NYT: Buyout Firms Profited as a Company’s Debt Soared (recommended reading after MM's Capitalism)

[JHB]

New York Times Page 1 story on the Simmons Matress company (think "Beautyrest"), it's bankruptcy, and the money extracted from it by private equity firms trading it and loading it up with debt.

If Michael Mooore's Capitalism: A Love Story has you up in arms, or if you think it was too emotional and skimped on facts, this is an article (and others like it) you need to read.

What this article recounts happening to Simmons has happened to thousands of companies since the 80's, and this sort of flipping and remote control managment has been one of the prime engines in gutting our manufacturing base. It continues to destroy companies today: take a company with consistent if mediocre profits, load it up with debt, sell assets and break the workers to make it "more efficient" (all the while extracting big salaries and fees), then flip it to somebody else for a big profit, until the last sucker has nothing but a brand name.


http://www.nytimes.com/2009/10/05/business/economy/05simmons.html?_r=1&hp

Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.

For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year.

But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years.