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Wednesday, September 5, 2012

A Fuller Explanation of Bain Stories Told at Democratic Convention


The three people who told their stories about their experiences with Mitt Romney's firm, Bain Capital, Wednesday night during the Democratic National Convention laid out the by-now-familiar Democratic critique that he prized profits over people during his 15-year career in private equity and that he was a job destroyer, rather than a job creator.

The basic outlines of their stories about layoffs and plant closings that occurred after Bain bought their companies - Ampad, Dade International and GST Steel - were accurate, but they lacked context and mitigating details, ones that often get lost in the shorthand of political combat.


The first speaker, Randy Johnson, worked at a paper plant in Marion, Ind., when it was bought in 1994 by Ampad, a company created by Bain through of a series of acquisitions. Ampad was a textbook example of a private equity “roll-up.” In 1992, Bain acquired American Pad & Paper from the Mead Corp. and then set out to buy up other companies in the same industry, seeking economies of scale and other efficiencies. Sales ballooned but so did the company's debt, which climbed to nearly $400 million. The company also found itself squeezed by the proliferation of “big box” office supply stores. Ampad wound up closing several plants across the country, including one in Marion, Ind., where Mr. Johnson worked.

The Marion closure, however, was preceded by a labor dispute. After the acquisition by Bain, the plant's employees were notified that they were being laid off but could reapply for their jobs at lower wages. The plant's workers decided to strike. At this point, Mr. Romney was deep in the throes of his ultimately unsuccessful 1994 Senate campaign against Senator Edward M. Kennedy, and the strike became a major issue, with workers appearing in television advertisements on behalf of Mr. Kennedy. In early 1995, with Mr. Romney back at the helm of the company, Bain decided to shutter the plant.

A critical open question is what role Mr. Romney played in Bain's decisions relating to the plant, given that he was busy running for Senate when Bain acquired the plant. In response to a personal letter from Mr. Johnson as the plant's closure neared, Mr. Romney said he had privately urged a settlement but that he had been advised by lawyers not to personally intervene.

In a 2007 Los Angeles Times article, Marc Wolpow, a former Bain managing director who was on Ampad's board, said Mr. Romney could have ordered him to settle with the union, since Mr. Romney was still, technically, in charge, but he had not. Mr. Wolpow described this as the “right business decision as C.E.O. of Bain Capital.”

Ampad wound up filing for bankruptcy in 2000, after Mr. Romney had departed to run the Salt Lake City Olympics and several years after Bain had relinquished majority-control of the compan y. In return for their original $5 million investment, Bain and its investors walked away with profits of more than $100 million. Bain itself also collected at least $17 million in fees.

Dade International

The second speaker, Cindy Hewitt, worked in human resources at Dade International, a medical diagnostics company purchased by Bain and other investors in 1994 for $450 million, largely paid for with debt, in order to limit Bain's risk.

Over the next few years, Bain and other investors collected nearly $100 million in fees from the company, with Bain gobbling up the lion's share. Bain guided Dade through a series of acquisitions, helping to more than double the company's annual sales. But just like with Ampad, Dade's debt ballooned. Cost-cutting became a premium at the company. Ultimately, the company laid off 1,700 workers in the United States, including 850 in Miami, where Ms. Hewitt worked, after Bain's shuttered Dade's facilities there in 1997.

By 1998, Dade's investors had begun looking for a way to cash out. They settled on a plan in which Dade borrowed $455 million to buy out about half of their shares, with Bain collecting $242 million in the transaction, which was completed in April 1999. Even with the lucrative payouts to investors and top executives, the job losses at the company continued.

A few months before the payout, Mr. Romney left to run the Olympics, though he still benefited from it, because of his continuing financial arrangements with the firm.

Ultimately, the debt load proved too much for Dade. Interest rates rose and the value of the euro slid, twin blows that severely impacted the company. A new distribution center also experienced unexpected delays. Dade filed for bankruptcy protection in 2002.

The company, however, would later emerge from the restructuring process and thrive. The company was eventually sold to Siemens, the German conglomerate, for $7 billion in 2007, leadin g some to argue Bain's strategies ultimately paid off.

GST Steel

The final anti-Bain speaker, David Foster, was a union negotiator for workers at GST Steel, a struggling Midwest steel manufacturer that Bain bought in 1993, investing $8.3 million and borrowing the rest.

Bain took steps to modernize the steelmaker, investing in new technology and upgrading its facilities. A year later, the company issued $125 million in debt, some of which was used to pay a $33.9 million dividend to Bain's investors. About half of that was plowed back into the company. But the debt load, again, proved crippling, particularly as the industry experienced a downturn in the late 1990s, eventually forcing the company into bankruptcy in 2001. Bain's investors still earned at least $9 million.

By the time the steelmaker filed for bankruptcy, Mr. Romney was no longer running day-to-day operations at Bain, though his name remained on S.E.C. filings and other documents as the f irm's owner.

It is also important to note that the collapsing steel market devastated many other companies in the industry as well.