Pagliuca says Romney got raw deal in ’94 ads
http://www.boston.com/news/loc…
Hand-delivered
Steve Pagliuca
Pagliuca for US Senate
102 Mt. Auburn Street
Cambridge, MA 02138
Dear Mr. Pagliuca:
In 1994 I worked as a consultant to the Mass AFL-CIO and was in charge of taking the Ampad workers around Massachusetts to challenge Mitt Romney to save their jobs. I spent 24/7 for more than a week with them. Learned first-hand what Bain’s buyout did to their families and how a small group of Indiana workers took a strike vote and chose to fight for jobs at a company they built.
I know how Romney and Bain told them they had no choice because Bain now owned what they had built. I took these workers outside Bain Capital’s office in Boston but the company refused to let them in. I called Romney from my then new invention – a portable phone – as we stood on the sidewalk to offer to meet right there and settle the strike – to get these workers back their jobs, to show he was a job creator not a corporate pirate stealing wealth from workers. He wouldn’t take the call. I remember the 6 PM news story with the camera focusing in on my phone as the workers stood outside.
Apparently Mr. Pagliuca you were inside Bain’s office that day. You helped put those blue collar workers and their families out on the street. And now you are attacking the late Senator Kennedy because he spoke out for the workers at Ampad. And you want the working women and men of Massachusetts to vote for you?
I suspect just a few week’s worth of the money that you are spending on your TV ads could have kept those Indiana workers on the job. I urge you to publicly denounce Bain’s and Mitt Romney’s action at Ampad. Failing to do so means you are spending blood money to run your campaign.
Sincerely;
John S. Laughlin, Director
Political & Public Relations
$400 million can’t buy this guy the moral compass that made Senator Kennedy a hero
Thank you for providing Steve Pagliuca with an opportunity to address this question head on.
The union refused to reduce hourly wages to allow the company to be competitive in the global marketplace, the company went bankrupt, and the jobs went to China. Forever. A union victory? That’s the challenge faced by the Democratic Party here and nationally. In town after town, with taxpayers facing nearly 10 percent unemployment, we see public employee unions choosing layoffs of young employees to fund RAISES in this economy. People are disgusted by this and that’s a large part of the political volatility we see in VA, NJ, NY and I predict MA.
Job to be done here. And just as I was starting to find Pags campaign messages appealing because they portrayed a hardworking brought myself up up from the bootstraps kind of guy.
Pags thinks we should look at the entire business of Bain Capital and not just Ampad.
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p>OK, Pags. How many Bain Capital acquisitions involved leveraged buy-outs (LBOs)?
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p>LBOs are an insidious tactic that entails taking the acquired company’s own assets to buy the firm. In many cases, the acquiring company (in this case Bain Capital) doesn’t even risk any of its own capital.
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p>Once taken, the acquiring company “streamlines” operations. Once “streamlined”, the acquiring company often turns around and sells portions of the acquired company or the entire company itself.
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p>Perhaps an example would be useful. Say Company A’s total valuation drops to $500 million even though its current account balance (current assets – current liabilities) is $50 million. Bain Capital’s or another LBO specialist’s relationship with financiers is such that they can get a loan of $450 million using Company A’s own $50 million current account balance as a down payment. Bain purchases Company A in a hostile takeover. Bain “streamlines” operations (e.g., fires employees, outsources operations to China and India, sets up a dummy corporation in the Caymans to evade taxes, breaks up the company into separate operating units). Within a few years, Bain sells all the pieces of what had been Company A for collectively what Bain bought Company A for, $500 million — that is, even after all Bain’s machinations Bain does not actually improve Company A’s total valuation. When all is said and done, Bain pays back their bankers the original loan plus interest (let’s say $470 million) and pockets the difference — yep that’s right, $30 million! In essence, by shuffling papers and going through the motions, Bain Capital walks away with $30 million of Company A’s current account balance.
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p>This is what Pags and LBO specialists like Bain think is helpful to the US economy. In essence, they take an otherwise healthy firm and leverage it mercilessly, fire a lot of the company’s workers, send jobs offshore, evade US taxes and STEAL the company’s current account balance for themselves and their enabling bankers.
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p>Imagine if Company A was a liquor store, and Bain had shown up at the front door with armed weapons. We’d rightfully send the police after them. Liquor store robbers typically score only thousands of dollars and risk being in prison for 20 years. Bain and their ilk score in the tens of millions and negatively affect the lives of thousands of US workers and their families. Yet, they are feted on the pages of the Wall Street Journal, Business Week and Forbes. And now Pags thinks we should make him our US Senator.
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p>Well, Pags don’t count on my vote. If it was up to me, I’d have the DA prosecuting you and your Bain Capital for robbery.
