"Domino’s delivered for Bain; Romney’s Bain made big profit from the pizza chain, but left it saddled with debt" by Beth Healy | Globe Staff, January 29, 2012
Amid a flash of cameras, Mitt Romney signed the check to buy Domino’s Pizza with a flourish. It was a huge deal for Romney’s Bain Capital back in 1998, worth $1.1 billion.
Thomas Monaghan, the pizza magnate and orphan raised by nuns in the Detroit area, was cashing out all but a small stake. He wanted the proceeds to start a Catholic university. So he handed over control of the company he built from a small pizza shop in Ypsilanti, Mich., in 1960, to Romney and the partners of Bain Capital.
Near the end of Bain’s involvement with Domino’s, the chain’s pizza quality became an issue. Domino’s reworked its pizza in ’09 after ranking last in taste.
I never order from them. If I want a pizza I call into the local shop around the corner and go get it.
Domino’s was not in need of rescue, nor was it a classic turnaround case for Bain. But it was still a bonanza for the Boston leveraged buyout firm, which makes money by buying and selling businesses. Bain reaped a 500 percent return on its investment in the nation’s largest pizza delivery chain over 12 years.
Domino’s grew its revenues and earnings under Bain, but its debt also surged to $1.5 billion, leaving the chain with a higher debt ratio than most of its rivals, and interest payments that eat up half its profit each year.
On the campaign trail, Romney, who left Bain in 1999, counts Domino’s among his corporate success stories, saying it has grown and paid off for investors. But the company also was left with greater risk than before, and must count on its franchisees to deliver a steady stream of cash to cover the debt....
High levels of debt don’t always lead to problems, but they can when the economy slows or the company stumbles. In the classic private equity model, Bain set out to improve Domino’s, with the expectation that it would generate plenty of money to make payments on its debt.
To buy Domino’s, Bain put up a third of the money in cash and borrowed the rest. It took money out in several chunks including: a 2003 refinancing of the company’s debt, a 2004 initial public stock offering, and an $897 million “monster dividend’’ paid to Bain and other investors in 2007. In each instance, the company borrowed money or refinanced old debt to make the payouts.
No wonder the pizza taste like shit.
Romney’s political rivals have attacked him for a number of deals during his tenure at Bain Capital where the companies went bankrupt, sometimes after Bain cashed out. And while Bain says it makes companies run better, Edith Hotchkiss, a professor of finance at Boston College’s Carroll School of Management who has studied the effects of private equity on businesses says part of that is sheer pressure: Companies with high levels of debt have to generate profits and be careful with costs, or risk bankruptcy.
Related: Killing Caritas
“The argument for higher leverage in the first place is that it really forces you to run these firms for maximum efficiency,’’ she said. “You can’t make mistakes.’’
The Domino’s debt is due in April. Executives can extend that deadline for two one-year periods, during which they plan to refinance the borrowings. The current interest rate is 5.9 percent, and it will rise a quarter-point with each extension. Domino’s was going to refinance the debt last summer but scrapped the effort when the financial markets turned chaotic.
Lynn Liddle, a company spokeswoman, acknowledged there’s a risk of interest rates rising. But she said the debt is not holding the company back. Domino’s stock soared 113 percent last year.
“In another case, that might restrain a company, but definitely not in the case of Domino’s Pizza,’’ she said.
Domino’s and Bain executives insist the debt is not a problem because the company has strong cash flow from its franchisees, and because theirs is not a capital intensive business requiring large outlays on equipment and other big expenses. The franchisees pay for most capital investments, like store upgrades.
“This is a terrific success story by any standard, and it’s clear the capital structure was never a constraint on the growth of Domino’s,’’ said Bain Capital managing director Mark Nunnelly, who served on the Domino’s board for 12 years. “Domino’s delivered significant value to both private and public shareholders during our ownership,’’ he said, citing growth in profits and sales, market share, and customer satisfaction.
Revenues grew 9 percent during the last five years Bain was an investor in the company, through 2010, while operating income grew 6.3 percent. In 2010 (the last full year reported by Domino’s) nearly half that income, or $97 million, went to pay interest on the debt.
Romney recently cited Domino’s as a place where he had created 7,900 jobs, in a breakdown of the 110,000 jobs he says he helped create at companies he worked with at Bain, along with Staples Inc. and The Sports Authority. But he has since dropped Domino’s from the list, focusing instead on start-ups.
In reality, the job picture is mixed. At the corporate level, Domino’s, based in Ann Arbor, Mich., has actually cut 3,300 jobs, or 24 percent of the 13,500 people it had on the payroll in 2004, the year it went public. That’s partly a result of selling off about 175 company-owned stores to franchisees.
At the same time, the number of people working for the independent franchise owners - not employed by Domino’s corporate - has grown by about 38,000, to 170,000, around the world, according to public filings. Domino’s won’t discuss job numbers, but much of the growth has come from abroad.
