By Stump Connolly

The New Hampshire primary came and went Tuesday, and just like that, the Republican race for the presidency snapped into focus. The soft-edged everyman of politics, Mitt Romney, emerged as a robust––even kind of feisty––frontrunner; Ron Paul solidified his position as the iconoclast who won’t go away; and the rest of the field lived up to their reputation as, well, the rest of the field.

In New Hampshire, it was Romney’s turn to shine. As the former governor of neighboring Massachusetts with a summer home on Lake Winnipesaukee outside Concord, Romney had a distinct home field advantage. He’d run a primary campaign there before in 2008, and the interlude between the Iowa caucuses and the New Hampshire voting was hardly enough time for his rivals to wake up, debate twice in the span of 18 hours, make new commercials, or shake enough voter hands to make a difference. And it probably wouldn’t have mattered. Romney had the Republican party regulars wired tighter than braces on a teenager.

An Attack From The Right

But the news was not all good for Romney. Three days before the voting, Newt Gingrich’s Super PAC unveiled a blistering attack on Romney’s old private equity firm Bain Capital. The centerpiece of it was a slick 28-minute film that contended Bain Capital made spectacular profits by “stripping American businesses of assets, selling everything to the highest bidder and often killing jobs for financial rewards.”

Romney’s aides at first dismissed this as petulant payback for the negative ads Romney’s Super PAC’s had aired against Newt in Iowa. But there was more to it than that. The film featured poignant interviews with laid off workers who movingly identify Romney as the source of their ills; newspaper accounts surfaced only days before about Bain deals that yielded millions in profits even as the companies went bankrupt; and a Las Vegas billionaire suddenly stepped up to contribute $3.4 million to blanket the airwaves in South Carolina with excerpts from the film over the next two weeks.

The Fiction of Independence

Maintaining the fiction of independence from his Super PAC (run by his long time aide Rick Tyler), Gingrich commented that “if the charges are true,” Romney’s claim to have spent his business career creating jobs at Bain Capital was a sham.

“I don’t think a Milton Friedman or a Hayek would say to you, rich guys have to go and rip off companies and leave a wreckage behind,” he told Bryon York of the Washington Examiner. “I think that’s plundering. I don’t think that’s capitalism.”

“I don’t want to pre-judge Romney,” he added. “But you can’t have capitalism on the way up and socialism on the way down. You can’t have somebody who says, ‘I’m so smart. I want a huge upside, and by the way I’m so smart you’re going to get ripped off while I get a huge upside.’ If these things all turn out to be relatively valid, at some point in the near future, he’s going to have to do a press conference just to explain Bain . . . .Which is inevitably going to lead to questions about records (his personal taxes) that he doesn’t want to release.”

Too Late for New Hampshire

The film is titled “King of Bain: When Mitt Romney Came to Town.” As much as it titillated reporters on the campaign trail, its existence didn’t seem to significantly impact New Hampshire voters. One reason is that Gingrich’s Super PAC released only a 2-minute trailer. (The full length version was not posted to the web until Wednesday afternoon.) And there wasn’t time to buy make it into ads for New Hampshire TV.

But the attack clearly upset Romney and made for a few wicked sound bites: “A story of greed, playing the system for a quick buck . . . . a group of corporate raiders, led by Mitt Romney, more ruthless than Wall Street (from the film) and “I like being able to fire people” (a quote from Romney talking about choosing health care insurance providers, but pulled out of context for instant distribution on Twitter).

When he stepped to the podium to claim his New Hampshire victory Tuesday night, Romney inferred the film was part of President Obama’s plan to “put free enterprise on trial” and he decried the fact “some desperate Republicans” have joined forces with him to do it.

“This is such a mistake for our party and for our nation,” he said. “This country already has a leader who divides us with the bitter politics of envy. … I stand ready to lead us down a different path, where we are lifted up by our desire to succeed, not dragged down by a resentment of success.”

