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Remembering a financier who innovated with debt

Bob Moon Nov 21, 2011

Kai Ryssdal: In Manhattan yesterday, a man by the name of Theodore Forstmann died of cancer at the age of 71. For better or for worse, Forstmann all but invented the practice of leveraged corporate takeovers, buying companies with borrowed money. Made billions of dollars doing it, but he wasn’t always proud of the craze he helped create. In fact, he’s the one who came up with the phrase, “barbarians at the gate.”

Here’s our senior business correspondent Bob Moon.

Bob Moon: By now, who isn’t familiar with the idea of buying something with other peoples’ money? But back in the 1970s, it was a fresh business plan: Borrow lots of money from big investors to buy up companies, use the revenue to pay down the debt while you fix them up — and then sell for a big profit.

William Cohan: The business model was like alchemy. I mean, it was incredible genius.

William Cohan is an author and magazine writer.

Cohan: And when it worked, it worked beautifully, and nobody made it work, frankly, any better than Teddy Forstmann.

Cohan conducted some of the last interviews Forstmann gave for a feature due out next week in Vanity Fair. He says even as Forstmann prided himself in taking over fix-up companies, he grew increasingly dismayed by the mountains of debt being piled up by Wall Street to fund irresponsible deals.

Cohan says unlike the Hollywood image of the ruthless corporate raider, Forstmann was widely respected for taking a hands-on approach in turning companies around. They included Gulfstream Aerospace, Dr. Pepper and, most recently, the sports and fashion agency IMG. He also gave millions to charity.

Cohan: You know, he wasn’t perfect by any means. He had his enemies, but I think by and large, history is going to be very kind to Teddy Forstmann.

I’m Bob Moon for Marketplace.

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