Romney's Italian Job

This might be the first case in history where a man who may become a sitting President of the United States has already declared war on a country (an ally, no less) as a private citizen. At least that's how many Italians see it.

That's because Bain Capital, under Romney as chief executive officer, made about $1 billion in a leveraged buyout 12 years ago that remains controversial in Italy to this day. Bain was part of a group that bought a telephone-directory company from the Italian government and then sold it about two years later, at the peak of the technology bubble, for about 25 times what it paid.

Bain funneled profits through subsidiaries in Luxembourg, a common corporate strategy for avoiding income taxes in other European countries, according to documents reviewed by Bloomberg News. The buyer, Italy's biggest telephone company, now has a total market value less than what it paid Bain and other investors paid for the directory business.

What happened was this: Bain (under Romney) bought a 16% stake in the Italian yellow pages, making them the second-largest shareholder behind the state-run Italian phone company itself. Two years later they sold the stake for 25 times what they paid for it when the phone company (again, state-run) bought out all the partners. It's estimated that Romney personally profited $50-60 million on the deal.

If that weren't enough, then Bain funneled the profits through Luxembourg to beat the taxes. Certainly not illegal, but definitely kinda shady, and you can see where the Italian people might feel like they got hosed. Especially considering the entire phone company is now worth less that what Bain paid for just the yellow pages in the late 90's.

"Mitt Romney and Bain played the role of successful financial speculators at the peril of the Italian government and the small stock-market investors who were burned by the sharp decline in Seat (PG) shares," said Giovanni Pons, a journalist for la Repubblica and co-author of "L'Affare Telecom" (2002), which recounts details of the Bain deal.

Here's a video that goes into more detail:

So, if Romney gets elected, can we expect some pushback from Italy? Or are they so used to getting hosed by wealthy industrialists (ahem, Berlusconi) that they don't even notice it anymore?

Private Equity Interview Course

  • 2,447 questions - 203 PE funds. Crowdsourced from 750k+ members
  • 9 Detailed LBO Modeling Tests and 15+ hours of video solutions.
  • Trusted by over 1,000 aspiring private equity professionals just like you.

Comments (18)

Best Response
Aug 7, 2012 - 8:20am

It looks like the italian treasury was trying to shed assets and reduce debt to make it easier to enter the Eurozone, investors came in and made a fool of the government on the price (go figure), then the government stupidly bought it back at the height and now wants to be made at Romney for making money off of them? That seems like a shady Italian deal, where the treasury got screwed because they bought in like everyone else to the telecom bubble and now want to blame someone else. I'd make that investment every single time, I'm not sure why people have a problem with this.

Also, I started cracking up when I saw that Mario Draghi, the current savior of the Eurozone and the world, was part of the Italian treasury at the time in 1997.

Aug 7, 2012 - 8:37am

The tax avoidance is unsurprising. US companies do the same thing every day...I am sure Generali and Enel do the same thing. He would be irresponsible not to take the tax break.

As for the inflated sale price: well, I guess he's caught red handed. He must have lied to those poor executives. I mean, wouldn't it be hilarious if a company like Time Warner overpaid? But they wouldn't, because Mitt wasn't feeding them lies. US telecom/media companies never overpaid during the tech bubble.

Aug 7, 2012 - 8:51am

Romney did nothing wrong - hell, Bain put in $40M out of $800+ group bid...

And while this was a horrible decision by the Italian gov, everyone who bought in at the height of the bubble got screwed, including tons of PE/VC firms.

The Italian Government, like many large corporations and groups preformed poor due diligence, overpaid and was stupid. You should probably be upset with them not the minority stake investor who was bought out. The taxes Italians are upset about would be a fraction of a hair compared to the governments money if it didn't decide to buy everyone out at an obscene multiple.

I applaud Bain for getting a 25x in 2 years -- a legendary deal for their investors and an example why private business usually works better then government.