Domino’s operates about 9,500 restaurants, all but 400 of them run by franchisees. The company makes its money selling cheese and dough and other ingredients to the stores, and on the royalties the store owners send them from their sales.
Some current and former restaurant owners say they have struggled since the recession hit, as customers spent less and ordered out less.
We have been told that ended over two years ago.
They say central decisions, voted on by the franchisees and supported by management, have made life harder, like when they slashed the prices of pizzas roughly in half back in 2009, to $5.99. That boosted business for a while, one franchisee explained, with a blitz of national TV advertising that the franchisees pay for. But it also means they have to sell more pizzas to make money, at the same time prices for the ingredients have been soaring.
“They drove me into the ground,’’ said one former franchisee whose business failed last year. “If I could have sold my pizzas for the price my market could bear, I might have made it.’’ The franchisee spoke on condition that his name not be used, for fear of retaliation by the company.
Other franchisees said it’s true they need to sell more pizzas now, but they attribute that to competing in a tough economy, not to pressure from the front office.
Jeffrey Litman, who with his wife owns 20 Domino’s stores in the Denver area and has been in the business for 37 years, said there was concern back when Monaghan sold the company that the franchisees might suffer. But, he said, “In general they recognize they can’t do anything to weaken the franchise. We drive the sales.’’
Bain says it helped Domino’s raise standards, and that it brought better marketing and new discipline to the company that helped store owners sell more pizza. There were updated uniforms, new computer systems, redesigned stores, and new product rollouts.
And the pizza still sucks.
At the same time, the company took on some of the trappings of corporate America, with top executives enjoying personal use of the company’s private jet and directors earning fees of $180,000 a year.
Meanwhile, the quality of the pizza itself had become a big problem. In 2009, near the end of Bain’s involvement, the company had to overhaul its core product, after Domino’s pizza ranked last among its competitors in taste.
“You can’t be a pizza delivery company that’s just strong with delivery,’’ the company’s marketing chief, Russell Weiner, said during an investor conference earlier this month.
Domino’s pizza has since received high taste marks. Company executives are counting on growth overseas in places such as Malaysia and India. They also said they have become accustomed to being a company with high leverage.
“We’re comfortable with debt,’’ said Michael Lawton, Domino’s chief financial officer, at the investment conference. He described the 2007 “monster dividend’’ in which investors, led by Bain, received a $897 million payout from the company. The management team is used to living within the constraints of financial leverage, he said. “We can handle this.’’
Yeah, who cares about a $1 billion dollars in thievery?
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Related: The Bain of Mitt Romney
The leveraged buyout specialists, 'eh?
The latest in line:
"Mitt Romney rolls in Florida" by Michael Levenson and Matt Viser | Globe Staff, February 01, 2012
TAMPA - Mitt Romney, backed by relentless attack ads, vocal support from the Republican establishment, and his own willingness to adopt a more aggressive tone, trounced Newt Gingrich in the Florida primary last night, gaining the upper hand as the race scatters to the seven states that vote over the next month.
Rolling up wide margins among women, the affluent, moderates, and Hispanics, Romney last night won 46 percent of the vote, to 32 percent for Gingrich, 13 percent for Rick Santorum, and 7 percent for Ron Paul.
Ten days after his crushing loss in the South Carolina primary raised fresh doubts about his candidacy, Romney’s resounding victory in the biggest and most diverse of the early primary states gives him the opportunity to consolidate restive factions of the party and emerge, finally, as the consensus choice for the Republican nomination....
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"A drawn-out negative race could imperil Republicans" by Christopher Rowland | Globe Staff, February 01, 2012
TAMPA - Mitt Romney presented a potent case in Florida yesterday that he is the strongest Republican candidate to challenge President Obama by clobbering Newt Gingrich in a third swing state.
First came Iowa, where Romney almost won and Gingrich placed a distant fourth. Then Romney trounced the field in New Hampshire. Gingrich did not break 10 percent in the Granite State. Now Florida.
All three states are more consequential in the general election than redder-than-red South Carolina, the scene of Gingrich’s only victory, because they represent the real prize: the political center.
But unless Gingrich suddenly capitulates, Romney will continue to wrestle for weeks if not months with the ideological and emotional forces tearing at the Republican Party.
The staunch conservatives who have powered Gingrich’s candidacy demand a vehicle for their anger over federal power and spending....
Romney, in contrast, has taken to reciting the many verses of “America the Beautiful.’’ It intertwines nostalgia with patriotism in a pitch to conservatives, but also seems rather quaint in the face of the incendiary talk emanating from Gingrich and his allies....
