By Leo Gerard, United Steelworkers President
In the title tune to the 1934 musical “Anything Goes,” Cole Porter says “times have changed,” since the stock market crashed in 1929, but the super rich, like John D. Rockefeller Jr., “still can hoard enough money to let Max Gordon produce his shows.”
The lyrics also tease FDR because Eleanor advertised a mattress from a venerable company: “Missus R., with all her trimmin’s, can broadcast a bed from Simmons, ‘cause Franklin knows, Anything Goes.”
That 133-year-old company, which employs members of my union, the United Steelworkers (USW), will file for bankruptcy soon. Then it will be auctioned to yet another private equity firm – the seventh such sale in little more than 20 years.
Repeatedly, new owners stuck their greedy hands under the mattress and pulled out money. Each time, that hurt the company and the workers. The firm is $1.3 billion in debt now – eight times what it was when the private equity companies started passing Simmons around like a cheap date. And a quarter of its workforce – 1,000 people – is laid off.
This is Anything Goes capitalism. It destroys companies. And it destroys workers’ lives. But it sure does work for the private equity firms. They made around $750 million in profits from the now-indebted and bankrupt Simmons.
It’s time to flip the mattress on that failed economic philosophy. Time to end the days of Anything Goes, just like FDR did. Time to regulate private equity before it ruins more American manufacturing.
Too often private equity firms buy manufacturers, borrow against their assets, pull out that money as “dividends,” and run off without regard to the future of the company or its workers. It’s smoking instant cash gratification in a crack pipe. Here is how Robert Hellyer, a former Simmons president who worked under several of the private equity buyers, explained it to the New York Times, “From my experience, none of the private equity firms were building a brand for the future. . .Plus, the mind-set was, since the money was practically free, why not leverage the company to the maximum?”
It’s morally wrong. It’s economically wrong. It’s gotta stop.
Bankrupting viable companies – the way the private equity firms did Simmons – for the profit of a few and the pain of the most should be banned. The New York Times, writing about the Simmons case, noted:
“A disproportionate number of the companies that were acquired during that frenzy are now struggling with the enormous debts. More than half the roughly 220 companies that have defaulted on their debt in some form this year were either owned at one time or are still controlled by private equity firms, according to analysts at Standard & Poor’s.”
The current owners of Simmons, the ones who put the company even further into debt, Thomas H. Lee Partners of Boston, will leave the mattress firm mired in bankruptcy while walking away about $77 million richer. Clearly, Anything Goes for them. All profit; no consequences.
Not so for Simmons bond holders, who stand to lose more than $575 million in the bankruptcy; the workers, who confront losing their livelihoods, and the company itself as it struggles to survive under an extraordinary debt burden.
Scott A. Schoen, Simmons co-president, whined to the New York Times that the mattress downturn was “unprecedented and unforeseeable.”
On the other hand, as the Times noted of the private equity takeovers, “Many of these deals, cut in good times, left little or no margin for error – let alone for the Great Recession.” Maybe Mr. Schoen could have shown a better business plan.
Then, again, it wasn’t about business planning. It was all about raiding the company for its assets and shipping out, like a Viking invader.
Before the likes of Thomas H. Lee and partners showed up on the scene, Noble Rogers, 50, worked happily for Simmons, mostly at the Mapleton, Ga., plant. President of the USW local, he loved Simmons because the company cared for its workers, providing a pension, and when workers retired, giving them a bonus of $20 for each year and a mattress set.
“There were picnics, March of Dimes walks, Christmas parties, and we always had Halloween parties. It was really a family-oriented company,” Rogers told the New York Times.
Then in 2003 came Thomas H. Lee Partners of Boston, the latest private equity firm extracting more money from Simmons.
In the spring of 2008, Simmons laid off the entire night shift of Rogers’ plant. A few months later, on Sept. 18, Simmons officials announced they were closing the factory altogether.
Rogers negotiated with Simmons for the traditional gift of $20 for each year worked and the mattress set for those eligible for retirement. Simmons rebuffed him. But then, that was to be expected. Simmons – under Thomas H. Lee – had stopped the parties and picnics.
The USW has worked with legitimate private equity firms that bought struggling manufacturers, set them on a path to profitability, and moved on to the next money-making acquisition.
That is completely different from buying a company to function as nothing more than a leach, engorging on its assets until huge debts are amassed, then carelessly disengaging to snare a hapless new victim.
Anything Goes capitalism is something that must go.
This piece originally appeared at the USW blog.