The Long Version

Retired broadcast journalist. Blogging helps scratch the itch. Recovering exRepublican – Sober and still Conservative.

Bain Capital and GS Technology…The REST of the Story.

with 8 comments

This is by far a more revealing story—of the pressures of a global market, the dangers of an inflexible workforce, and the opportunities that come with private equity and risk-taking.

It’s not the story the President’s campaign wants the American people to hear however.  It’s much much easier to just blame Bain Capital and, in turn, the President’s political opponent.

The problem is the Obama team knows the majority of Americans are too lazy to dig for information or do their own fact checking.  They want it spoon fed through their TV screens, radios, or laptops.

It’s been said the Truth will set you free.

So here’s a heaping helping from the Wall Street Journal where Kimberley Strassel reported in May the real reasons GS Technology went under.  It isn’t the story the Obama political machine or mainstream media would have you believe.  Not even close.

Taken from the Wall Street Journal – Potomac Watch, Thursday, May 17, 2012

This week the Obama campaign debuted its attack on Bain Capital, the private-equity firm Mitt Romney founded. Its two-minute ad purports to tell the story of GS Technologies, a Kansas City-based Bain investment that went bankrupt in 2001.

To hear the Obama campaign, this is a tale of greed: GST was a healthy, happy, quality steelmaker until Bain plundered its worth and stripped its 750 workers of their due. “It was like a vampire,” laments one former employee in the ad. “They came in and sucked the life out of us.”

GST is a tragic tale, though in a different way. The real story of GST is that of a private-equity firm trying to spark some life into a uncompetitive, over-unionized industry. Bain’s crime here—if that’s what you call it—was giving a dying steel plant an unexpected eight-year lease on life.

When Bain bought the Kansas City mill in 1993, steel was a scene of carnage. Global players were pouring out cheap products, and America’s high-cost steel plants couldn’t compete. The industry had lost 200,000 jobs in preceding years. In 1992 alone, the six largest U.S. steel mills had lost a combined $3 billion. Armco, the company Bain would buy the plant from, would lose $641 million in 1993.

The Kansas City plant was itself dying. At its 1970 height it employed 4,500; by the late 1980s it was down to 1,000. A year before acquisition, Armco had laid off another 75. Its equipment was old; it faced fierce competition at home and abroad.

B.C. Huselton, a vice president of the business at the time, tells me that in 1990 the Armco CEO held a meeting. “He told us, ‘Look, we either try to sell it, or we’ve got to shut it down.'” Armco had shut down another Kansas City facility, Union Wire Rope, only a few years before.

The Kansas City plant had two product lines—high-carbon rods and grinding media (used in mining)—that it felt could give it a competitive edge. But it needed investment, and Armco was tapped out. Bain nonetheless saw some potential and in 1993 joined other investors to acquire it for $80 million. Management renamed it GS Technologies (which would become part of a larger GS Industries) and poured an additional $100 million into modernization.

The strategy worked for a time. The market firmed up and GSI became a U.S. leader in steel rods. In 1994 it felt confident enough to distribute a dividend to investors. In both 1996 and 1997, GSI would realize $1 billion in revenue.

And then came the tsunami. The late 1990s saw a new outpouring of cheap steel from elsewhere around the globe. The Asian financial crisis walloped the mining industry, cutting demand for GST products. The price of GST’s electricity and natural gas skyrocketed. The union dug in, refusing to make concessions. By April 1997, it was on strike, shooting bottle rockets at guards. Labor costs spiked, and by 1999 GSI was reporting $53 million in net losses.

In 2001 it would become one of 31 steel companies that went bankrupt from 1993 to 2003. (Mr. Romney left Bain in 1999.) The steel crash was the economic drama du jour, with Congress railing about “dumping.”

At the time, GST’s union blamed the company’s bankruptcy on the political class, for failing to hamstring imports. “We can’t compete against the steel imports that are being sold under cost,” said the president of GST’s union in 2001. “Our pleas fell on deaf ears in the political arena.” The Bush administration would ultimately slap on giant tariffs.

The bankruptcies were led by unionized companies that, like airlines and textiles and Detroit, had negotiated pay and benefits that helped drive their employers under. GST’s pension benefits would get passed on to the federal Pension Benefit Guaranty Corp., which in 2002 received $7.5 billion in claims from the steel industry alone. The PBGC covered GST’s basic pension payouts.

The Obama ad doesn’t note that the broader company, GS Industries, employed 3,500 and that the Kansas City plant (with 750 workers) was the only one shuttered. Other plants were bought and operate today. Nor does it mention Bain’s other steel investment in the early 1990s, in an Indiana start-up called Steel Dynamics. The firm touts innovative technology and a nonunion workforce. It today reports $6.3 billion in revenue—25 times what it claimed in its 1996 IPO—and employs 6,000.

