Four Pinocchios for ‘King of Bain’
By Glenn Kessler,<iframe style=”” frameborder=”0” width=”480” height=”270”marginwidth=”0” marginheight=”0”src=”http://specials.washingtonpost.com/mv/embed/?title=%27King%20of%20Bain%27%20ads%20airing%20in%20South%20Carolina&stillURL=http%3A//media.washingtonpost.com/media/images/2012/01/11/01112012-92v_480x270.jpg&flvURL=/media/2012/01/11/01112012-92v.m4v&width=480&height=270&autoStart=false&clickThru=&jsonURL=/media/meta/2012/01/11/01112012-92v.jsn”><p>Your Browser DoesNot Support IFrames.</p></iframe>
“This is a story of greed, of playing the system for a quick buck, a group of corporate raiders led by Mitt Romney more ruthless than Wall Street. For tens of thousands of Americans, the suffering began when Mitt Romney came to town.”
— Voice-over from “King of Bain” video promoted by a pro-Newt Gingrich super PAC, “Winning Our Future.”
Newt Gingrich, meet Michael Moore!
The 29-minute video “King of Bain” is such an over-the-top assault on former Massachusetts governor Mitt Romney that it is hard to know where to begin. It uses evocative footage from distraught middle-class Americans who allege that Romney’s deal-making is responsible for their woes. It mixes images of closed factories and shuttered shops with video clips of Romney making him look foolish, vain or greedy. And it has a sneering voice-over that seeks to push every anti-Wall Street button possible.
Here’s just a sampling of what Romney and Bain Capital, which he once headed, is accused of: “Stripping American businesses of assets, selling everything to the highest bidder and often killing jobs for big financial rewards . . . high disdain for American businesses and workers . . . upended the company and dismantled the work force; now they were able to make a handsome profit . . . cash rampage . . . contributing to the greatest American job loss since World War II . . . turn the misfortune of others into their own enormous financial gain.”
The video ends with a crescendo of images of despair, with voices of the victims adding emotional punch: “A lot of lives were ruined . . . he took away our livelihoods . . . he took away our future . . . he destroyed a lot of homes . . . it all gets back to greed.” (Irritatingly, few of these ordinary citizens are identified.)
The video is reminiscent of the devastating series of attack ads released by then-Sen. Ted Kennedy (D-Mass.) that derailed Romney’s Senate campaign in 1994. In fact, we’d swear some of the people interviewed for “King of Bain,” who are identified as working for Ampad in Marion, Ind., are the same as those interviewed for the Kennedy ads at SCM, which Ampad acquired. They just look two decades older. (We have embedded a collection of the Kennedy ads at the end of this column.)
Let’s take a look at some of the claims in “King of Bain.” The video clip above is from a 60-second commercial aired by “Winning Our Future.” The full video can be found here. As we will demonstrate, at least some of the interviews of ordinary citizens appear to have been conducted under misleading pretenses and have been selectively edited to leave a false impression.
First of all, it is a stretch to portray Romney as some sort of corporate raider, akin to Carl Icahn (whose image is briefly seen). Bain Capital initially was in the business of providing venture capital — seed money — for start-ups, such as Staples. Then it moved to the more lucrative business of private equity, in which Bain won control of firms, reorganized them and then sold them for profit. (Our colleague Suzy Khimm earlier this week did an excellent job of explaining the two sides of Bain Capital.)
Private equity deals, such as leveraged buyouts in which the company borrows lots of debt, can be more rewarding but also more risky. Some of those deals went bad for Bain, which sometimes happens in finance, though the company usually made money anyway. New York magazine, which the film cites as a source, recently ran an excellent profile of Romney in which it explored Romney’s pioneering role in the then-emerging field of private equity. Private equity revolutionized American business, demanding efficiencies (which can mean layoffs) and helping place much more emphasis on increasing shareholder value.
The movie pejoratively claims that the “Bain Way” was shorthand for being able to “turn the misfortunes of others into their enormous financial gains.” Bain Capital was actually an offshoot of Bain & Company, a consulting firm, and the “Bain Way” refers to its heavily analytical and data-driven approach to problems.
It’s beyond the scope of this column to assess whether the changes in American capitalism brought about by private equity ultimately are good or bad for the American economy. (Here’s a good primer.) But we can assess whether the four specific deals highlighted by the film are depicted with accuracy.
The closure of the UniMac plant in Marianna, Fla.
In the film, three former employees of UniMac, which makes commercial washing machines, appear to suggest that quality went down under Bain Capital’s management and that a plant in Marianna, Fla., was closed because of Romney’s actions.
But the chronology is all jumbled. Bain Capital bought the business from Raytheon in 1998, and Romney left Bain a year later to run the Winter Olympics in Salt Lake City. In 2005, Bain sold UniMac (also called Alliance Laundry) to a Canadian entity known as Teachers’ Private Capital. The factory was moved from Marianna to Ripon, Wisc., in 2006, after Bain’s involvement ended — a fact made clear on the Web site of a laundry repair business co-owned by the people featured in the film.
