Bain Capital - GST Steel - Obamas Commercial

[Magox]

A good piece from Kimberly Strassel

 

http://online.wsj.com/article/SB10001424052702303360504577410573651845802.html

 

 

 

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."

 

That's 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 just not one Team Obama wants to tell.

[IDBillzFan]

It's funny to me watching the Obama campaign try to use Bain as an example of failed ventures while brushing off Solyndra with "Well, some investments work and some don't."

 

Start comparing the Solyndra investment to GST and Obama will look like the business fool he really is.

[RkFast]

Isnt the DNC being held at Bank of America Stadium? Ya know...BANKS....those evil Wall Street BANKS?

 

The lines are writing themselves for Romney.

Edited May 18, 2012 by RkFast

[Chef Jim]

That's the beauty of America. We're allowed to take risks. Some work some don't. But for the successful companies such as Bain those risks paid off more a LOT more times than not. And you know that the Obama Administration agrees with that. They're just pandering to the dumb American public wich bugs the **** out of me.

 

It's funny to me watching the Obama campaign try to use Bain as an example of failed ventures while brushing off Solyndra with "Well, some investments work and some don't."

 

Start comparing the Solyndra investment to GST and Obama will look like the business fool he really is.

 

And how hard is it NOT to draw the parallel. And the big difference is Bain was blowing their money or private equity while Solyndra was public funds. HUGE difference.

[Koko78]

I find it interesting that this GST/Bain narrative also continues Obama's presidential theme of, "it's all the fault of the guy who isn't here anymore." All of Obama's failures are Bush's fault, all of Bain's post-1999 decisions are Romney's fault.

 

It is fascinating how Obama's campaign machine continues to refuse to assign responsibility to the people who are actually running the show (be it in the White House or at Bain) for failures.

 

Romney has about 3 ways he can demolish Obama's attack on the GST thing; if his campaign is smart about it.

[Nanker]

^{But come on guys. You know those union workers were guaranteed their jobs for life. The heartless bastages that shut the plant down are criminals unworthy of even the least modicum of respect. And anyway, didn't you hear that Romney harassed a guy in high school that was a bit light-in-the-loafers? Sure it was in 1969 or so, but what's to say that he won't behave badly when he's meeting with other heads of state? You know - like punching the european socialist fockers in the snot locker if they give him any kind of grief... or maybe not inviting Putin or the Chinese Commies to an economic summit?}

^{BO's only hope is to paint this thug in colors that contrast him as powerfully as he can to the OWS Cultural Revolutionaries.}

^{Bring it on Axelrod.}

[MARCELL DAREUS POWER]

to be fair. this has nothing to do with risk. many of these companies were fine. but bain loaded them up with debt and then cut and run.

[WorldTraveller]

to be fair. this has nothing to do with risk. many of these companies were fine. but bain loaded them up with debt and then cut and run.

No one who understands the captial markets agree with you.

[3rdnlng]

to be fair. this has nothing to do with risk. many of these companies were fine. but bain loaded them up with debt and then cut and run.

 

 

Can you link to this? I'd like to see a list of companies that Bain put under on purpose vs. a list of companies that Bain supported and helped make successful. Your statement needs to be backed up with something. Can you do it?

[WorldTraveller]

Can you link to this? I'd like to see a list of companies that Bain put under on purpose vs. a list of companies that Bain supported and helped make successful. Your statement needs to be backed up with something. Can you do it?

There are plenty of left-wing sites that peddle this stuff to their audience

[3rdnlng]

There are plenty of left-wing sites that peddle this stuff to their audience

 

Then he/she won't have a problem linking to it, will it?

[B-Man]

to be fair. this has nothing to do with risk. many of these companies were fine. but bain loaded them up with debt and then cut and run.

 

 

 

 

My favorite part is the, "to be fair"...................lol

.

[dayman]

Bain Capital is just an Obama narrative?

 

http://www.youtube.com/watch?v=UYg_OdXNc1Q&feature=related

[Magox]

Bain Capital is just an Obama narrative?

 

youtube.com/watch?v=UYg_OdXNc1Q&feature=related

Nope, its a political opponent narrative, which of course has been debunked.

Edited May 19, 2012 by Magox

[dayman]

Nope, its a political opponent narrative, which of course has been debunked.

 

It's a miscalculation to frame Bain and his experience there as a bona fide job creating qualification. Some jobs were created, and some jobs were destroyed. His job was to create superior returns, not create jobs. He should just say that and move on.

[Chef Jim]

It's a miscalculation to frame Bain and his experience there as a bona fide job creating qualification. Some jobs were created, and some jobs were destroyed. His job was to create superior returns, not create jobs. He should just say that and move on.

 

Which typically requires the reduction of the work force. And oftentimes that reduction is temporary. Many companies are overloaded with dead weight and that dead weight is stunting their growth. Sucking up capital. Once you free up that capital you can begin to grow which in turn will create jobs. I'd like to see how many of those companies that Bain turned around ended up hiring again down the road.

[Magox]

It's a miscalculation to frame Bain and his experience there as a bona fide job creating qualification. Some jobs were created, and some jobs were destroyed. His job was to create superior returns, not create jobs. He should just say that and move on.

No, it's not a miscalculation at all, the left would like for Romney to say that, but he won't and he shouldn't. There is nothing more that the left wants, which is to tear down and distort the truth, because they know that ROmney has them beat hands down, when it comes to understanding the economy. Fact is that they did create alot more jobs than were lost. And no, you're characterization of "destroyed" is a left-wing or political opponent one that has absolutely no truth to it whatsover.

 

Bain capital invested in startups and businesses that were struggling, if it wasn't for private equity firms, we would have alot less businesses here in the US than we have today.

 

The primary duty of any business is to produce a profit, I don't care if it's a mom and pop store, a multibillion dollar corporation or a private equity firm. It is through good sound business and profits where jobs are normally created and that's what Bain capital did. It created thousands and thousands of jobs through a superbly run outfit.

 

So too bad, they won't listen to left wing advice of not touting his accomplishments, which was that they created tremendous wealth for their investors, themselves, pension funds and did create many jobs.

 

Investing and risking your own capital is what drives this country, you win some and lose some, but that's the American way, And Romney personifies AMerican business excellence.

 

Romney will win the independent vote, you can take that to the bank.

Edited May 19, 2012 by Magox

[dayman]

lol

[meazza]

It's a miscalculation to frame Bain and his experience there as a bona fide job creating qualification. Some jobs were created, and some jobs were destroyed. His job was to create superior returns, not create jobs. He should just say that and move on.

 

No a traders job is usually to create superior returns, a private equity firm usually gathers capital and allocates it to businesses in which they can add value since as I stated earlier in this thread, a going concern is better for its owners than a company that is liquidated and sold for pieces.

[Chef Jim]

 

Romney will win the independent vote, you can take that to the bank.

 

Banks are bad mmmm'kay.