By David Wren, McClatchy Newspapers –
MYRTLE BEACH, S.C. — Boston-based Bain Capital LLC more than doubled its money on GS Industries Inc. — the former parent company of Georgetown Steel — under Mitt Romney’s leadership in the 1990s, even as the steel manufacturer went on to cut more than 1,750 jobs, shuttered a division that had been around for 100 years and eventually sank into bankruptcy.
Bain Capital spent $24.5 million to acquire GS Industries in 1993, according to an investment prospectus for the company that was obtained by the Los Angeles Times and reviewed by McClatchy Newspapers. By the end of that decade, Bain Capital estimated its partners had made $58.4 million off its investment in GS Industries, according to the prospectus.
Bain Capital’s partners also earned multimillion-dollar dividends from GS Industries and annual management fees of about $900,000. But by the time GS Industries filed for bankruptcy protection in 2001, it owed $553.9 million in debts against assets valued at $395.2 million.
Romney — who founded Bain Capital, one of the earliest leveraged-buyout firms, in 1984 — was in charge of the firm for most of the time it owned GS Industries. Romney left Bain Capital in 1999, two years before the bankruptcy, to run the organizing committee for the Winter Olympics in Salt Lake City, Utah.
“We were doing well and then Bain Capital bought us and they took everything they could out of the company without making the investments we needed to stay competitive,” said James Sanderson, who has been with the mill since 1974 and served as its union president since 1988. “They ran the company into bankruptcy.”
Bain Capital came to own Georgetown Steel after it provided the financing for a management-led buyout of Armco Worldwide Grinding System of Kansas City, Mo., in 1993. The Armco plant was renamed GS Technologies, which merged with Georgetown Industries in 1995 to become GS Industries Inc. At the time, the combined entities — headquartered in Charlotte, N.C. — had $1 billion in revenue and employed 3,800 people worldwide as the largest producer of carbon wire rods in North America.
Sanderson said Bain Capital replaced longtime managers who had built Georgetown Steel with bean counters looking for ways to cut costs. They demanded increasing financial performance with little idea of how the daily operations were run, he said.
“They were investors. They weren’t steel mill operators,” he said.
Romney has touted his business acumen as an asset in his bid for the Republican Party nomination for president. But he has come under fire from opponents — including other Republican candidates, such as Texas Gov. Rick Perry, who called Romney a “vulture capitalist” — who say Bain Capital preyed on struggling companies and stripped them financially before selling them off or abandoning them in bankruptcy court.
Bain Capital propped up short-term earnings, Romney opponents say, so the venture capital firm could borrow money that went toward investors’ dividends — enriching Bain Capital but leaving the companies with unsustainable debt.
Romney has fought back, saying his goal at Bain Capital always was to make companies successful over the long term, even if that meant painful cuts along the way. Romney says he was successful more often than not, but that in a free enterprise system, some businesses will not be strong enough to survive.
Romney’s campaign officials in South Carolina could not be reached for comment, but he discussed Bain’s investment in GS industries during a Fox News interview last month.
“The steel industry got in trouble in this country,” Romney said. “I think 40 mills went bankrupt the same time (GS Industries) did, in part because of — well, in this case, dumping from places like China into this country. I understand the impact of what happens globally in trade. And businesses, you know, lose and go out of business, and in some cases, lose jobs. It breaks your heart when that happens.”
Jim Jerow, chairman of the Georgetown County Republican Party, said he thinks the attacks on Romney have been unfair.
“Any business, if they are going to remain competitive, they have to do things sometimes that people don’t like, such as reducing staff and cutting costs,” Jerow said, adding that Georgetown Steel’s biggest problem before its bankruptcy was competition from foreign steel makers who dumped cheap products on the American market.
“You don’t hear any of his critics talk about that,” Jerow said. “I guess my question for them would be: What would you have done at the time?”
Contacted Friday, Romney’s campaign e-mailed this response: “Bain Capital invested in many businesses; while not every business was successful, the firm had an excellent overall track record and created jobs with well-known companies like Staples, Dominos, and Sports Authority. These experiences give Mr. Romney the unique skills and capabilities to do what President Obama has failed to do: focus on job creation and turn around our nation’s faltering economy.”
In addition to GS Industries, Bain Capital paid $10 million to buy another South Carolina company — Holson Burnes Group, a photo-album maker based in Gaffney. The prospectus shows Bain Capital’s partners made more than twice their investment — earning $22.6 million, according to the prospectus — between 1986 and 1992, when Holson Burnes Group went out of business and 150 people lost their jobs.
In GS Industries’ case, Bain nearly destroyed a Georgetown Steel plant that had provided hundreds of well-paying jobs to Georgetown County residents since the late 1960s, according to Sanderson, who has remained president of the local United Steelworkers union No. 7898 through a pair of bankruptcies, a mill shutdown and its rebirth under Mittal Steel in 2005.
By the time GS Industries filed for bankruptcy protection, the number of employees worldwide had been cut by more than half.
The Kansas City, Mo., plant felt the brunt of Bain Capital’s cuts, according to news reports, with one state legislator accusing the venture capital firm of union-busting during a 1997 strike — the company’s first in nearly 40 years — that lasted 10 weeks. A key sticking point in that strike was job security and pension benefits for workers who suspected that Bain Capital was trying to cut operating costs for a quick sale.
As foreign competition increased and steel prices continued to fall, GS Industries applied for a federal loan in 1999 to help keep the company afloat. But in 2001, before the loan could be used, GS Industries filed for bankruptcy protection, closing down the Kansas City plant that had its origins in the late 1800s.
S.C. Gov. Nikki Haley — who endorsed Romney in December — said during a rally in Columbia last week that criticism of Romney’s business tactics is unfair and she called on his Republican opponents to stop the attacks.
“I am proud of all our Republican candidates,” Haley said. “But we have a real problem when we have Republicans talking like dang Democrats against the free market. (Romney) fixed broken businesses. We’ve got a broken Washington that needs to be fixed.”