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Imagine if I did the following:
1. Go to a bank and get a loan to buy a business. The business (inventory, cash registers, brand recognition, etc) if worth $250,000 but the inventory itself only $100,00. I then go to the owner of the building and tell him that I’m willing to pay him 10% more in rent than the current tenant, and will sign the lease now. All the landlord has to do is not renew with his current tenant.
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p>I combine the $150k from the bank with $100k of my own money, and buy out the liquor for $250k. So far, so good. Not at all stealing.
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p>Then, I sell the inventory to a local bar for close to value. I sell the cash registers to a shoe store. I sublet the building out to a chef who wants to open up a restaurant at a moderate monthly profit for myself. End result: I make a little money, and the liquor store is gone. The employees — fired.
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p>I still haven’t stolen anything. Sure, some employees have lost their job, but the new use of the building, a restaurant, will hire people on. The inventory didn’t disappear — it will be sold elsewhere. The cash registers, shelves, and other physical infrastructure will still contribute to the economy too, this time in a shoe store.
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p>I’ve made money, but I haven’t done anything! Well, sure I’ve done something. I’ve recognized that a profitable business wasn’t as profitable as something else. The assets associated with the liquor store are more effective doing other things — supporting a shoe store and a restaurant and a local pub. Society takes a loss in losing the liquor store, but society valued those other things more, which is why society was willing to pay, in aggregate, more for the components of restaurant, bar, and shoe store, which means… that society is in fact better off for the liquor store liquidation.
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p>It ain’t stealing. When done wisely there may be little risk to the liquidator, but that’s in no way a bad thing.
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p>I’m not arguing that every LBO is a good thing. I’m merely arguing that an LBO — even one that results in the laying off of workers — isn’t implicitly a bad thing, and it sure as hell isn’t theft.
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p>P.S. I’d much rather someone steal $100 from me via white collar crime than steal $100 from me by putting a gun to my face. I’m out $100 in both, but I’ve probably got a better chance of recovering my assets with the white collar crime, to say nothing of the much lower odds of me getting my face blown off.
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p>So you bribe the landlord to shutdown the business and walk in and buy the defunct business at firesale prices? That’s your business model? That creates what? By the way, don’t know what they taught you in business school, but bribery is a crime.
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p>You’ve created nothing. You’ve added no-value. Zip. Zilch. Nada. Just pocketed the money. And killed a business, and some employees’ futures.
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p>Nice case study, though. Must have some cool Powerpoint slides for this one.
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p>And this I like:
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p>sure Bernie Madeoffwithallthloot’s victims feel the same way. The guy in the ski mask is more honest than the white collar crook, and least he can admit he’s a crook. Stealing is stealing. MBA or not.
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in any way, shape, or form.
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p>If you and I have a deal where in 2008 I sell you the apples my apple tree provides for $35/bushel, and Joe offers me $38/bushel starting in 2009, he hasn’t bribed me. He’s simply made me a better offer.
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p>As for the liquor store case model, I’ve moved assets in a way which are more efficient. While I killed a business (liquor store) I also helped create one — a restaurant. As for killing the employee’s future, let’s be clear: these are employees of a liquor store. Killed there future?
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p>So, to recap: (1) it isn’t bribery, not even close. (2) the end results of my actions are a more efficient allocation of resources, and (3) the futures of liquor store employees aren’t particularly correlated with their job at the liquor store.
In my example, most, BUT NOT ALL, of what had been Company A is now spread around — as you would put it, “liquidated.” And, they might be engaged in ongoing economic activity, but importantly not all in the US economy.
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p>Please note that after the “liquidation” of Company A, $50 million has been taken away from what had been Company A: $20 million for the bankers and $30 million for Bain. Bankers hopefully will reinvest their $20 million in economic activity, and not just reward their CEOs with even bigger bonuses. I’m not as hopeful about Bain’s $30 million. The proceeds from Bain deals are given directly to themselves personally. That’s how Pags could buy part of an NBA franchise (and, maybe, a US Senate seat) and Romney can enlarge his oversized Utah ski chalet. The bankers took some risk; they loaned their customers’ money. But, Bain risked nothing; Bain didn’t put up ANY up front capital.
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p>Granted, Bain had to have been smart enough to recognize that they could sell the components of Company A at or above Bain’s purchase price even after taking away the current account balance . But, rewarding those smarts should not be nearly as lucrative for Bain and their ilk.
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p>Don’t forget the grossly exaggerated monetary rewards from what Bain and their ilk do come on the backs of employees who, in many cases, have toiled decades accumulating the wealth that Bain and their ilk steal.
I don’t consider what Bain does particularly honorable. I just don’t think that it’s stealing in the general sense.
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p>Of course, there may be particular examples where they’ve lied, misled, ignored laws, or performed other dishonorable shenanigans which, when combined with their business model, does start to look like stealing. But, that’s a case by case decision, not applicable as a blanket statement about every one of their transactions.
As political stunts go this was a good one. Kudos to you for raising the issue. But now it’s time to let it go.
This is the best open letter I have read this year.