NEW YORK, N.Y. – Theodore J. Forstmann, a longtime Wall Street financier who was a major player during the wave of corporate takeovers in the 1980s, including the battle for RJR Nabisco in 1988, died Sunday at the age of 71.
The cause was brain cancer, according to a statement from sports marketing giant IMG, where Forstmann served as chairman and CEO. He was the senior founding partner of the investment firm Forstmann Little & Co.
Forstmann Little, which was founded in 1978, completed leveraged buyouts of companies including Dr. Pepper, Yankee Candle, the cable TV technology company General Instrument and Community Health Systems.
In the 1980s, the firm had become one of Wall Street’s most successful specialists in leveraged buyouts. The firm’s deals generated lofty returns for its partners and outside investors, which included many corporate pension funds.
Forstmann Little used bank loans and its own funds to finance acquisitions. It eschewed the high-yield “junk bonds” many other firms used to supplement their own money.
In a leveraged buyout, a company is purchased with mostly borrowed money, with the remaining cost representing the equity contributed by the buyers. The debt is then repaid with funds generated from the company’s cash flow or sales of assets.
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Once the debt is reduced, the value of the investors’ equity can soar. And the investors can realize that gain if the company is resold or sells new stock to the public.
In 1988, Forstmann made clear his distaste for deal making greased by junk bonds, which he considered to be too risky. The AP quoted him as saying “Today’s financial age has become a period of unbridled excess with accepted risk soaring out of proportion to possible reward.”
“Every week, with ever-increasing levels of irresponsibility, many billions of dollars in American assets are being saddled with debt that has virtually no chance of being repaid,” he said.
In 1988, the dollar amount of mergers and acquisitions financed largely with borrowed money totalled more than $200 billion.
Over the last 33 years, The Forstmann Little firm made 31 acquisitions and returned more than $15 billion to investors.
International Management Group, a sports and celebrity management and marketing firm that has represented Tiger Woods, Joe Montana and Derek Jeter, was sold to Forstmann Little in 2004 in a cash deal valued at more than $700 million.
Forstmann graduated from Yale University and received his law degree from Columbia University.
He signed “The Giving Pledge” earlier this year, where America’s wealthiest people pledge to give away at least half of their fortunes.
Forstmann was a philanthropist and co-founder of the Children’s Scholarship Fund in 1998, which focuses on helping parents send their children to schools of their choice. The organization has provided more than $483 million in scholarships.
He was also a director of the International Rescue Committee and helped establish a medical program for war-injured children in Bosnia. He was a trustee of the Nelson Mandela Children’s Fund and also served on the board of directors at Freedom House, Empower America, the Robin Hood Foundation, the CATO Institute, and the Preventative Medicine Research Institute.
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