Leveraged Buyout Trailblazer Ted Forstmann Dead at 71

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leveraged buyout trailblazer ted forstmann dead at 71On Monday, global sports and media behemoth IMG announced the death of its chairman and CEO, Theodore J. "Ted" Forstmann, from brain cancer. Forstmann, born in 1940, was a former investment banker and a private equity pioneer. The firm he co-founded in 1978, Forstmann Little & Co., was one of the first to engage in leveraged buyouts, deals in which investors use borrowed money to buy a company.

Forstmann's business model was to buy ailing companies, turn them around and sell them for a profit -- sometimes billions of dollars -- of which he took 20%. During his tenure, Forstmann Little acquired or invested heavily in 31 companies, including Gulfstream Aerospace, Dr Pepper and General Instrument. In a statement, the firm said it has returned more than $15 billion to investors over the last 33 years.

As the leveraged buyout business grew, Forstmann became a critic of what he considered the reckless use of debt to finance purchases. In 1988, he wrote in an op-ed for The Wall Street Journal in which he likened the spate of buyouts at the time to "a herd of drunk drivers tak[ing] to the highways on New Year's Eve." It was in the late 1980s that Forstmann first described private equity investors bent on takeovers as "barbarians at the gate", a phrase later used as the title of a book on the leveraged buyout of RJR Nabisco, and the subsequent film adaptation, in which Forstmann played a supporting role.

Forstmann Little's statement announcing the death of its senior founding partner noted that his innovations included a "a unique subordinated debt fund that enabled the firm to finance acquisitions without issuing junk bonds."

In 2001, the firm ran into trouble involving telecommunications investments during the Internet bubble. Forstmann, who later said he did not use a computer, attributed the failures to his delegation of decision-making to younger players. Three years later Forstmann bought IMG, an entertainment talent agency that represents some of the biggest names in sports, fashion and media, including Tiger Woods and Roger Federer.

In 2010, allegations emerged that Forstmann had been betting extensively on college and professional sports, including contests involving IMG clients (such as the 2007 French Open final between Federer and Rafael Nadal, and several golf tournaments featuring Woods). While the bets were not illegal, many accused Forstmann of acting unethically. (For instance the NCAA, which had business dealings with IMG's college division, said its "expectation is that those providing services ... will not wager on sports.")

Confronted with the appearance of impropriety, Forstmann responded, "I never thought about it that way. I never thought about it at all. They were minor bets. They were to make boring Sunday afternoons more interesting." He described himself as a lifelong gambler who used to pay the rent with winnings from bets on games like backgammon and golf. The French Open bet was merely a means of rooting for Federer, he explained, denying claims of a pre-match telephone call with the Swiss champion that might have provided inside information. (Federer lost that match to Nadal, another IMG client.)

Forstmann was also noted for his philanthropy, which included co-founding the Children's Scholarship Fund and serving as a director of the International Rescue Committee. In February 2011, he signed the Giving Pledge, committing to donate a majority of his estate to charitable causes.

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17 Comments

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Val

Both English tudor beauties on South Mountain Avenue.. The woolen business was good to the Forstmanns.

November 23 2011 at 5:07 AM Report abuse rate up rate down Reply
highwaystohealth

Charlie Rose had a retrospective on Forstmann today and from what I heard, he did some wonderful things. 100,000 scholarships to kids to go to whatever school of their choosing! Two intelligent and benevolent children that he adopted and raised.....hopped on a plane to Bosnia at a dangerous time to help children there....sound like he was a person to be emulated! Don't cast stones unless you can prove your points....

November 23 2011 at 4:03 AM Report abuse rate up rate down Reply
ajk548

I work at Gulfstream Aerospace when he took over. We were in dier straights and he brought
in much need cash for funding the design of GV aircraft.

November 22 2011 at 6:06 PM Report abuse rate up rate down Reply
Ellie and Al

In my younger days, I used to pass by his fathers mansion in Montclair, NJ. He also built a similar mansion for his grandmother next door. Both English tudor beauties on South Mountain Avenue.. The woolen business was good to the Forstmanns.

November 22 2011 at 4:22 PM Report abuse rate up rate down Reply
fairhillin

THis are the type of people that make America Great, rest in peace.

November 22 2011 at 3:59 PM Report abuse +1 rate up rate down Reply
invmartyc

No matter how much money you make or steal you still cannot beat the reaper!

November 22 2011 at 1:46 PM Report abuse +2 rate up rate down Reply
tacarey

Foreskinn and Little wrecked a lot of companys and peoples lives. General Instruments is a case in point. I hope his death was painful.

November 22 2011 at 1:38 PM Report abuse +2 rate up rate down Reply
jimswell

Its amazing how the lower 99% chastize someone who is successful, as if the economy is a zero-sum game. So he "rescued" 31 companies from bankrupcy - you think that saved a few jobs for little people? And did you read the part that "Forstmann was also noted for his philanthropy, which included co-founding the Children's Scholarship Fund and serving as a director of the International Rescue Committee. In February 2011, he signed the Giving Pledge, committing to donate a majority of his estate to charitable causes. "

The world could use many more people like Ted Forstmann.


"

November 22 2011 at 1:35 PM Report abuse -1 rate up rate down Reply
1 reply to jimswell's comment
tacarey

None of the companys were on the verge of bankruptcy. What they had was too much cash reserves in the bank with which he used to pay off his pruchase. Than he broke up the company and sold off the pieces to the highest bidder. Lots of people lost thier jobs. I hope he rots in hell.

November 22 2011 at 2:12 PM Report abuse +1 rate up rate down Reply
2 replies to tacarey's comment
the1autodoctor

where do you get you financial information? i just wikipedia each of the companies mentioned in this artical and everyone of them were insolvent or in bankruptcy at the time he leveraged the buyouts. by the way insolvent means you have no cash reserves and that you have negative cash flow. so as you see it would not be possible to use thier money to purchase the companies.

November 22 2011 at 4:12 PM Report abuse +1 rate up rate down
bugelboy

Amazing guy Forstmann was, saved corporations that employed many and some have expanded and created jobs!
What an ill informed statement above by tacarey.
Why would one wish he rots?
Guess you had a bad life?

November 23 2011 at 2:49 AM Report abuse +1 rate up rate down
Big John

A pastor at a funeral overheard two men talking about the very wealthy mans funeral they were attending and one ask the other, "I wonder how much he left"? The pastor spoke up and told them, "Every penney".

November 22 2011 at 1:33 PM Report abuse +2 rate up rate down Reply
pozboys

You come into this world naked and helpless, and you leave it helplessly, money, or not!!

November 22 2011 at 11:00 AM Report abuse +1 rate up rate down Reply