Donald Rumsfeld’s brief and bizarre stint in a private-equity war zone

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The late Donald Rumsfeld was remembered this week for his rough-and-tumble stints in world politics. Less well-known is his similar history in leveraged buyouts.

In 1990, the late private-equity tycoon Ted Forstmann saw Rumsfeld, who sat on his firm Forstmann Little’s advisory board, as a big name who could help market an IPO for his company General Instrument, at the time America’s biggest cable TV set-top box maker.

That’s despite the ex-defense secretary, who died this week at 88, having no prior experience in cable or telecom, although he had previously headed GD Searle, the maker of Metamucil.

After taking the helm, Rumsfeld moved General Instrument’s headquarters to his home town of Chicago from New York, firing two-thirds of the New York office. In all, he cut $65 million in overhead, according to the 2009 book “The Buyout of America” by Josh Kosman (yes — that’s the same author of this column you’re reading).

In 1992, Rumsfeld clashed with Forstmann, who wanted an IPO. Rumsfeld was concerned about losses, which persisted despite his cuts.

“I think it was very clear Forstmann felt that Rumsfeld just wasn’t playing the game that he wanted to play to maximize his investment,” former GI exec Hal Krisbergh said in the book.

Still, they spoke to analysts about earnings growth, with Rumsfeld doing so grudgingly. The IPO was a modest failure, with the shares in the first day of trading closing 14-percent below expectations.

Meanwhile, GI was working on a way to get more channels into a set-top box. It convinced John Malone, its biggest customer, that it could increase capacity to 500 channels from 85.

Malone’s TCI announced in December 1992 that within two years it would be selling 1 million of the boxes and signed a letter of intent to buy them.

A year or so later it was becoming clear GI wasn’t going to make its delivery date.

In 1993, according to a source, Forstmann finally ousted Rumsfeld, among other things irritated with him for spending too much time analyzing the Gulf War on CNN instead of running the business.

“Don was hired to clean up the company, and he did, and when that was done, I felt it was time for him to move on, and he did,” Forstmann spokesman said through a spokesman in 2009.

Rumsfeld was paid well for his time, with compensation that included $34 million in stock.

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