"If you want to succeed in this life, you need to understand that duty comes before rights and that responsibility precedes opportunity."
  • 2
Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
Aug 7, 2012 - 9:33am

Italy, as you correctly point out, is a corrupt kleptocracy with an idiot population and they all collectively deal with this by....heavy denial and reminiscing about the glory days of the Roman Empire. It is a foreign relations disaster for sure, but since Romney won't be president, it's not really an issue. I'm not taking a side...I'm just calling it like I see it.

Get busy living
  • 1
Aug 7, 2012 - 9:33am

In the words of Martin Lawrence "What da problem is??"

"When you expect things to happen - strangely enough - they do happen." - JP Morgan
Aug 7, 2012 - 9:49am

This reminds me of Oakland. People don't seem to understand that yes, they can get shafted by corps if they make stupid decisions.

"You stop being an asshole when it sucks to be you." - IlliniProgrammer
Aug 7, 2012 - 10:01am

What about George Soros taking the BOE for a cool $1.1 billion overnight.

"Some things are believed because they are demonstrably true. But many other things are believed simply because they have been asserted repeatedly—and repetition has been accepted as a substitute for evidence." - Thomas Sowell
Aug 7, 2012 - 10:06am

Italy sucks and this is coming from someone who is 1/4 Italian. World War II was the last showing of any Italian sack and if it wasn't an African colony they got their asses handed to them. Country of grown men living with their moms.

Aug 7, 2012 - 11:10am

Surely it will/has been spun to ostracize a company for, god forbid, making a profit and knowing when to sell!

Here to learn and hopefully pass on some knowledge as well. SB if I helped.
Aug 7, 2012 - 11:13am

Good businessman. Bad Italian government

"If Henry Ford had asked people what they wanted, they would have said faster horses." -Steve Jobs
Aug 7, 2012 - 11:36am

I don't know, it seems like we are getting to a point where any profit you make gives you a bad name, no?

Yeah, the tax bit might be shady, but if there is a loophole - it's regulator's fault.

Money makes the world go around...

"Every man should lose a battle in his youth, so he does not lose a war when he is old"
Aug 7, 2012 - 1:53pm

Its not shady, everyone who's anyone does it

"If Henry Ford had asked people what they wanted, they would have said faster horses." -Steve Jobs
Aug 7, 2012 - 3:12pm

So what? Sending money through Luxembourg is nothing new in Europe. Why do you think there are so many banks and asset managers there? Hell, America's hero Steve Jobs sent 70% of Apples profit through Ireland to avoid federal tax.

http://articles.businessinsider.com/2012-04-28/tech/31440320_1_tax-rate…

CNBC sucks

"This financial crisis is worse than a divorce. I've lost all my money, but the wife is still here." - Client after getting blown up

  • 1
Aug 7, 2012 - 4:26pm

I think screwing the Europeans would probably be seen as a plus in the United States.

Array

Nov 21, 2021 - 8:35pm

Omnis magnam quo molestias et molestias ratione porro. Ut et minus officia et voluptatem. Voluptatem modi ratione quasi eum est delectus placeat. Illo laboriosam inventore quia voluptatum. Id consequuntur qui rem magnam sequi voluptates ea. Qui ea perferendis molestias tenetur nobis.

Perspiciatis ut consectetur blanditiis quibusdam aperiam qui. Est velit ut maiores quidem velit. Ratione deserunt minima laboriosam ea blanditiis similique rerum.

Quas voluptatibus consectetur aliquid blanditiis et similique veritatis illo. Nulla necessitatibus nisi error eos qui quas. Ratione voluptas non quam et rerum expedita qui.

Start Discussion

Total Avg Compensation

December 2021 Private Equity

  • Principal (8) $676
  • Director/MD (18) $575
  • Vice President (70) $361
  • 3rd+ Year Associate (70) $270
  • 2nd Year Associate (143) $252
  • 1st Year Associate (294) $220
  • 3rd+ Year Analyst (26) $159
  • 2nd Year Analyst (63) $134
  • 1st Year Analyst (190) $118
  • Intern/Summer Associate (21) $67
  • Intern/Summer Analyst (224) $59