Perceived as the Romney alternative, Gingrich has strong motivation to stay in the race as it enters the February caucus states and heads toward Super Tuesday. Yet, prolonging the primary process all spring, as Gingrich threatens to do, risks marginalizing the issues while magnifying the negative ads and personal attacks.
I feel that is what the media have done.
Such a campaign alienates the critical voice in the general election - independents - and allows Obama to skate unchecked.
Gingrich’s attacks also reinforce the very points that Obama will hammer against Romney: ties to Goldman Sachs and Wall Street, vast wealth, favorable tax rates.
Florida voters repeatedly stated in interviews that they wanted to hear answers to the nation’s housing and foreclosure crisis, the deficit, and the instability of Social Security and Medicare. Instead, the tactical politics of the establishment-vs.-insurgent civil war gave them only personal attacks, both in debates and on the airwaves....
I object to the word insurgent being used in a political context -- although I admit that the gung-ho, pro-war candidates are by sending U.S. troops to their deaths in needless wars based on unholy lies.
Of course, what other context would I expect a war paper to give?
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Related: Mitt Romney debate coach cited as potential game-changer
Yeah, everything is a war or a f***ing game.
"Newt Gingrich to fight on but faces a tough road" by Bobby Caina Calvan and Michael Kranish | Globe Staff, February 01, 2012
ORLANDO - Newt Gingrich defiantly vowed last night to take his bid for the presidency to all corners of the country and return victorious to the GOP national convention in Florida.
As his campaign team laid out a strategy to win Southern states and do well enough in other contests to survive, Gingrich took a more ambitious and combative approach that belies growing doubts over his candidacy.
“We’re going to have people-power defeat money-power in the next six months,’’ he said, alluding to Mitt Romney’s deep pockets. Notably, Gingrich did not congratulate his rival for his victory.
Then Ron Paul will be the nominee.
Analysts said the road ahead will be tough for Gingrich, beginning with Saturday’s caucuses in Nevada, where Romney has a head start in money and organization. With the next debate not until Feb. 22 and Deep South states not voting until March, Gingrich must hold on through a month of contests that favor Romney.
Then Ron Paul will be the nominee.
Analysts said the road ahead will be tough for Gingrich, beginning with Saturday’s caucuses in Nevada, where Romney has a head start in money and organization. With the next debate not until Feb. 22 and Deep South states not voting until March, Gingrich must hold on through a month of contests that favor Romney.
A string of losses would only intensify calls from the Republican establishment for Gingrich to quit.
Gingrich’s campaign is focusing on the Super Tuesday primaries March 6, which include his home state of Georgia and Tennessee, as well as states that he could do well in, such as Alaska, Idaho, and Oklahoma.
Republicans should know better than to count him out, said Merle Black, a professor of politics at Emory University who has long monitored the former House speaker.
“Gingrich’s career is a search for power and he sees opportunity where most people see a dead end,’’ Black said, noting that Gingrich lost in his first two attempts to be elected to the House before winning.
Besides counting on a Southern strategy, Gingrich must win support from Tea Party activists and others unhappy with Romney. Black said that could be difficult if such voters conclude Romney has a better chance of beating President Obama.
While Gingrich went directly from Florida to Nevada, one of his top campaign aides said winning that state, which has a heavy Tea Party presence, was considered a “lost cause.’’ Still, Gingrich is making the effort because Nevada awards its delegates proportionally and he could pick up a handful with a better-than-expected performance, said the aide, who spoke on condition of anonymity because he is not a spokesman.
Nevada is also the home state of Sheldon and Miriam Adelson, who have contributed $10 million to a pro-Gingrich super PAC....
The wild cards in the upcoming contests could be former senator Rick Santorum of Pennsylvania, the favorite of many evangelical Christians, and Representative Ron Paul, the libertarian with a devoted following. Both have said they, too, plan to stay in the race, and could pull votes away from Gingrich....
As if Gingrich were entitled to them.
Did I mention how sick I was of the elitism inherent in my newspaper by reporters who have internalized those values?
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Who were those last two guys?
"Santorum, Paul campaign out West as Florida votes" February 01, 2012|By Kristen Wyatt and Philip Elliott
LONE TREE, Colo. (AP) -- Ron Paul completely ignored Florida’s primary Tuesday as he spoke to more than 1,000 supporters in Fort Collins, many of them students at Colorado State University. Instead, the libertarian-leaning Texas congressman focused on his bedrock issues: cutting spending and upholding the Constitution.
‘‘All we have to do is return to our constitutional form of government, and we can get out of this mess in no time,’’ said Paul, garnering loud cheers for a blast at U.S. foreign policy. ‘‘We need to keep America safe, but not to be the policeman of the world.’’
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That's what the people's president is up to, dear readers.
The feeling here from my spot at the bottom of the hill is the election process in AmeriKa has been hijacked, the machines have been rigged, and corporate money and media create the script.
