Bain Capital buys Ford in 1987

Based on our save detroit thread

Someone had mentioned having a corporate raider buy one of the big three in the 80's and having looked at ford's historical market cap in the 80's there seems to have been a real window to do this

Warren Buffet could probably have bought the company outright (or at least tried to) in 1981.... however his buying a struggling ford would be out of his standard business practice, as he generally prefers to buy successful companies and just allow them to do their thing

So in looking for an alternative I observed the float of Ford's stock was such that in 1987 that one could have purchased enough shares to control the company for somewhere between 250 million and 330 million (at least enough for Romney to vote himself and partners chairman and to the board and exercise control of the companies actions or alternatively to use their shares to vote to take the company private to themselves)

Bain Capital after it's 1987 raising of funds and pulling of gains from it's first three years of investments had something on order of 150 million to throw at this endevour

So assuming Romney wants to take over ford he either needs to raise more money to enact a hostile takeover via the float

or alternatively, he may buy 25-35 percent of the float and offer himself and partners to the board in the next election, hoping that the company's troubles will make the ford family unpopular enough to go down to "young blood" plus romney can play up his father's successful tenure at american motors... i could see quite a number of share holders voting to put the Bain group in charge in hopes of unlocking value and getting the stock out of the basement

lets assume the first scenario for a moment and Bain raises the additional cash, buys up the float and takes over the company directly (and take it private shortly thereafter)

Bain after a few months to look over the books would discover all of the wasted duplication of efforts throughout the company and the previously horrible financial management (all of which is time consuming but quite fixable) plus they have the Reagan (and Bush senior) administrations around to support them in breaking the UAW and lowering costs

i figure there would be years of strife and struggle but actually having some outside input into the company (plus ready access to more cash) would probably be rejuvinating and the ford that would appear in the early 90's boom would be much leaner with better margins

I have a feeling Bain may bail instead and let Ford die on its own...

I have a feeling Bain may bail instead and let Ford die on its own...

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Yeah, why would he try to save it instead of doing the usual loot and run? Ford goes bankrupt(debt, fees to Bain, etc.), Bain walks away with cash.

Whanztastic said:

I have a feeling Bain may bail instead and let Ford die on its own...

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This.

Bain's usual modus operendai was to rack up massive amounts of debt to buy out a company and use the company's assets to pay off said debt while charging massive consultancy fees. The end result much more closely resembled a slash and burn. Bain's biggest success story, Staples, was a product of their venture capital investments (which they have deprioritized and shifted money away from since the 80s) and NOT a takeover. The actual success rate for Bain's buyouts was pretty small IIRC.

What will come of Ford being destroyed in the 80s, and will pillaging a major American icon bring attention to how Bain and those like them do business earlier?

LHB said:

This.

Bain's usual modus operendai was to rack up massive amounts of debt to buy out a company and use the company's assets to pay off said debt while charging massive consultancy fees. The end result much more closely resembled a slash and burn. Bain's biggest success story, Staples, was a product of their venture capital investments (which they have deprioritized and shifted money away from since the 80s) and NOT a takeover. The actual success rate for Bain's buyouts was pretty small IIRC.

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those were tactics were used more in the 90's and 00's though... in the 80's they did have constructive products, plus given his family history ( George is still alive in 1987) Mitt may take ownership of ford on a longer horizon with different goals than some of Bain's other buys in the period

If Romney is involved in the death of Ford, he has killed his chances to be president.

BlairWitch749 said:

those were tactics were used more in the 90's and 00's though... in the 80's they did have constructive products, plus given his family history ( George is still alive in 1987) Mitt may take ownership of ford on a longer horizon with different goals than some of Bain's other buys in the period

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Ford in 1987 was still in some financial trouble, namely because while the Escort and Taurus had been successes, Ford still had a pile of debt to deal with, and their buyout of Bain would come just as Chrysler bought out AMC, thus ending George Romney's automotive legacy in its own right. Ford's financial situation in 1987 was such that if Bain bought in, they wouldn't bother with trying to build it up - not much room to grow and a huge debt load to deal with - and would instead start the standard tactics Bain used so often in the 1990s. Result is that Ford goes belly-up in the mid 1990s with the loss of hundreds of thousands of jobs, both from Ford and parts suppliers which crash along with them, causing considerable headaches for GM and Chrysler at the time. The loss of a major portion of America's automobile industry is the result, and while Bain would get paid (they always did), this couldn't not get a big, loud, nasty backlash.

