#177 Robert Campeau (Junk Bonds and Retail Bankruptcy)

**David Senra** (0:00)
This is the story of a marvelous financial calamity.
Not so wonderful if you happen to be a creditor, of which there are 50,000 at current count, but marvelous in the way that it happened. A stranger comes to Wall Street, borrows nearly $4 billion to acquire a company that six months earlier he had never even heard of. This transaction is scarcely settled before he's allowed to borrow $7 billion more to acquire a bigger company, making him a major force in retailing, an industry he knows nothing about.
The companies he acquired were successful retail enterprises, which before Bob accidentally having taken an interest in them had a 50 year unbroken record of paying their bills.
They were also old-fashioned, that is to say, relatively free of debt.
Acquired is really too bland a word to describe the involuntary surrender to the new-fangled corporate coup known as the Leveraged Buyout.
In theory, the LBO was supposed to boost productivity and increase profits once the new owner had supplanted the complacent, unimaginative, and overpaid former management. In practice, the LBOs landed both companies in Chapter 11
Among other notable side effects from Bob's joint ventures, abetted by the best and brightest bankers and buyout specialists on Wall Street, are the following.
8,000 workers laid off.
First, Boston, the once mighty investment firm, having to be bailed out after several of its bridge loans, went kapui.
The collapse of the junk bond market. A slump in profits for department stores nationwide.
The dumping of merchandise on discount stores by manufacturers with no place to sell their goods.
The cutback in department store advertising, which spread the misery into the newspaper and magazine businesses.
The recession on Wall Street.
This was an era of debtor barons, when billions went out to all sorts of imaginative speculations.
Bob arrived at the perfect moment, in the final stage of the buyout frenzy, when playing it safe, counted for nothing.
The bankruptcy courts are now clogged with the results of these full hearty endeavors.
That is an excerpt from the book that I'm going to talk to you about today, which is Going for Broke, how Robert Campeau bankrupted the retail industry, jolted the junk bond market, and brought the booming 80s to a crashing halt. And it was written by John Rothchild.
Okay, so I had never heard of this book before. I actually got a message from a misfit named Chris. And I want to read part of the message he sent to me because he's talking about why he recommends this book. And it's a great description of what we're going to learn today. He says, it is a how not to run a business and the perils of overconfidence with debt. This underrated book provides a glimpse into what happens when dreams become delusions.
And that's a great way to think about what we're going to learn today. We're going to build an anti-model. So we're going to get the essence of who Bob was, how he made decisions. And we're going to be able to, in the future, when you think of a decision you have to make, you're just like, what would Bob do? And do the opposite, because this guy is a clown. So I'm going to jump right into the book. The intro I just read to you, right up front, the author tells us how it ends. So now we know he winds up in bankruptcy. We know that the supposed, quote unquote, best and brightest minds lent this guy $11 billion with almost no money down. Within a few short years, he's in bankruptcy. He's harmed tons of people because of his irresponsible actions. So now the entire book is about how did this happen? And I'm gonna give you a little bit about his personality and you'll see the author is kind of ruthless in how he describes this guy. I'm gonna call him Bob. Everybody calls him Bob. So I'm just gonna refer to him as Bob the whole time throughout the book, because I'm not sure how to pronounce his last name. Bob subjected himself to a barrage of improvements. First, a toupee, then hair transplants, facelifts, sheep brain injections for longevity, which he flew to Europe to receive, roughing rituals, health food diets, and a daily swim in a specially purified pool. The urge to supersede, to win, to maximize his every opportunity was a constant theme in his personal history. And so now, there's gonna be a brief description of his early life and his career before he gets to Wall Street. So he says, he entered the world in 1923 as the son of a blacksmith. He was raised with seven siblings. Seven other siblings died. His earliest known entrepreneurial venture was peddling newspapers on the street corner. In eighth grade, he quit school to take a job sweeping floors for 50 cents an hour. Bob's career in real estate, so before, he was a rather successful real estate developer before he had this idea that he wanted to be, he wanted to play on Wall Street, he wanted to go to the United States, which makes this story even more tragic because he could have just stopped there, stayed within his circle of competence and he would have had a lot better life. He winds up losing everything, a multi-hundred million dollar fortune that he bets on just a really silly idea of being the world's largest retailer, even though he wasn't even particularly interested in retailing. So it says, Bob's career in real estate was launched somewhat accidentally in 1949 after he had tried a variety of jobs. So he had worked as a mill writer, he hauled logs, he ran a small grocery store. His cousin, Tony, had built a house in his spare time and then sold it and doubled his money in a few months. Impressed with these results, Bob suggested a partnership. Bob and Tony invested $5,000 in a house, doing most of the carpentry themselves, and then sold it for $7,500. This soon led to the buying and selling of more houses, which led to subdivisions, and then it just continues on and on. Bob foresaw the great post-war migration to the suburbs and built and put himself in the middle of it. He advanced from home building to subdividing, from subdividing to building apartments, from building apartments to putting up office towers. By the 1950s, Bob had become a comfortably wealthy man. In the 1960s, he became even wealthier. Largely thanks to the half a million square feet of office space that he constructed in Ottawa, most of it rented to the Canadian government. In the condo boom of the 1970s, he expanded his operation in the United States, building condos and office towers in California, Florida, and Texas.