Business

Romney’s firm made profit on Duane Reade

While Mitt Romney made his political mark in Massachusetts, one of his boldest, most critical business decisions happened in New York.

In 1992, Romney, who this week tossed his hat into the Republican presidential race and is the early frontrunner to win the nomination, as the owner of private equity powerhouse Bain Capital, bought Duane Reade, the Big Apple’s dowdy hometown drugstore chain for roughly $230 million.

“It was Bain’s biggest investment up to that time,” a source who worked with Romney at Bain said. “Mitt was nervous.”

Romney hoped to spend roughly five years growing the then 37-store chain into a more dominant force — then either sell it or take it public and pocket a whopping profit. The 64-year-old was, at that time, building up an impressive record as a buyout king.

Bain, though, was putting Duane Reade deeply in debt — putting down just $16 million and borrowing more than $200 million to finance the deal — in what was the first large post-recession leveraged buyout in the US. It was a risky deal, and if Duane Reade collapsed under the weight of its loans it might have meant the end to Romney’s political career, which he craved even then, the source said.

In the first few years after the deal, Duane Reade walked a liquidity tightrope.

By 1995 the chain was slightly underwater, generating $27 million in earnings before interest, taxes, deprecation and amortization while paying $30 million in interest on its loans.

“As a result of liquidity constraints and the need for improved inventory controls, [Duane Reade] was forced to suspend its store expansion program in late 1995,” the company admitted in a regulatory filing.

The Duane Reade board, on which Romney sat, also moved to change how the chain’s employees were utilized.

“The key to success was, store workers were only really busy with customers during lunch hour and right after work, so they doubled at stocking shelves,” the source said.

While the changes stabilized the chain, its health wasn’t robust enough to have a national chain come and buy it.

However, Bain, with the New York economy beginning to boom, sold the chain in June 1997 to rival DLJ Merchant Banking Partners for $350 million.

Romney’s firm made a $40 million profit on its $16 million investment.

Critics of the Republican claim he and Bain piled too much debt on Duane Reade.

The chain, though, grew from 37 to about 60 stores; today there are 267. Romney has had some stellar results while at Bain:

* The 1986 buyout of truck wheel maker Accuride. The company that had a 50 percent market share lowered its prices under Bain to win more business and bury competitors. It worked and led to a big win for Bain, and a more prosperous company.

* Bain bought money-losing oil-field equipment company Vetco Gray and through job cuts and new products made a profit.

Bain declined comment, and a Romney spokesperson did not return calls. jkosman@nypost.com