A private-equity firm looking to quickly strip value from a company—to “suck” the life out of it—does not do so by investing $100 million in modernization and holding on for eight years, through bankruptcy. Bain has surely made its share of mistakes, and one may well have been trying to resuscitate a traditional steel firm in the grip of industry upheaval. The irony, says Mr. Huselton, is that this plant “wouldn’t even be in today’s news, if it hadn’t been the opportunity that came with Bain. Those jobs would have been gone in 1993.”

Isn’t it amazing what important details provided in context can do?

 

Advertisements

8 Responses

Subscribe to comments with RSS.

  1. Thats a very interesting article about bain capital!

    Like

    Henry

    July 18, 2012 at 3:38 pm

  2. You are correct, it is amazing what important details provided in context can do. For example, there are several news articles that point to discrepency concerning when Mitt Romney left Bain as opposed to when Mitt Romney actually relinquished all control over his management of Bain. While he states he left Bain in 1999, there is SEC evidence that he was still listed as CEO and pocketed profits from Bain as late as 2002. I wonder if this is not one of the reasons Mitt Romney refuses to relinquish his tax returns for scrutination. He doesn’t want to be caught in another lie.

    According to the NYT, July 15, 2012:

    Ed Gillespie, a senior adviser to Mr. Romney, told CNN that the candidate had “retired retroactively” from Bain more than two years after leaving in 1999, an example of how the complexity of Mr. Romney’s business has proved difficult to explain in the simple terms favored by political campaigns.

    (Key words here are ‘retired retroactively.’)

    *cocks a brow*

    Yet because he retained technical control of Bain Capital’s management and because his wealth remained heavily tied up with the firm, Mr. Romney’s name or signature appears on dozens of documents filed with the Securities and Exchange Commission between February 1999 and August 2001, when he finalized a retirement deal with the active Bain partners and transferred to them his shares of Bain’s management entity.

    All told, Mr. Romney’s name appears on at least 142 such forms, some of which have been the subject of news coverage in recent days, fueling questions about whether Mr. Romney ever really left. One such form, posted last week by Talking Points Memo, lists Mr. Romney’s “principal occupation” as “managing director” of Bain Capital Investors VI Inc., a private equity fund.

    From The Huffington Post:

    The Boston Globe reported on SEC filings dated after February 1999 that state that Romney is the firm’s “sole stockholder, chairman of the board, chief executive officer, and president.” A 2003 Massachusetts disclosure form says that he owned 100 percent of the company in 2002, and forms indicate that he earned at minimum $100,000 as an “executive” in 2001 and 2002, apart from investments.

    Mother Jones and Talking Points Memo have also highlighted SEC filings that suggest Romney did not leave the company in full in 1999.

    The SEC filings listed in the Globe article were first flagged in a letter the Obama campaign sent to Factcheck.org, which nevertheless concluded that Romney never returned to active management in the company after 1999, instead shifting his focus to the 2002 Winter Olympics. But in separate SEC filings from 2000 and 2001, Romney listed his “principal occupation” as “Managing Director of Bain Capital, Inc.,” and a 2003 state financial disclosure form said he owned 100 percent of the firm in 2002.

    To be continued:

    Like

    Pritty Brains

    August 22, 2012 at 1:47 am

  3. Continued from above:

    From The Daily KOS, August 13, 2012:

    Lost at the same time as the bankruptcy were 450 jobs and a 42-year-old steel plant.

    “We were doing well and then Bain Capital bought us and they took everything they could out of the company without making the investments we needed to stay competitive,” said James Sanderson, who has been with the mill since 1974 and served as its union president since 1988. “They ran the company into bankruptcy.”

    Standard Bain fare thus far. The profiteering off the GS Industries disaster even brought Texas Gov. Rick Perry to Georgetown briefly in January this year to diss Romney during the Texan’s abortive presidential campaign.

    From Mediaite.com, August 8, 2012:

    In an interview with John Berman, Deputy Campaign manager Stephanie Cutter discusses Bain Capital and Joe Soptic’s claims that Mitt Romney had much to do with the failing of GS Steel .

    “I don’t know the facts about when his wife got sick, or the facts about his health insurance,” Stephanie Cutter stated, “but what I do know is that Mitt Romney personally handled the deal to take over GS Steel, and personally handled some of the decisions made to load that company up with debt so much that it went underwater, it went bankrupt. And you just said that he left the company before the deal was made. that’s not true. Mitt Romney made that deal.”

    “You know, he says that he left Bain Capital in 1999 to go run the Olympics,” Cutter said, “But if you remember, according to the SEC forms that he filed, he was still president and CEO of that firm. He was still taking a salary, and I guarantee you that when GS Steel went bankrupt that Mitt Romney personally walked away with a significant profit, while Joe lost his job. So that’s what really that story is about.”