Bye, bye, Mitt Romney's future political hopes if the bankruptcy happens, IMO.

OTOH, I can also see Romney taking over Ford and, like MasterSanders said, becoming the savior of Ford. This would help build up his credibility among voters.

I see that the ideologues are still trolling...

No, I think there would be too much profit in Ford being alive and making money rather than simply, as leftists would say, raid the company.

With George being in the auto industry, I could see Mitt wanting to follow in his footsteps, and might leave Bain for Ford.

No doubt that, even then, Mitt had political aspirations. I could imagine Romney making a name for himself by being the "savior of Ford." Such cred would make him the envy of other would-be politicians.

I am thnking that this cancels Romney's political career.

I think Huntsman and Pawlenty split the moderate vote and Ssntorium gets the nomination.

MasterSanders said:

No, I think there would be too much profit in Ford being alive and making money rather than simply, as leftists would say, raid the company.

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Most of the companies Bain bought were good and profitable. That didn't save many of them. I doubt Bain would ever buy Ford at the time - too much debt - but if they did, Bain wouldn't run the company and try to stack up a bigger company, there was simply no room for growth of their scale and the company's debts were too large. They'd do the standard Bain Capital trick of loading it up with debts and then watching it fall apart, because they get paid far quicker that way and probably make more money in the process. And if that put hundreds of thousands of people out of work, it isn't as if organizations like Bain Capital and silver-spoon losers like Romney gave half of a shit about the job losses they caused.

MasterSanders said:

I see that the ideologues are still trolling...

No, I think there would be too much profit in Ford being alive and making money rather than simply, as leftists would say, raid the company.

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I don't think that it's particularly ideological to simply look at the track record and business practices that were prevalent and acknowledge that's probably what they're going to do.

Bain is in business to maximize its profits. It has no emotional or political investment in Ford, no real understanding of or competence in the auto industry. I suppose its possible that a bunch of commerce school graduates and CPA's will understand the intricacies of production lines, supply chains, financing arrangement, dealers and dealerships, engineers and construction more than people who have spent their lives immersed in it.

The most likely outcome, as has been stated, is simply loading up Ford with debt, and Ford can sustain immense debts, exorbitant management fees, cut and pare, and then start carving the company up and selling off

This would be the general rule for takeovers. I don't particularly single out Bain. Any of the species would do the same.

With George being in the auto industry, I could see Mitt wanting to follow in his footsteps, and might leave Bain for Ford.

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That's less ideological on your part than romantic. I'm quite skeptical of sentimentality and romance in business. I don't think we actually see all that much of it, and I don't believe it ever ends well.

No doubt that, even then, Mitt had political aspirations. I could imagine Romney making a name for himself by being the "savior of Ford." Such cred would make him the envy of other would-be politicians.

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Again, assuming that a man and a management team which has no history with, understanding of, or insight into the operation of a major car company will just step in and be brilliant?

any info?

It is hard finding data via google. when would the offer be made? i have a range of 6-9% interest rates for 1987; does anyone know Ford's market cap? Also, Bain has how much $ to play with? expect they want 15-20% returns/year off the top of my head. Any other info for a scenario?

My guess would be that if Romney and Bain stuck around and actually saved Ford, he wins Michigan if/when he gets the GOP nomination and probably Ohio as well (in general, this could make it so he wins whatever election he's running in)

If Bain leaves Ford to die or they fail, Romney just killed any future political aspirations he may have had in the 1980s.

I don't understand this notion that saving Ford would be a choice Romney would be able to make.

