Tuesday, October 6, 2009

R.I.P. Simmons mattress company

One theme of this blog is that what they taught us in school about how capitalism works is simply not true. You know the lesson -- how an entrepreneur with a great idea builds up a company and sells stock to investors who believe the company will thrive. The company indeed grows and the stock values increase; investors and management and employees all profit from the free marketplace, creativity and the risk-taking of the investors.

I read yesterday that the Simmons Mattress Company had just filed for bankruptcy. It is true that tough times have hurt many businesses that sell consumer goods. Yet, Simmons was able to weather economic storms for 133 years. What it couldn't weather was rapacious corporate raiding in the form of Thomas H. Lee Partners of Boston -- THL. (Hey, local boys make good!)

THL bought Simmons in 2003. As owners, THL paid itself hundreds of millions of dollars in special dividends, as Julie Creswell reports here:

http://www.boston.com/business/articles/2009/10/05/bedding_firm_bought_drained_bankrupted/.

THL also charged its fees for buying and running Simmons to Simmons and its assets. In all, THL, using borrowed money, pocketed around $100,000,000 at almost no risk to itself, but at the expense of Simmons' assets, its bondholders and, now, its employees.

So we are not talking about company building, we're talking about company looting. And, with bankruptcy, company destruction. THL, of course, blames it on the economy. However, it should be remarked that THL in no way ever contributed to the development of Simmons; in fact, it is unlikely that THL has ever contributed in any positive way to the development of any company, any idea, or any product. Corporate raiders don't work that way.

No, Dorothy, we're not in high-school economics 1 anymore: we're in Wall Street sucks the life out of all of us 999.

(The N.Y. Times, where Ms. Creswell's report originated, has a video on "Private Equity" firms such as THL. You may want to watch it at http://graphics8.nytimes.com/packages/html/business/2009-private-equity/index.html#.
It is important to be very critical, since establishment business reporters tend to whitewash the behavior and ethics of their subjects, as they largely do in this video.)

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