In fact, Mike Baxley, who was interviewed for the film, said that he and his partner had “absolutely no idea” that the interviews were for a film about Romney and Bain. He said they thought they were being interviewed for a documentary about the factory closing.
“They said they wanted to know what it was like when the factory closed down,” he said, and he, his partner and his partner’s wife agreed to interviews after “they flashed a little money at us.” (Baxley, a Republican who said he had not yet thought much about the nomination contest, declined to reveal the amount.)
After watching “King of Bain” at The Fact Checker’s request, he said: “We were pretty shocked. Our quotes were seriously taken out of context. There is a real lack of facts.”
Indeed, Baxley, Tommy Jones and Tammy Jones barely mention Romney and Bain as they talk about their angst about the factory closing; the narrator of the film inserts suggestions that Romney was responsible.
The film suggests that UniMac is out of business, but Baxley noted that UniMac is still going strong at its new headquarters in Wisconsin. He said that the same upper management team ran the company during the course of the various investments by outside partners such as Bain, and that Bain appeared to have little involvement in UniMac’s management.
The bankruptcy of KB Toys
Here again, the chronology is off. Bain Capital did not buy KB Toys until late 2000, more than a year after Romney left for the Olympics. But the film states, “Romney and Bain bought the 80-year-old company in 2000, loaded it with millions in debt.” It then attributes the failure of KB Toys in 2008 to that debt load, without noting that a horrible retail environment wiped out a number of chains, particularly toy stores.
Then the film runs a snippet from a 2010 Romney appearance at Emory University, making it appear as if he is talking about KB Toys when he speaks of “creative destruction.” (This is not a Romney phrase but an economic term referring to the creation of new technologies.) The film does not include the rest of Romney’s remarks on the importance of helping people transition from jobs in outmoded industries to new ones.
The segment also misquotes an article from the Boston Herald, making it appear as if the newspaper editorialized that Romney and Bain made ”disgusting” profits. But the quote actually was from a former worker who had been laid off at KB Toys.
The bankruptcy of DDi
The segment tries to tie Romney to Wall Street games-playing by focusing on allegations that Lehman Brothers pumped up the stock of DDi, allowing Bain Capital to sell its shares for big gains, even while an Lehman analyst had misgivings about the Orange County electronics maker.
According to an Aug. 26, 2003, account in the Orange County Register, which the film cites as a source, Bain Capital under Romney’s leadership invested $46 million in DDi in 1997. It sold many of its shares for at least $93 million and received a $10 million management fee, but the newspaper said Bain retained a 14 percent stake in the firm that was wiped out when DDi filed for bankruptcy during the dot-com bust. (The film suggests Bain had sold all of its shares, saying it had “dumped the rest.”)
Lehman Brothers in 2003 paid $80 million to settle charges by the Securities and Exchange Commission that its bankers had tainted stock recommendations in five instances, including recommendations for DDi. But the SEC did not say that Bain had done anything wrong. Romney, who again was by then involved in the Olympics, also invested some of his own money in DDi and sold it before the stock crashed, the Boston Globe reported in 2003.
The film, while focusing on the 2,200 jobs that were lost during the technology bust, does not mention that DDi emerged from bankruptcy proceedings and is currently thriving.
The demise of the Ampad facility in Marion, Ind.
Finally, the film comes to a case that directly involves Romney. As mentioned before, this transaction formed the core of Ted Kennedy’s ad war against Romney, and the interviews in those ads are raw and on point. Clearly, people in Marion are still angry at Bain’s role in the demise of the facility there.
Bain assembled Ampad (formerly American Pad & Paper, supposedly the creator of the legal pad) through what is known as a “roll-up strategy,” in which similar companies are purchased in the same industry. One of these companies was the writing product firm SCM, based in Marion, which was purchased in 1994. The efficiencies of scale at first proved a success, and Bain made a fortune — some $100 million, according to the Globe.
But the company floundered — ironically because of price pressure from companies such as Staples, which was started with help from Bain. Ampad filed for bankruptcy protection in 1999 but still exists today as part of Esselte Corp.
One former Ampad employee claims Romney has 15 homes, which is simply not correct; he or his wife appear to have three homes (though worth almost $20 million), according to PolitiFact.
Moreover, without evidence, the film claims that “tens of thousands” of people have lost their jobs because of actions taken by Romney and Bain Capital. We have taken Romney to task for claiming he helped create “100,000 jobs,” and this is an equally unfounded claim.
The Pinocchio Test
Romney may have opened the door to this kind of attack with his suspect job-creation claims, but that is no excuse for this highly misleading portrayal of Romney’s years at Bain Capital. Only one of the four case studies directly involves Romney and his decision-making, while at least two are completely off point. The manipulative way the interviews appeared to have been gathered for the UniMac segment alone discredits the entire film.
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