But questions about the kind of free enterprise Romney practiced in his years at Bain won’t go away. Over the last month, Reuters, The Wall Street Journal and the Los Angeles Times have all looked into Bain’s investments and Romney’s record of job creation at Bain is far more nuanced than he lets on.

The Early Bain

Mitt Romney ran Bain Capital from 1984––when it was first spun off from Bain & Company–– until 1999, when he left to take over the Salt Lake City Winter Olympics. In those early years, Bain was made up of young MBA’s like himself eager to find the next great American entrepreneur. This is the Bain that Romney so fondly remembers. With only $37 million in their venture capital fund, they found 20 start-up businesses to seed and promote, among them an office supply store called Staples and a small chain of sports gear stores called The Sports Authority.

In his stump speech, Romney proudly claims the businesses Bain backed have created over 100,000 jobs. He gets to that number by adding the 89,000 jobs Staples has created since it was founded in 1986 to the 15,000 employees now working for Sports Authority, with 7,900 new jobs created by Bain’s buyout of Domino’s Pizza in 1998 (two months before Romney left the company) thrown in for good measure.

As successful as both retail chains have been, however, Romney’s claim is kind of a magical, mythical re-imagining of Bain’s impact on the companies. In the case of Staples, Bain was not the lead investor but one of a number of venture firms who helped the company get off the ground, and it put up only $5 million. When Staples went public in 1989, Bain got back $13 million and Romney sat on its board for more than a decade. But how much credit for the 89,000 employees belongs to Bain, and how much belongs to the 25-year tenure of its dynamic founder Thomas Stemberg?

In a similar fashion, Bain again was a small player in a consortium of six venture funds (led by William Blair in Chicago) that helped get Sports Authority off the ground in 1987. The company did well immediately, so well it was sold to K-Mart in 1990 and the funds made a handsome profit. When K-Mart couldn’t integrate it into their operations, however, the company went public in 1994, then merged with two other sports store chains in 1998, and now dominates the market. But, again, how much of that growth can be attributed to Bain’s involvement?

“I never thought of what I do for a living as job creation,” Marc B. Walpow, a former managing partner at Bain who worked closely with Romney for nine years, told the Los Angeles Times. “The primary goal of private equity is to create wealth for your investors.”

Upping the Ante

In 1990, Romney was briefly called back to run Bain & Company while partners resolved some management issues. By the time he returned to Bain Capital in 1992, its investment strategy had shifted to leveraged buyouts––and profits were soaring. In the typical leveraged buyout deal, an investor finds a troubled or inefficient company, borrows the capital to acquire it and restructures––either cutting costs by eliminating inefficiencies or increasing sales by finding prosperous new markets (or both)––hoping to sell or take it public when the company is back on its feet.

According to a 2000 investor prospectus distributed by Deutsche Bank, Bain was particularly good at this. Under Romney’s leadership, the prospectus boasted, Bain invested in 115 companies that produced an internal rate of return of 88 percent a year. In other words, if you had invested $1 million in Bain Capital when it started and left it all in the portfolios for the next 15 years, it would be worth $12 billion, according to the prospectus.

Bain’s investments ranged from AMC Entertainment to Brookstone, Burger King, Burlington Coat Factory, Domino’s, Sealy Mattresses, The Weather Channel and scores of other companies. Its most profitable investment was Bain’s acquisition in 1996 of Experian, a California consumer credit agency formerly known as TRW, that Bain acquired by putting up only $88 million. Two months later, it resold the company and made back a profit of $252 million.

Despite the range of companies in its portfolio, The Wall Street Journal reported that 90 percent of Bain’s profit in those years came from 77 leveraged buyout deals–– but 22 percent of those companies filed for bankruptcy reorganization or closed their doors within eight years of Bain’s initial investment.

Just ten of those deals accounted for 70 percent of Bain’s profit, The Journal reported, and in four of them, the companies landed in bankruptcy court, shedding thousands of jobs. Even so, Bain made a profit in three of the four bankruptcies and, today, it manages over $65 billion in investment funds.