His chances of saving Ford are about the same as any other group of dilettantes with a very specific skill set who have no actual experience or insight into a given field.

The track record for that sort of thing, setting aside the self serving propaganda, is appallingly bad.

As they said in the Music Man "Ya gotta know the territory."

DValdron said:

I don't understand this notion that saving Ford would be a choice Romney would be able to make.

His chances of saving Ford are about the same as any other group of dilettantes with a very specific skill set who have no actual experience or insight into a given field.

As they said in the Music Man "Ya gotta know the territory."

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No idea what or who this Music Man is, but that is tosh.

Look at the man who actually turned Ford around and made them the only one of the Big Three not to need or get a massive bail out. Alan Mulally had zero car background having come from Boeing, so no 'actual experience or insight' into the field of automotive engineering. But under his leadership Ford had by far the 'best' crisis of the US car makers and didn't end up part owned by the government, hardly a damning indictment of outsiders is it?

I'm not saying that means Romney could have or would have turned turned around Ford, just that experience in a field is somewhat over-rated. GM and Chrysler were full of 'car guys' who'd spent decades working in the area, it didn't do them any good. Sometimes, and particularly when your in a crisis, you need an outsider to make the radical decisions and challenge the (incorrect) conventional wisdom.

El Pip said:

No idea what or who this Music Man is, but that is tosh.

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Robert Preston flirts with heterosexuality. Old movie musical, in colour. Buddy Ebsen appears I believe.

Look at the man who actually turned Ford around and made them the only one of the Big Three not to need or get a massive bail out. Alan Mulally had zero car background having come from Boeing, so no 'actual experience or insight' into the field of automotive engineering.

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On the other hand, big time deep level experience in engineering and running billion dollar manufacturing companies that actually do something. That sort of proves my point. They hired a man with actual technical competencies.

But under his leadership Ford had by far the 'best' crisis of the US car makers and didn't end up part owned by the government, hardly a damning indictment of outsiders is it?

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Not much of an outsider.

I'm not saying that means Romney could have or would have turned turned around Ford,

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My own point is that we can't take for granted that he could have. The question is open, and in my mind, quite dubious.

just that experience in a field is somewhat over-rated. GM and Chrysler were full of 'car guys' who'd spent decades working in the area, it didn't do them any good.

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But then again, they were up agains other car guys at Toyota, Hyundai, BMW, Volkswagon, etc. etc. who were all dead smart car guys who spent decades working in the area. So GM and Chrysler were beaten fair and square by people who knew the job just as well or better. What lesson do you take from that?

Sometimes, and particularly when your in a crisis, you need an outsider to make the radical decisions and challenge the (incorrect) conventional wisdom.

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Indeed. But ignorance is never a good foundation for decision making, and the history of such cases of bold outsiders making radical decisions can be disastrous.... depends on how much of a genuine outsider you've got and how radical their decisions are.

TheMann said:

Ford in 1987 was still in some financial trouble, namely because while the Escort and Taurus had been successes, Ford still had a pile of debt to deal with, and their buyout of Bain would come just as Chrysler bought out AMC, thus ending George Romney's automotive legacy in its own right. Ford's financial situation in 1987 was such that if Bain bought in, they wouldn't bother with trying to build it up - not much room to grow and a huge debt load to deal with - and would instead start the standard tactics Bain used so often in the 1990s. Result is that Ford goes belly-up in the mid 1990s with the loss of hundreds of thousands of jobs, both from Ford and parts suppliers which crash along with them, causing considerable headaches for GM and Chrysler at the time. The loss of a major portion of America's automobile industry is the result, and while Bain would get paid (they always did), this couldn't not get a big, loud, nasty backlash.

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The financial problems were due to financial mismanagement (not managing inventories or financing properly and counter productive labor contracts) not the actual cars... which is something that Romney's people could theoretically clean up with even a moderately competent analysis

The big 3 in the period SUFFERED from a lack of outside input, particularly into their financial dealings... whilst Bain may have raided healthyish companies, Ford in 1987 is a ripe turn around target for a huge ROI