Word: lbo
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Dates: during 1990-1999
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Today's givers match their money with their energy. Forstmann, who is chairman of Gulfstream Aerospace and a senior partner at a New York LBO firm he co-founded, spent a year canvassing the country, examining local school districts--the program will serve 40,000 students in 38 cities--and cajoling everyone from Michael Ovitz to Barbara Bush to join the fund's board of advisers. He got the idea for the venture after years of studying a similar financial-aid program in New York City. Nine out of 10 school kids who used money from the fund to attend...
...asked about his piloting of the airline, he gets a scowl on his face and pulls out two yellow, legal-size pages of scrunched-up notes to defend his record there from 1989 to 1993. Critics charge that he took the once profitable carrier, burdened by debt from the LBO, to the brink of bankruptcy. Checchi used his charisma to extract some $800 million in union concessions and an additional $837 million in state and local bonds, subsidies and tax credits--while earning $32 million in management and investment fees for his outside firm...
...like Eastern Air Lines. He also gave Northwest employees stock that has tripled in value. "Look," he says, "we took one of the worst airlines in America and made it one of the most profitable." But Paul Omodt, spokesman for the Air Line Pilots Association for Northwest, says the LBO was "disastrous" for the employees, who ended up bailing out the company in return for stock and three directors' seats. As for the state's involvement, critics like Minneapolis' Federal Reserve Bank researcher Art Rolnick say what Checchi touts as a "partnership" of government and business was really a government...
...supervision it provides," says Michael Anesta, the director of personnel for Steinway & Sons, which stopped using Burns two years ago at its Queens, N.Y., piano-manufacturing plant. Former Burns official Gary Slodowski quit in 1990 after winning the company's manager-of-the-year award. "With the LBO, the company started to deteriorate," he says. "They've got away from the building blocks, such as service and visiting clients every day. Collecting cash became the main thing. With no one to pay attention to the other details, you're going to have smoking guns like the Meadowlands...
Under those circumstances, debt can make firms less competitive. Since RJR Nabisco's leveraged buyout in late 1988, in which the corporation assumed some $25 billion in debt, the company has lost market share to rival Philip Morris because RJR's management is so absorbed with managing the huge LBO, many analysts contend. In addition, loan payments, which average 30% of corporate cash flow, often divert money away from more productive pursuits, including research, advertising and capital spending. While Phillips Petroleum was digging out from under its $9 billion debt, the corporation had to pass up several opportunities to acquire...