...there were dozens, maybe hundreds, of outfits that used the same bag of tricks to home in on an "underperforming" (as defined by go-go Wall Streeters) company with attractive assets (large cash reserves, real estate, etc.) that could be liquidated and siphoned off.
Or you could resell it -- once you got rid of things that would be unattractive to potential buyers, like union contracts, pension obligations, etc.
And in a maddening tango with this, other companies would take on debt to fend off takeovers, with predictably bad outcomes for the rank and file:
In the summer of 1988, a pair of corporate raiders out of Washington, D.C., brothers Steven M. and Mitchell P. Rales, targeted Interco for takeover, offering to buy the company for $64 a share, or $2.4 billion. To fend off the Raleses, Interco's management turned to Wasserstein Perella, which came up with a plan valued at $76 a share. Interco obviously did not have that kind of cash lying around. So the plan called for the company to borrow $2.9 billion. The financial plan was the sort that Wall Street embraced with great enthusiasm. Supporters of corporate restructurings insisted that debt was a positive force, imposing discipline on corporate managers and forcing them to keep a tight rein on costs. Said Michael C. Jensen, a professor at the Harvard Business School, who was one of the academic community's most vocal supporters of corporate restructurings, "The benefits of debt in motivating managers and their organizations to be efficient have largely been ignored."
As it turned out, Interco failed to be a textbook model for the wonders of corporate debt. Instead of encouraging efficiency, it compelled management to make short-term decisions that harmed the long-run interests of the corporation and its employees. Within two weeks of taking on the debt, Interco closed two Florsheim shoe plants-and sold the real estate. Interco announced that the shutdowns would save more than $2 million. That was just enough to pay the interest on the company's new mountain of debt for five days. At the Florsheim plant in Paducah, Kentucky, 375 employees lost their jobs. At the Florsheim plant in Hermann, 265 employees were thrown out of work. None was offered a job at another plant.
***
It was a model of stability for the town and one of the manufacturing jewels of the International Shoe Company, later Interco, its owner. Because of the factory's efficient work force, whenever Florsheim wanted to experiment with new technology or develop a new shoe, it did so at Hermann. The plant had a long history of good labor relations. And it operated at a profit. So why, then, did Interco choose to close the factory.?
Listen to Perry D. Lovett, who was city administrator of Hermann when the plant shut down and who discussed the closing with Interco officials: "We talked to the senior vice president who was selling the property and he told me this was a profitable plant and they were pleased with it. The only thing was, this plant and the one in Kentucky they actually owned. The other plants they had, they had leased. The only place they could generate cash was from the plant in Hermann and the one in Kentucky. "He said it was just a matter that this was one piece of property in which they could generate revenue to pay off the debt. And that was it. That brought it down." In short, a profitable and efficient plant was closed because Interco actually owned-rather than leased-the building and real estate. And the company needed the cash from the sale of the property to help pay down the debt incurred in the restructuring that was supposed to make the company more efficient.
excerpt from
America: What Went Wrong? by
Donald L. Barlett and James B. Steele (1992). The first chapter (where this excerpt is from) is online
here. Bold emphasis mine.
Romney richly deserves to be the poster-boy for this insanity, but always keep in mind that he didn't particularly stand out in the corporate-raider crowd. There were plenty just like him.
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