Romney's Old Ties To Firm Pay Off
Company Is Source Of Income, Donors

By John Solomon and Matthew Mosk
Washington Post Staff Writers
Tuesday, August 14, 2007

Republican Mitt Romney, the wealthiest candidate in the presidential race, earned as much as $15 million in 2006 and early 2007 from the private equity firm he left eight years ago, helping him expand his personal fortune and bankroll his campaign.

The extent of Romney's continuing relationship with Boston-based Bain Capital Partners, which has also supplied him with scores of savvy fundraisers and well-heeled donors, was detailed in a financial disclosure report filed yesterday with the Office of Government Ethics. The report revealed the holdings of Romney's blind trust and provided the most complete accounting of his wealth, estimated at between $190 million and $250 million.

The filing, which listed 47 pages of investments spanning the globe, estimated that Romney earned between $17 million and $69 million last year.

Romney resigned from Bain in 1999 to take over the Salt Lake City Winter Olympics and, after winning the Massachusetts governorship in 2002, he placed his investment portfolio in a blind trust to avoid conflicts of interest. Nonetheless, Romney is now tapping the money and connections he gained in the private-equity world -- best known for corporate ego clashes and cutthroat leveraged buyouts -- to help finance his presidential aspirations.

Even in a field of wealthy candidates, Romney's personal fortune stands out. Former New York mayor Rudolph W. Giuliani has reported assets between $18 million and $70 million. On the Democratic side, former trial lawyer John Edwards has reported assets worth approximately $30 million, while Sen. Hillary Rodham Clinton and her husband have reported assets between $10 million and $50 million.

The documents released yesterday, which require candidates to disclose only ranges of assets and earnings, show that Romney retained a lucrative "passive" investor relationship with Bain after he left the firm. Under a severance deal that runs through Feb. 11, 2009, Romney must abide by various "non-compete, non-hire and confidentiality obligations," and in return he retains a "passive profit share as a retired partner," the documents state.

The arrangement allowed Romney to collect between $7.1 million and $15.5 million in dividends, interest and capital gains from Bain entities in 2006 and early 2007 alone. Advisers sought to distance Romney from his investments in Bain and other entities -- such as numerous foreign companies and funds -- by emphasizing that the candidate has had no control over his financial assets since he placed them in the blind trust on Jan. 1, 2003.

Romney's business success runs in the family. His father, George Romney, amassed a fortune as chairman of the now-defunct automaker American Motors before becoming Michigan governor in the 1960s.

The younger Romney secured a job in the 1970s with Boston Consulting Group before jumping to another management consulting firm called Bain & Co., where he became a vice president.

He quickly earned the trust of ownership and in 1984 was asked to co-found Bain Capital, which would play in the emerging private equity marketplace. By the time Romney stepped down in 1999, he had built Bain into one of the world's largest and most successful private equity firms, with billions in assets.

Romney struck early success by investing in emerging companies such as the upstart Staples, which promised customers they could cut office supply costs by up to half.

"He is a really cheap guy, and he was immediately attracted to that notion," said Thomas Stemberg, the former head of the Staples chain who is now an executive with Highland Capital Partners. "He has a really good gut feel for things, and he combines that with reliance on terrific analysis done by very, very smart people."

Eventually, Romney's firm moved into more aggressive buyouts and takeovers. Many of his more than 100 investments -- including Domino's Pizza -- made success stories.

Stemberg joined again with Romney on an investment in the New York City drugstore chain Duane Reade in the 1990s. He said Romney took a "more humble" tack than other equity fund managers, who reveled in engineering leveraged buyouts amid big corporate egos.

"He spends way more time on the business fundamentals and the big picture and puts less emphasis on being a financial engineer," Stemberg said.

Some deals caused controversy -- bringing job losses, questions about Bain's consulting and success fees, and lawsuits. During his first political campaign, for U.S. Senate in 1994, Romney was put on the defensive by incumbent Democrat Edward M. Kennedy, who highlighted the plight of 350 workers at an Indiana plant who lost their jobs after Bain bought out their parent company, Dallas-based Ampad.

Bain's takeovers of KB Toys and contact lens maker Wesley Jessen sparked legal battles that highlighted the extensive profits and fees Bain often earned. Bain reportedly made $350 million on its investment in Wesley but struck a nerve when it sought an additional $8 million fee for helping the lensmaker find a new owner. The new buyer objected, and a judge eventually ruled that Bain could not collect the fee.

Romney also was invited to serve on several corporate boards, and one such post has garnered criticism. He served from 1992 to 2001 on the board of Marriott Corp., and religious conservatives now want to know why he did not do more to stem the adult movie offerings at the hotel chain.

The Massachusetts Republican counts several executives from his Bain days among his top campaign fundraisers. One of his national finance co-chairs is David Brandon, the chief executive of Domino's Pizza, which Romney's firm bought out in 1998. Another fundraiser is eBay chief executive Meg Whitman, who worked as a vice president at Bain before getting top jobs at Stride Rite shoes and the FTD florist service, which Bain targeted for investment.

Romney -- whose $35.5 million in primary fundraising leads the GOP field -- also collected at least 109 donations from current Bain employees totaling $196,000.

Overall, Romney's connections to Bain have built the candidate an enormous fortune, separating him from many presidential contenders.

In an effort to improve his national name recognition, Romney, who keeps between $5 million and $25 million in his checking accounts, has tapped his wealth to spend freely on advertising months before primary voters cast their first ballots.

In the first six months of this year, Romney lent his campaign more than $8.9 million, and he spent as much as he raised between April and July, a luxury not enjoyed by other rivals, including Sen. John McCain (R-Ariz.), who was forced to cut spending and staff because of lagging fundraising.

The spending paid off this past weekend when Romney -- with millions already invested in Iowa -- won that state's coveted GOP straw poll, giving his campaign a boost before the traditional Labor Day kickoff of the presidential campaign.

Still, several wealthy self-financed candidates have made unsuccessful runs at the presidency in recent years. Texas billionaire Ross Perot won 19 percent of the vote in the 1992 election after spending more than $65 million of his own money to run as an independent. Past Republican candidates Pierre "Pete" DuPont and Steve Forbes also benefited from large personal fortunes but failed to win the nomination.

Romney advisers said yesterday that they anticipated questions about whether the candidate had benefited from foreign tax shelters, given the presence in his report of hedge funds with offshore holdings. "These entities are fully registered with the IRS," said R. Bradford Malt, the trustee who is handling Romney's blind-trust activities. "They withhold taxes on behalf of the U.S. Treasury. I get U.S. tax forms from these entities. The trusts do not save one dime of U.S. taxes."

After Romney became a presidential candidate, Malt said he had to ensure that his investments matched his rhetoric. Malt began to sell assets when Romney announced in February that he would seek "a policy of strategic disinvestment from companies linked to the Iranian regime."

Such moves appear not to have hurt Romney's bottom line. "Has it beat the S&P 500?" asked Malt, referring to the investment performance of the blind trust. "It has. Handily."

Research editor Alice Crites and staff researcher Madonna Lebling contributed to this report.