Sunday, November 20, 2011

Forstmann Little Founder Passes

The AP reported:

Theodore J. Forstmann, a longtime Wall Street financier who was a major player during the wave of corporate takeovers in the 1980s, including the battle for RJR Nabisco in 1988, died Sunday at the age of 71. 
Forstmann later criticized leveraged buyout deals, just as LBO firms were renamed private equity

Forstmann eventually became a big critic of the industry he helped create. In the late 1980s, he lit into rivals for the risky way they financed their acquisitions. They would borrow money from investors in junk bonds. Those bonds are IOUs issued by the riskiest companies.

Later, he complained that there were simply too many people in the takeover business. The result: Buyout firms were paying sky-high prices for their targets to beat competitors, and so might have trouble wringing profits out of the deals.

He turned out right again — but maybe not in the way he imagined. In the tech mania of the late 1990s, Forstmann himself ended up overpaying for two firms — XO Communications and McLeodUSA. Both eventually filed for bankruptcy.

In 1988, Forstmann made clear his distaste for dealmaking greased by junk bonds. The AP quoted him as saying, "Today's financial age has become a period of unbridled excess with accepted risk soaring out of proportion to possible reward.

"Every week, with ever-increasing levels of irresponsibility, many billions of dollars in American assets are being saddled with debt that has virtually no chance of being repaid," he said.

I wonder what Forstmann thought of the first decade of the 21st century?  It put the '80's to shame.