Monday, October 25, 2004

Greed Gives, Greed Takes

Those of you follow stories of corporate governance (remember, our title includes the word "boring") may remember a story from 1995 about the destruction by fire of three manufacturing facilities owned by Malden Mills. This might have just been another story of hundreds of people losing their jobs to a terrible accident, if it wasn't for the owner, Aaron M. Feuerstein, who not only declared his intention to rebuild an improved plant, but also to keep all his workers on salary while he did it. The financial strain on the company proved too great, as this snarky story from Fox noted, sending Malden Mills into Chapter 11 bankruptcy protection. GE Capital rode to the rescue, investing in Malden Mills and taking control from Mr. Feuerstein. This might have been a story of good intentions at the expense of good business, but now Mr. Freuerstein wants to buy back the company, at a decent return to GE Capital, and the story is turning into one of bad intentions at the cost of good business:
MR. FEUERSTEIN said his offer for the company would keep all of its jobs in Massachusetts and New Hampshire, but Mr. Orlofsky does not appear to have the same commitment. In a letter he wrote in August 2003 to the Export-Import Bank of the United States, he said the current owners would probably move "a substantial part of Malden's operations overseas over the next several years.'' The company has contracted with a plant in Asia to make fleece products.
Everyone, it seems, is puzzled by GE's refusal to sell. Since the company's out of bankruptcy, internal financial details are unavailable, so maybe there's a sound business decision here. Still, given the recent spectacle over at the Sinclair Broadcast Group of a management team striving to make a political point in spite of their business interests, is it possible that GE Capital is doing the same thing?

Thanks to The Secretary for calling our attention to this story in the Sunday NY Times.


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