    She added, “I do think that most people think that if you’re still CEO that you’re in charge.”

    Cutter reminded Berman that the campaign doesn’t, and by law can’t, have anything to do with Priorities, but added, “I don’t know the facts of when Joe’s wife got sick or when she died, but as I said before, I do know the facts of what Mitt Romney did with GS Steel. I do know the facts of how Joe lost his job, lost his health care. The entire company went bankrupt. But Mitt Romney walked away with a pretty hefty profit.”

    Bain also walked away from the company’s pension obligations, leaving the federal government to bail them out to the tune of $44 million.

    Berman’s thumbnail characterization of the ad, that it “accuses Mitt Romney of basically killing” Joe Soptic’s wife, isn’t entirely fair, either. That’s the most extreme interpretation possible, one which has permeated the media conversation of the spot, but that’s not really what it says. Even within Joe Soptic’s narration, there are several self-evident factors which led to his wife’s death, and his conclusion isn’t that Mitt Romney is at fault, but that he “doesn’t realize” and “is not concerned” with the human fallout from his business deals.

    On that score, I haven’t heard anyone, even Mitt Romney, ever argue that Bain Capital did everything possible to avoid layoffs. His one and only job was to make maximum profits, even if that meant peddling R-rated movies. That’s a perfectly defensible position, and it would be nice if Romney would defend it, rather than simply complaining about how mean Bill Burton is.

    Continued:

    Like

    Pritty Brains

    August 22, 2012 at 1:49 am

  4. Continued from above:

    And politiFact states this story is Mostly True:
    http://www.politifact.com/truth-o-meter/statements/2012/may/16/barack-obama/obama-ad-claims-romney-bain-left-misery-wake-gst-s/

    Obama’s ad, and the news release announcing it, packed a lot of claims about Romney’s tenure at Bain Capital and how it handled its investment in a Kansas City steel mill.

    We are checking this claim: “After purchasing the company, Mitt Romney and his partners loaded it with debt, closed the Kansas City plant and walked away with a healthy profit, leaving hundreds of employees out of work with their pensions in jeopardy.”

    We found, through corporate filings, interviews and investigations by other news organizations, that the statement is accurate but needs some clarification. First, it’s true that Bain added significantly to GST’s debt load while paying dividends to itself. The plant’s closure, however, happened after Romney had left daily operations at Bain, though he led Bain during six years of its majority investment in the plant. And other, outside factors were at work, making the steel industry a tough business. Steel prices were low and electricity costs were high, and those forces drove other steel mills out of business around the same time.

    The statement’s last two claims are solid: Bain (and Romney) made a profit from taking over GST, and the employees lost many benefits their union had negotiated, including supplemental pension payments. The federal government had to step in to shore up the fund.

    We rate the claim Mostly True.

    Like

    Pritty Brains

    August 22, 2012 at 1:52 am

  5. Well two parts of my post was waiting for moderation and then disappeared, so this last part may not make any sense… too bad you don’t like an honest debate with facts that go against what you state.

    Like

    Pritty Brains

    August 22, 2012 at 1:54 am

  6. Part I

    You are correct, it is amazing what important details provided in context can do.

    For example, there are several news articles that point to discrepency concerning when Mitt Romney left Bain as opposed to when Mitt Romney actually relinquished all control over his management of Bain. While he states he left Bain in 1999, there is SEC evidence that he was still listed as CEO and pocketed profits from Bain as late as 2002. I wonder if this is not one of the reasons Mitt Romney refuses to relinquish his tax returns for scrutination. He doesn’t want to be caught in another lie.

    According to the NYT, July 15, 2012:

    Ed Gillespie, a senior adviser to Mr. Romney, told CNN that the candidate had “retired retroactively” from Bain more than two years after leaving in 1999, an example of how the complexity of Mr. Romney’s business has proved difficult to explain in the simple terms favored by political campaigns.

    (Key words here are ‘retired retroactively.’)

    *cocks a brow*

    Yet because he retained technical control of Bain Capital’s management and because his wealth remained heavily tied up with the firm, Mr. Romney’s name or signature appears on dozens of documents filed with the Securities and Exchange Commission between February 1999 and August 2001, when he finalized a retirement deal with the active Bain partners and transferred to them his shares of Bain’s management entity.

    All told, Mr. Romney’s name appears on at least 142 such forms, some of which have been the subject of news coverage in recent days, fueling questions about whether Mr. Romney ever really left. One such form, posted last week by Talking Points Memo, lists Mr. Romney’s “principal occupation” as “managing director” of Bain Capital Investors VI Inc., a private equity fund.

    From The Huffington Post:

    The Boston Globe reported on SEC filings dated after February 1999 that state that Romney is the firm’s “sole stockholder, chairman of the board, chief executive officer, and president.” A 2003 Massachusetts disclosure form says that he owned 100 percent of the company in 2002, and forms indicate that he earned at minimum $100,000 as an “executive” in 2001 and 2002, apart from investments.

