Did Romney Run GST Steel into Bankruptcy?

I don't know where to begin with this one. BusinessWeek published an article on Monday by Joshua Green (Private Equity's David Vs. Goliath Problem) exploring the issue of Mitt Romney's association with Bain Capital:

 This morning, the moment everyone in politics knew was coming finally arrived. The Obama reelection campaign released an ad attacking Mitt Romney’s tenure at Bain Capital and casting the presumptive GOP nominee as a heartless, rapacious, sinister figure of greed. The ad is strikingly similar to the attack film Newt Gingrich launched in January: It centers on a group of embittered steelworkers from GST Steel in Kansas City who were laid off after Bain acquired the company and eventually shut it down. These protagonists share their tales of woe and blame Romney and Bain as shots of forlorn workers and abandoned factories fly by. 

Instead of addressing the validity of the charges against Romney, Mr. Green was more concerned about the besmirched reputation of private equity in general. Two videos accompany the article: one was the two-minute version of Obama's attack ad; the other was a short explanation (using animation) of the virtues of private equity. I would have preferred the opportunity to watch a third video: one by Romney or his supporters that defends his position.

I don't pretend to know everything that transpired during the six years (1993-1999) that Bain was in charge of GST Steel. What I do know is that Bain poured more than $100,000,000 into the company. GST Steel went bankrupt after Romney and Bain had left. The steel industry was struggling in the early 1990s and beyond. Maybe the steelworkers in question would have been laid off anyway, even without Bain.

I am always suspicious when few details are supplied. I wonder what is not being said, what is not being written about.

The website, www.romneyeconomics.com, provides all of its opposition to Romney and Bain Capital in ten-second soundbites:

Kansas City's GST Steel was a successful company that had been making steel rods for 105 years when Mitt Romney and his partners took control in 1993. They cut corners and extracted profit from the business at every turn, placing it deeply in debt. When the company eventually declared bankruptcy, workers were denied their full pensions and health insurance, and the federal government was forced to step in and bail out the pension fund.

Jobs Lost: 750

Bain Initial Investment: $8 million

Bain Profits: > $12 million

Bain got its money back quickly. The new company issued $125 million in bonds and paid Bain a $36.1 million dividend in 1994.

"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...They ran the company into bankruptcy."

So how much of this is true? And how much of it is misleading? How did Bain cut corners? How did they extract profit from the business at every turn? In an effort to find out, I came upon an article from the Wall Street Journal (Vampire Capitalism? Please) from 5/17/12 that paints a very different picture with a more conservative brush.

When Bain bought the Kansas City mill in 1993, steel was a scene of carnage. Global players were pouring out cheap products, and America's high-cost steel plants couldn't compete. The industry had lost 200,000 jobs in preceding years. In 1992 alone, the six largest U.S. steel mills had lost a combined $3 billion. Armco, the company Bain would buy the plant from, would lose $641 million in 1993.

The Kansas City plant was itself dying. At its 1970 height it employed 4,500; by the late 1980s it was down to 1,000. A year before acquisition, Armco had laid off another 75. Its equipment was old; it faced fierce competition at home and abroad.

This is quite a different point of view from what Obama and his supporters would have us believe. In this article, Bain and other investors acquired GST Steel for $80 million, not $8 million. (What's a little zero between friends?) 

And in the beginning, GST was successful:

 The strategy worked for a time. The market firmed up and GSI became a U.S. leader in steel rods. In 1994 it felt confident enough to distribute a dividend to investors. In both 1996 and 1997, GSI would realize $1 billion in revenue.

The article is so full of information, I'm tempted to quote all of it here. However, in the interest of time and space, I will provide one last excerpt:

  A private-equity firm looking to quickly strip value from a company—to "suck" the life out of it—does not do so by investing $100 million in modernization and holding on for eight years, through bankruptcy. Bain has surely made its share of mistakes, and one may well have been trying to resuscitate a traditional steel firm in the grip of industry upheaval. The irony, says Mr. Huselton, is that this plant "wouldn't even be in today's news, if it hadn't been the opportunity that came with Bain. Those jobs would have been gone in 1993."

So there you have it-- both sides of a fascinating story. My intuition and political preferences lead me to believe the Romney camp a bit more than his competitor, but who knows what the truth is...