Co. and Bain Capital - too separate companies.
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Its employees, known for their Mormonish uniform of white shirts and red power ties, were dubbed "Bainies" by other Wall Streeters, a rip on the fanatical "Moonies." The firm earned the name thanks to its idiotically adolescent Spy Kids culture, in which these glorified slumlords used code names, didn't carry business cards and even sang "company songs" to boost morale.
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Again, mixes up Bain & Co. and Bain Capital. Other than that, what is described is not unusual at many other companies (e.g., Apple).
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The seemingly religious flavor of Bain's culture smacks of the generally cultish ethos on Wall Street
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Still not clear whether the author is talking about Bain & Company or Bain Capital - but neither are Wall Street firms anyway...
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Despite what Romney claims, the rate of return he provided for Bain's investors over the years wasn't all that great. Romney biographer and Wall Street Journal reporter Brett Arends, who analyzed Bain's performance between 1984 and 1998, concludes that the firm's returns were likely less than 30 percent per year, which happened to track more or less with the stock market's average during that time. "That's how much money you could have made by issuing company bonds and then spending the money picking stocks out of the paper at random," Arends observes. So for all the destruction Romney wreaked on Middle America in the name of "trying to make money," investors could have just plunked their money into traditional stocks and gotten pretty much the same returns.
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Wrong. The return on "traditional stocks" during that period was in the mid-teens - returns on Bain Capital's PE funds during that period were much higher. The analysis also ignores that not all Bain Capital funds in equity and, more specifically, high risk leveraged equity - in reality a large proportion of the assets under management are in relatively low risk debt funds.
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And that's where Romney's self-touted reputation as a turnaround specialist is a myth. In the Bain model, the actual turnaround isn't necessary. It's just a cover story. It's nice for the private equity firm if it happens, because it makes the acquired company more attractive for resale or an IPO. But it's mostly irrelevant to the success of the takeover model, where huge cash returns are extracted whether the captured firm thrives or not.
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Wrong. Until the invested capital is recovered and the preferred return is paid to the PE fund's investors, the PE companies themselves generally get no/very little money. The real gravy for them (and how Romney got really rich) is through the carried interest, which essentially requires a successful exit/sale of the investee company at a premium to the acquisition price. Such an exit is unlikely or impossible if the investee company has not been turned around or otherwise increased in value.
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Junk bonds gave the Gordon Gekkos of the world sudden primacy over old-school industrial titans like the Fords and the Rockefellers: For the first time, the ability to make deals became more valuable than the ability to make stuff, and the ability to instantly engineer billions in illusory financing trumped the comparatively slow process of making and selling products for gradual returns.
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Utter non-sense. What these financial innovations did was to put financial investors on par with "the Fords and Rockefellers" - the latter group always had preferential access to bank financing and investor money. As a result of things like high yield bonds, CDOs, etc. financial investor like PE funds finally were put on a level playing field with the "old-school industrial titans" and, as result, were in position to keep them honest.
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But here's the interesting twist: Romney made the Bealls-Palais deal just as the federal government was launching charges of massive manipulation and insider trading against Milken and his firm, Drexel Burnham Lambert. After what must have been a lengthy and agonizing period of moral soul-searching, however, Romney decided not to kill the deal, despite its shady financing. "We did not say, 'Oh, my goodness, Drexel has been accused of something, not been found guilty,' " Romney told reporters years after the deal. "Should we basically stop the transaction and blow the whole thing up?"
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Wrong. The financing of the deal was in no way "shady". Bain Capital and Romney were simply customers of Drexel/Milken in the transaction - to suggest that they should have backed out is akin to advocating that people should have stopped buying Windows or Office products when Microsoft was found guilty of abusing its market power. Moreover, at the time of the transaction Drexel/Milken had not even been found guilty of anything at all - they had just been accused.
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In an even more incredible disregard for basic morality, Romney forged ahead with the deal even though Milken's case was being heard by a federal district judge named Milton Pollack, whose wife, Moselle, happened to be the chairwoman of none other than Palais Royal. In short, one of Romney's first takeover deals was financed by dirty money – and one of the corporate chiefs about to receive a big payout from Bain was married to the judge hearing the case.
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Wrong - actually, complete and utter non-sense. In what way was it Romney's responsibility that Moselle Pollack was the judge for this case? If anything, the onus was on her to recuse herself or on the government to have another judge as chair. Also to repeat, the money for the transaction was in no way "dirty".
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Firms like Bain even have a colorful pirate name for the pools of takeover money they raise in advance from pension funds, university endowments and other institutional investors. "They call it dry powder," says Slavkin Corzo, the union adviser.
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Wrong. Dry powder is an old military term, not a "pirate" one.
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Once again, storied companies with long histories and deep regional ties were descended upon by Bain and other pirates, saddled with hundreds of millions in debt, forced to pay huge management fees and "dividend recapitalizations,"
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Wrong. Nobody "forced" these companies to do anything - it is what their owners chose to do, acting of their own free will.
That is just what I came up with in 5 minutes or so.
Again, none of this in any way a defense of Romney, but it illustrates just how poorly written this piece of polemic really is.
And what is up the inflammatory remarks (really "people everywhere were ready to drop an H-bomb on Lower Manhattan and bayonet the survivors"?) and all the silly comparisons to Gordon Gekko (slight problem with those: Aside from obviously being fictional, Gekko was a criminal whose 'business' activities were fundamentally illegal (by breaking insider trading laws and regulation). Has anybody accused Romney of any criminal offenses?).
It really is the equivalent of the bullshit that people like Limbaugh or Glenn Beck spout (albeit at a different point of the political spectrum - if one believes that there actually is a spectrum).
08-31-2012, 11:44 AM
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