    Mother Jones and Talking Points Memo have also highlighted SEC filings that suggest Romney did not leave the company in full in 1999.

    The SEC filings listed in the Globe article were first flagged in a letter the Obama campaign sent to Factcheck.org, which nevertheless concluded that Romney never returned to active management in the company after 1999, instead shifting his focus to the 2002 Winter Olympics. But in separate SEC filings from 2000 and 2001, Romney listed his “principal occupation” as “Managing Director of Bain Capital, Inc.,” and a 2003 state financial disclosure form said he owned 100 percent of the firm in 2002.

    Continued…

    Like

    Pritty Brains

    August 22, 2012 at 1:55 am

  7. Part II

    From The Daily KOS, August 13, 2012:

    Lost at the same time as the bankruptcy were 450 jobs and a 42-year-old steel plant.

    “We were doing well and then Bain Capital bought us and they took everything they could out of the company without making the investments we needed to stay competitive,” said James Sanderson, who has been with the mill since 1974 and served as its union president since 1988. “They ran the company into bankruptcy.”

    Standard Bain fare thus far. The profiteering off the GS Industries disaster even brought Texas Gov. Rick Perry to Georgetown briefly in January this year to diss Romney during the Texan’s abortive presidential campaign.

    From Mediaite.com, August 8, 2012:

    In an interview with John Berman, Deputy Campaign manager Stephanie Cutter discusses Bain Capital and Joe Soptic’s claims that Mitt Romney had much to do with the failing of GS Steel .

    “I don’t know the facts about when his wife got sick, or the facts about his health insurance,” Stephanie Cutter stated, “but what I do know is that Mitt Romney personally handled the deal to take over GS Steel, and personally handled some of the decisions made to load that company up with debt so much that it went underwater, it went bankrupt. And you just said that he left the company before the deal was made. that’s not true. Mitt Romney made that deal.”

    “You know, he says that he left Bain Capital in 1999 to go run the Olympics,” Cutter said, “But if you remember, according to the SEC forms that he filed, he was still president and CEO of that firm. He was still taking a salary, and I guarantee you that when GS Steel went bankrupt that Mitt Romney personally walked away with a significant profit, while Joe lost his job. So that’s what really that story is about.”

    She added, “I do think that most people think that if you’re still CEO that you’re in charge.”

    Cutter reminded Berman that the campaign doesn’t, and by law can’t, have anything to do with Priorities, but added, “I don’t know the facts of when Joe’s wife got sick or when she died, but as I said before, I do know the facts of what Mitt Romney did with GS Steel. I do know the facts of how Joe lost his job, lost his health care. The entire company went bankrupt. But Mitt Romney walked away with a pretty hefty profit.”

    Bain also walked away from the company’s pension obligations, leaving the federal government to bail them out to the tune of $44 million.

    Berman’s thumbnail characterization of the ad, that it “accuses Mitt Romney of basically killing” Joe Soptic’s wife, isn’t entirely fair, either. That’s the most extreme interpretation possible, one which has permeated the media conversation of the spot, but that’s not really what it says. Even within Joe Soptic’s narration, there are several self-evident factors which led to his wife’s death, and his conclusion isn’t that Mitt Romney is at fault, but that he “doesn’t realize” and “is not concerned” with the human fallout from his business deals.

    On that score, I haven’t heard anyone, even Mitt Romney, ever argue that Bain Capital did everything possible to avoid layoffs. His one and only job was to make maximum profits, even if that meant peddling R-rated movies. That’s a perfectly defensible position, and it would be nice if Romney would defend it, rather than simply complaining about how mean Bill Burton is.

    Third part is at the top.

    Like

    Pritty Brains

    August 22, 2012 at 1:57 am

  8. The end part… if the previous posts had not disappeared, this would have made better sense… Good thinking on your part to mix it all up…

    *sighs*

    All that said, I’d like to point out that there are two sides to every story and Mitt Romney apparently has much to hide as one can see in his refusal to show his tax returns, as they would tell a big story about his financial dealings such as does he have more offshore businesses hidden in his wife’s name, for example, and it would bring to light answers to such controversies as this one concerning his employment as CEO, with Bain after 1999, continuing to pocket profits as late as 2001 and Bain’s dismantling of GS Steel in that time frame…

    We all know the very simple thing to put all this to rest once and for all would be for Mitt Romney to share ten years of tax returns like his father and all the presidents before him have done. If he did and the nation learned he is innocent after all, while I can’t speak for President Obama, he seems to be the type of person who would be one of the first to apologize. I’d be the second.

    So what is Mitt waiting for?

    The tough question is: Will he?

    Like

    Pritty Brains

    August 22, 2012 at 1:59 am


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: