Private equity fears criticism if Romney VP

If John McCain selects Mitt Romney as his running mate, Romney's former colleagues in the private equity industry expect they are in for a bloody campaign that will paint them all as job-killing fat cats eager to stomp the little guy to make a quick buck.

Before he was elected governor of Massachusetts, Romney sat atop the private equity world where major investors routinely buy troubled companies, revamp them — often in part through layoffs — and then sell them off for huge profits. Romney founded the private equity firm Bain Capital, which he headed for 15 years, during which time he's estimated to have made about $250 million.

Last year, congressional Democrats targeted the private equity sector for insults and tax increases. With a Romney vice presidential nod, those charges will go national.

"There's no doubt it will come up," says Mark Mellman, a key strategist for Massachusetts Democrat Sen. John F. Kerry's 2004 presidential campaign. "This is an economy where people are on edge about things like downsizing and getting laid off and here's a guy who has wielded that knife."

The Republican primary offered a glimpse of what could be ahead for a possible McCain-Romney ticket and the industry.

"I believe most Americans want their next president to remind them of the guy who they work with, not the guy who laid them off," Republican rival Mike Huckabee frequently cracked.

In December, the Democratic National Committee slammed Romney for closing U.S. factories, investing in Iran, and using Cayman Islands tax shelters.

The McCain campaign declined to comment on the vice presidential selection process, or on Romney's past.

Former Romney staffers argue that the primary attacks largely failed because Romney created thousands more jobs then he eliminated over the course of his private sector career.

For almost two years, the Service Employees International Union has run a campaign against the private equity industry, framing the firms as microcosms of the country's income inequities. The union argues that the firms fire workers and destroy local communities while raking in billions, all with little government oversight.

The SEIU is already slamming McCain for his links to Henry Kravis, head of private equity powerhouse KKR, who has raised at least $500,000 for the McCain campaign.

"You can spin, you can jive, you're helping the buyout guys," sang SEIU organizers to the tune of Dancing Queen at a protest in front of McCain headquarters last month. "CEOs want more green, you are the Loophole King."

The union has also targeted several buyouts completed by Bain under Romney that resulted in layoffs, closures and bankruptcies.

"For all of his the positive tension he's gotten for his turnaround accomplishments, there is a dark underbelly that feds into a lot of the anger out there in the work force," says Democratic strategist Dan Gerstein. "The likely scenario is that the unions quarterback that line of attack."

Private equity lobbyists have begun to prepare their clients to face increased attention in the event of a McMitt ticket.

First, they note, Romney's Bain story is not all bad.

During Romney's time at the helm, Bain shifted from making venture capital-type investments to buyouts.
While some of Bain's investments in the Romney era — including investments in Domino's and Staples — created tens of thousands of new jobs, others resulted in layoffs.

During his primary run, Romney painted his Bain-era self as a venture capitalist investing in creative startup companies.

"I was responsible for a firm that invested other peoples' money," he said in South Carolina last winter. "So I'd listen to new ideas and try to pick the ones I thought were the most innovative."

Industry lobbyists, though, fear Romney's nomination would highlight tax and wealth inequality issues that first started to attract attention last summer, soon after the $4.75 billion initial public offering of Blackstone that made billions for its investors.

Congress quickly proposed measures targeting the special tax treatment of private equity funds and their managers. One particularly controversial proposal would more than double taxes on a portion of investment managers' income known as carried interest.

That proposal passed the House but eventually died in the Senate under opposition from Republicans and the business community, who argued it would impact a huge number of businesses that use a similar payment structure.

The debate has died down over the past few months, as energy prices and the housing crisis became more pressing concerns. The announcement this week that KKR would go public drew almost no comment from the political world.

But if Romney gets the nomination, private equity would attract renewed attention and a national audience would soon receive a tutorial on carried interest and billion dollar windfalls.

The attacks would probably mirror those made by Sen. Edward M. Kenney (D-Mass.) when Romney made a bid for his seat in 1994.

In 1992, Bain bought a controlling interest in Ampad, a Marion, Ind.-based paper products company, and then proceeded to lay off 200 workers and cut the remaining employees' salaries and benefits.

The employees responded with a strike, during which some trailed Romney across the state and protested at his campaign events.

Kennedy labeled his opponent a "robber baron" and flooded the airways with ads featuring people who were laid off from businesses Romney had purchased saying things like, "You're not creating jobs, you're taking them away from us to put money in your pocket."

Voters would likely see similarly devastating ads this fall if Romney joined the McCain ticket.

"It's not about him being rich, it's about how he got rich. He got rich at the expense of a lot of people," said Mellman. "And if this becomes a matter of national debate, it can't help the industry."