Thursday, February 03, 2005
Bain Bane

Last week, when Gillette and Proctor & Gamble announced their impending nuptuals, Willard Mitt seemed downright somnolent.

His reaction bordered on boring: "I understand that there are going to be a lot of job losses. That's very unfortunate. I wish I had the power to prevent this acquisition from occurring. I don't." (source: Boston Herald, 1/29/2005)

But now we get it.

The Fraud Governor could not very well attack the merger without ... attacking himself.

Because once upon a time, way back in 1992, Bain Capital purchased American Pad & Paper (AmPad) from the Mead Corporation in a leveraged buyout. Mead provided short-term financing. The deal left AmPad with acquisition debt it allegedly couldn’t repay due to business losses. (source: Securities & Commodities Litigation Reporter, 4/8/1998)

Now before we get too far into the story, take a deep breath. We know what you're thinking. Oh no - AmPad! This is about that turgid worker's strike, isn't it?

Relax. We're not here to drive nails into your eyes. Today's drivel is about what happened after the workers strike. After the strikers were fired and forgotten. After Willard Mitt returned from his Kamikaze Tour of '94 leave of absence.

In 1992, Bain Capital purchased AmPad. (source: Motley Fool, 1/7/1998) Three of Romney's Bain partners sat on the AmPad board of directors. Romney was chairman of Bain. (source: Boston Globe, 9/23/1994; Boston Herald, 12/29/1994)

In 1995 the Bankers Trust New York Corporation loaned AmPad $230 million dollars to arrange for the sale of $200 million in bonds so it could repay Mead and stay afloat. At that time, however, AmPad had negative shareholder equity of around $66 million dollars. Bankers Trust mandated that AmPad issue stock to pay off its debt and reduce its obligations. (source: Zishka v. American Pad & Paper Co)

To perhaps help present a profitable image on its financial statements for its stock issue, AmPad acquired Williamhouse-Regency, an envelope manufacturer. Bankers Trust financed the deal. AmPad purportedly claimed that its acquisition of Williamhouse positioned it for 30 percent earnings per share growth in 1997 and 1998, and 20 percent earnings growth after that. (source: Zishka v. AmPad)

AmPad’s stock issue went public on July 2, 1996. The issue sold 16.2 million shares of stock at $15 per share, and raised $234 million dollars. AmPad received $172.8 million, which it used to repay and restructure its loan from Bankers Trust. Bain Capital controlled approximately 14 million shares of stock, and sold 3.4 million shares for a profit of between $40 -$49 million (source: Bank & Lender Liability Litigation Reporter, 4/15/1998; PR Newswire, 3/11/1998)

The stock sale flipped AmPad’s negative shareholder equity into $88.9 million positive shareholder equity. Bain’s remaining 10 million shares of AmPad stock increased to a point where the company realized 'a $135 million windfall.' (source: PR Newswire, 3/11/98)

AmPad’s stock eventually rose above $26. (source: Zishka v. AmPad)

In September 1997, AmPad began to realize flat revenues and a decline in earnings per share. Two months later, AmPad revealed it would suffer huge 4th quarter losses. The stock dropped to $7.75 as a result of the announcement. AmPad ended up losing $4.5 million in 1997. (source: Zishka v. AmPad; Buffalo News, 4/8/1998)

One month later, Williamhouse, the envelope company that AmPad purchased to allegedly make it look better for its July 1996 stock issue, began laying off workers at its 220-employee Holland, New York plant 'to improve profits.' (source: Buffalo News – 4/8/98)

AmPad ended up losing $79 million in 1998, and was delisted from the New York Stock Exchange in January, 1999.

Four months later, AmPad announced it would close its Williamhouse factory in Holland, New York to "return the company to profitability." (source: Buffalo News, 5/11/99)

Still with us? Let's recap.

Romney and Bain Capital buy AmPad. AmPad buys Williamhouse-Regency to allegedly improve AmPad's financial appearance, then closes the Williamhouse factory in Holland, NY to "return the company to profitabilty." Oh yeah, as of today AmPad is trading in the pink sheets. Seems "profitability" 'taint what it used to be.

An interesting update: last month, AmPad announced they would "consolidate manufacturing processes and distribute products through an outside company, which will drive company growth, competitive position and responsiveness to customers." (source: Business Wire, 1/20/2005) Victims of the consolidation include a manufacturing plant in Holyoke and distribution facilities in Westfield, Massachusetts.

No wonder Willard Mitt had so little to say about the merger, consolidation and job losses attendent to Gillette and Proctor & Gamble.

We're surprised he said as much as he did.


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