Putting Flesh on Numbers

“When Mitt Came to Town” is a film that puts flesh on all those numbers with real people talking about their experience with the Bain consultants. Between the movie and various news accounts, there are now at least five deals in the public record where Romney’s and Bain’s brand of “free enterprise” has come under fire. They include:

American Pad & Paper (Ampad) – In 1992, Bain combined a writing products plant in Marion, Indiana with two others in Massachusetts and New York to create the American Pad & Paper company, or AmPad. The Marion plant was purchased in an asset sale, so the new owners got the factory but not the union contract. One of Bain’s first acts was to fire all the Marion employees and ask them to reapply. Not all of them did. Those that returned were given reduced wages and benefits, paid half their health insurance and lost their previous union pension plan. In the time Bain ran the factory, it borrowed heavily against the company assets, recouping all of its initial investment.

By 1994, workers in Marion were organizing again for a new union contract when the steward, Randy Johnson, heard that Mitt Romney was running for Senate in Massachusetts against Sen. Ted Kennedy. Johnson became a prominent voice against Romney in the race. After Romney lost, Johnson continued to negotiate but workers rejected the company’s final offer just before Christmas and the plant was closed in February 1995, putting 380 people out of work.

* Dade International – In 1994, Bain purchased the medical diagnostics unit of Baxter International for $448 million, putting up $26.7 million of its own money, and renamed it Dade International. Two years later, Dade expanded by acquiring a chemicals division of DuPont and another diagnostics company called Behring.

In 1999, Dade borrowed again against their combined assets and used $365 million to repurchase stock from the original investors, paying Bain more than four times its initial investment. With a declining cash flow and high interest rates, Dade’s borrowing grew to $1.5 billion before it filed for Chapter 11 bankruptcy protection in 2002. Between 1996 and 2002, according to an SEC filing, the company shed more than 1,700 jobs.

“When I listen to Mitt Romney these days, he talks about creating jobs, “Michael Rumbin, a vice president of technology at Dade told the Los Angeles Times, which first reported the story. “My experience at Dade during those Bain Capital years was that it was strictly an investment, not to create jobs. No one came from Bain and said, ‘How can we hire more people?’ It was, ‘How do we turn our investment around and make a lot of money.’ Which they did.”

• UniMac – Unimac was a family-owned business in Marianna, Florida, that was the largest manufacturer of commercial grade laundry facilities in North America. Bain bought the company in 1990 and, according to employees, immediately began cutting costs and speeding up the workflow. “We hurried faster through our work,” one said. “We’d go so fast, we’d run out of parts. So we’d ship machines with missing parts.” After shaping up the balance sheet, Bain sold the company to a Canadian teacher’s union at a 230 percent profit. (“What do teachers know about running a laundry?” the same employee asked.) But the union eventually closed the factory doors, laying off 830 workers in three states. [CORRECTION: The Washington Post Fact Checker says the company was initially sold to Raytheon, and Bain did not acquire it until 1998. When it was sold to the Canadian Teacher’s Private Capital fund in 2005, the factory operations were moved to Ripon, Wisconsin. One of the interviewees, Mike Baxley, also told the Post they were not told the film was about Romney and Bain. They were led to believe it was about the effects on a community of a plant closing. The Week Behind regrets the error.]

• DDI – DDI was an electronic parts manufacturer with factories in Texas, Colorado and California. Bain acquired the company in the late 90’s and immediately started cleaning up the balance sheet for a public sale. In June 2000, with Lehman Brothers as the chief underwriter, DDI raised $170 million through an initial public offering. Inside of six months, Bain sold half its shares for a $39 million profit. Six months later, it sold the rest for $54 million more. Then the company’s finances began to quickly unravel. Two years later, after losing $400 million, the company filed for bankruptcy and 2,100 jobs were lost. All this occurred after Romney had left Bain for the Olympics, but he remained a member of its management committee, according to SEC filings, and shared in the profits.[CORRECTION: The Washington Post Fact Checker reports Bain retained 15% of its shares in the company even as it slid into bankruptcy protection. It re-emerge from bankruptcy and continues today as a high technology equipment provider.]

