Romney’s ‘The Italian Job’

Posted by AzBlueMeanie:

Bloomberg News has a detailed investigative report into Willard "Mittens" Romney and "The italian Job" he pulled while he was at Bain Capital, before he "retroactively retired." It is not a very flattering portrait of this vulture capitalist. Romney Persona Non Grata in Italy for Bain’s Deal Skirting Taxes:

Mitt Romney skipped Italy on his swing through Europe. That was probably prudent.

That’s because Bain Capital, under Romney as chief executive officer, made about $1 billion in a leveraged buyout 12 years ago that remains controversial in Italy to this day. Bain was part of a group that bought a telephone-directory company from the Italian government and then sold it about two years later, at the peak of the technology bubble, for about 25 times what it paid.

Bain funneled profits through subsidiaries in Luxembourg, a common corporate strategy for avoiding income taxes in other European countries, according to documents reviewed by Bloomberg News. The buyer, Italy’s biggest telephone company, now has a total market value less than what it paid Bain and other investors for the directory business.

In Italy, the deals have spurred at least three books, separate legal and regulatory probes and newspaper columns alleging investors made a fortune at the expense of Italian taxpayers. Boston-based Bain wasn’t a subject of the inquiries, which didn’t result in any charges.

The sale of the government’s directory business is “a dark chapter in the country’s privatization history, one that has hurt Italians deeply,” said Bernardo Bortolotti, an economics professor at Turin University who advised the Italian Treasury on asset sales from 2002 through 2005. “It was a mistake from the start, damaged by a lack of transparency and the use of offshore funds.”

Romney himself probably earned more than $50 million, and possibly as much as $60 million from the Italian directory sale of Seat Pagine Gialle SpA, according to a person familiar with the matter. The deal turned into one of the biggest windfalls of his tenure.

* * *

As Bain’s CEO from 1984 to 2001, Romney was personally involved in the deal at various points, including the initial decision to invest. He attended at least one meeting about it in Boston, according to a participant. When Bain sold the directory business in 2000, Romney, while still holding the title of CEO[.]

* * *

Bain’s purchase and quick resale of the yellow pages business is “an example of Italian capitalism, whereby those with little capital are able to cheat the system and enrich themselves,” [said Italian Senator Elio Lannutti, a member of the Italian Values party, which is headed by a former magistrate who led anti-corruption probes in the 1990s]. “It’s a mistake Italians hope won’t be repeated again now.”

Twelve years later, Romney’s ties to the deal could hurt his image in Italy, said Carlo Alberto Carnevale-Maffè, a professor of strategy at Bocconi University’s School of Management in Milan.

“There is always this underlying sentiment in Italian public opinion that when you are in politics you don’t serve the public good, you serve your personal interest,” Carnevale-Maffè said. “Many will see Romney’s role in this as confirmation and it will be interpreted in a very cynical way.”

* * *

While Bain won’t disclose its precise return on the investment, Cuneo’s office said Investitori Associati’s return was almost 28 times the initial investment. Bain, like other private equity firms, enhances returns by using borrowed money to finance acquisitions.

Bain moved profits through a series of subsidiaries in Luxembourg, a country that makes it easy to get cash out without paying taxes, according to corporate filings. Corporate records in Luxembourg show Bain carried out technical steps for a tax-free repatriation of profits to the U.S.

Investitori Associati said taxes paid by the Luxembourg holding company in which it and the group members invested were “almost non-existent,” according to an e-mail from Cuneo’s office.

* * *

Italian regulators raised concerns that the price was manipulated and investors traded on inside information and probed alleged conflicts of interest. Two top Telecom Italia officials also owned shares in Seat indirectly.

Italy’s stock market watchdog, Consob, and Turin prosecutor Bruno Tinti investigated, according to a person familiar with the matter and news accounts at the time. No charges were brought.

Seat was sold in 2003 for 3.7 billion euros to another group of private equity firms and today has a market value of 57 million euros.

* * *

“The government got ripped off,” said Alessandro Fogliati, who led a Stet shareholder group that voted against the sale of Seat. “It was the beginning of the destruction of Italian industry.”

So Romney ripped off the italian government — tax free — and we're supposed to just take his word for it that he has paid "all the taxes that he legally owes." By the way, when Romney repeats this phrase, it is "legalese" for the existence of a confidential settlement, likely connected to the IRS audits he has publicly disclosed.