• GS Industries – In the 1990’s, Bain saw opportunity in the downtrodden American steel industry. It took over an old steel mill called Worldwide Grinding Systems in Kansas City and a wire rod maker in Georgetown, South Carolina, and combined them to create a new company it called GS Industries. About the same time, it also took a minority interest in a new steel manufacturing company in Ft. Wayne, Indiana, called Steel Dynamics.

Almost immediately, Bain began laying off workers and reducing job benefits, even as it collected management fees of $900,000 a year (a total of $4.5 million) as a consultant to GS operations. The Kansas City mill was old and in need of repairs, so GS floated a $125 million corporate bond issue. Out of that money, Bain took $36 million in dividends, recouping all of its initial investment, and then some.

In 1995, to cover the costs of its merger with the South Carolina plant, GS Industries floated another $125 million in bonds. The prospectus said the combined company would have projected annual revenues of $1 billion and 3,800 employees. But Roger Regelbrugge, the CEO at the time, told Reuters that he worried the debt (then around $378 million) would force the company to seek an initial public offering of stock, or worse, file for bankruptcy restructuring. Lingering shortages in the employee pension fund made an IPO impossible, and sharply lower prices from cheap foreign steel imports made the revenue projections impossible to meet.

For all Romney’s talk of defending “free enterprise,” GS Industries wasn’t above seeking government help for GS when it needed it. Bain announced but did not have the capital to complete a $98 million plant overhaul in Kansas City that would have been offset by a $3 million tax break. It pursued a federal loan guarantee in 1999 to help grapple with the foreign competitors; and it joined other steelmakers in seeking tariff rate quotas on imported Asian wire rods.

When GS Industries finally declared bankruptcy in 2001, 750 workers at the Kansas City plant lost their jobs. Severance pay, health insurance, life insurance and pension supplements, all negotiated into union contracts, were tossed out. And the federal Pension Benefit Guaranty Corporation had to step in to pick up $44 million in unfunded pension obligations.

But not all of Bain’s steel investments went bad. Steel Dynamics, where Bain was a minority investor with little input into operations, rode a new wave of steelmaking technology to become a company with $6.3 billion in revenues today employing 6,000 workers.

More Lingering Questions

The track record of Bain’s investments is complicated by the complexities of high finance and the exigencies of an ever-changing business climate. It doesn’t reduce down easily into campaign sound bites. Newspaper accounts invariably gloss over some pertinent facts to highlight others. The film exposing Romney’s Bain career is drenched in the dramatic music, somber narration, torn headlines, and the ominous black & white images of villains in a political commercial.

But there are enough facts in the newspaper accounts and pathos in the filmed interviews to merit an honest discussion of whether Romney’s experience running Bain Capital makes him anymore qualified as a “job creator” than anyone else.

Maybe the voters of South Carolina, inundated by pro and con 30-second testimonials about the impact of Bain on jobs, will yawn and dismiss the furor over Romney’s tenure at Bain as just another political kerflufel. But the questions won’t go away, nor will the obvious follow-up questions about what taxes Romney paid on his Bain profits. Did he take advantage of the lower capital gains tax rate? Use the loss carryover exemptions granted to hedge fund managers? Or as the movie suggestions, put some of that gain into offshore accounts and blind trusts?

Romney has adamantly refused to release his personal tax returns. But the media should never stop demanding that he does. Because it doesn’t matter if Romney is a politician or a businessman. He’s a candidate for the presidency of the United States. And, by his own admission, he’s a money man. He made his money by making money, so how he did it and what he paid in taxes on the profits are relevant. The full picture of his character won’t come into focus until he does.

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