Carl Icahn Relishes His Raider Role : TWA Is Latest Target as He Rails Against Corporate Executives
The corporate board meetings described in Carl Icahn’s stories are never quite like those of traditional business lore.
In Icahn’s tales, company directors like the lights low so catnaps pass unnoticed. They spend a lot of time ruminating on their golf scores, reading newspapers or eagerly anticipating lunch and the distribution of paychecks.
Icahn told recently of a meeting at which a corporate president proposed to buy a garbage-disposal manufacturer that was losing $40 million a year in head-on competition with General Electric Co. The proposal didn’t draw a murmur from the board members, Icahn says, until he denounced it as possibly the worst deal in history and one that would open the directors to shareholder suits.
“When they heard ‘personal liability,’ four guys put down their newspapers,” Icahn recalled at a New York seminar. “They found that at least a little interesting.”
Potshots at corporate management are among the favorite pastimes of the gangling New York financier who has gained prominence with a six-year string of corporate takeover bids. Since 1979, 16 takeover plays and securities investments have earned Icahn & Co. more than $166 million, including $40 million earned earlier this year in his bid for Phillips Petroleum Co.
Today Icahn, 49, is embroiled in a struggle for Trans World Airlines that has carried him to distant courtrooms and the marbled halls of Congress. Some believe that in the future he may pursue even larger targets.
If his successes have won him a place in the pantheon of corporate raiders, Icahn naturally has also encountered his share of adversity. Managements have accused him of racketeering, securities law violations and, in TWA’s recent phrase, “corporate piracy.”
His takeover threats have set off protests from employees and their neighbors.
When Icahn threatened Dan River Inc. in 1982, company sympathizers living near the textile firm’s Danville, Va., headquarters bought thousands of shares to fight him off in a battle that ended in a leveraged buy-out. This spring, Phillips’ employees demonstrated their unhappiness with Icahn’s bid by dousing company proxies in Phillips motor oil and lighting a bonfire.
Icahn shrugs off such criticism with the kind of response that has become reflexive among corporate raiders. “We’ve got an overprivileged corporate aristocracy in this country, and shaking it up can only help the economy,” he said. “If you want to be loved in this business, buy a dog.”
His basic tactics aren’t complicated. He finds companies that are undervalued by the stock market and buys stock with the aim of “attempting to control their destinies,” as he wrote in one memo describing his investment philosophy.
He may seek to gain control through a proxy fight or tender offer, force management to liquidate or sell out to another firm (a “white knight”) or resell his stock to the company at an above-market price (“greenmail”).
The trick lies in picking the right companies and scaring or forcing their managements to take the desired steps.
Wall Street takeover specialists say his ability to spot targets is a key strength for Icahn, who spends long hours in his 6th Avenue offices poring over the small print in corporate reports. Icahn is a self-described loner who delegates little responsibility, but he is aided in this task by the firm’s senior vice president, Alfred D. Kingsley.
“The man reads a balance sheet like Horowitz plays the piano,” Icahn said.
Icahn has also cultivated a skill at scaring the opposition. He terrifies because his track record is so far unmarred by a single major loss, and because of pressure tactics. Among them is his habit of accumulating more and more shares during a takeover fight.
His rambling anti-management tirades are themselves a tactic, say some who have faced him, designed to convince adversaries that he is a desperate man who must be appeased.
“I don’t think Carl’s a genius; he’s just willing to be a bigger pain . . . than the people he takes on,” said a takeover specialist who has seen Icahn in action. “He bullies and they cower.”
Managements are often rattled to find themselves in a game in which a single misstep can cost them their companies and their jobs. “It’s like playing golf for $1,000 a hole,” said J. R. Topper, chief executive of Anchor Hocking Corp., a Lancaster, Ohio, manufacturer that repurchased Icahn stock at a $3-million premium in 1982. “Even people who can afford it feel uneasy.”
Another Icahn hallmark is that he keeps changing his negotiating position, something that adversaries find exasperating. “They may find him hard to deal with, but from Carl’s standpoint, it’s a great negotiating tool,” said fellow raider Irwin L. Jacobs, who counts himself among Icahn’s admirers.
The financier has a healthy appreciation of his own talents, as was evident during his appearance before a congressional panel last Thursday. Asked why he had chosen TWA as a target, he demurred: “Do you ask Willie Mays why he jumped a certain way for a ball? Or do you ask McEnroe why he holds the racket a certain way?”
Icahn’s first major target was Tappan Co., an Ohio stove and oven manufacturer. Icahn bought 5% of company stock, gained a seat on the board and demanded liquidation. Instead, the board sold out to Electrolux of Sweden, returning Icahn $2.7 million on his $1.4-million investment.
This so impressed Tappan’s chairman, W. R. Tappan, that he asked to be cut in on Icahn’s later deals, and has become a regular investor with the company.
Stake in Marshall Field
In 1982, Icahn made a play for retailer Marshall Field & Co. He acquired 32% of the company’s stock and endured acrimonious litigation to earn $17.6 million when England’s B.A.T. Industries bought the company.
Icahn went after Phillips when raider T. Boone Pickens Jr. negotiated an end to his bid for the company. He made a tender offer, sweetened it twice, then backed off when Phillips made a counteroffer and agreed to pay $25 million toward Icahn’s expenses.
Icahn insists that his maneuvers have always benefited fellow shareholders and never cost jobs that wouldn’t have been lost eventually because of other company problems. “I’ve never thrown anyone out of work,” he said.
Some disagree. They point, for example, to Icahn’s bid for Chesebrough-Pond’s Inc., the Connecticut consumer products company. Icahn resold to the company 1.8 million shares at the market price, in a repurchase offer that Chesebrough also extended to other shareholders.
But Chesebrough also agreed to pay $95 million for a plastics unit of Icahn’s ACF Industries. The deal swelled Chesebrough debt and was seen by many on Wall Street as thinly veiled greenmail.
Icahn’s detractors contend that he and the companies in his control have broken federal and state securities rules. In its legal papers challenging Icahn’s fitness to run the airline, for example, TWA notes that Icahn has signed two consent agreements with the Securities and Exchange Commission to halt the commission’s actions.
In one case, the SEC contended that Icahn’s Bayswater Realty & Capital Corp. acted as an investment company without first registering with the agency; the second concerned alleged violations of proxy solicitation rules.
Icahn maintains that he was not guilty in either case and insists that the allegations “aren’t more than are brought against anybody in the securities business.”
Such allegations haven’t made it difficult to line up investment partners. They have included, along with personal friends and family members, David Mahoney, former chairman of Norton Simon Inc.; Charles W. Knapp, former chairman of Financial Corp. of America; fellow corporate raider Saul P. Steinberg, and Canada’s Belzberg brothers.
Icahn’s college roommate, pediatric surgeon Dr. Peter S. Liebert, remembers how Icahn called him in 1979 to ask if he wished to invest in Icahn’s Tappan takeover play. “I said yes, but his minimum investment was more than I had on hand,” Liebert said. “I had to borrow, and my wife thought I was crazy.”
As it turned out, the group got a 192% return on its 12-month investment.
Icahn grew up in Bayswater, a lower-middle-class section of Queens. His mother was a schoolteacher and his father a lawyer, teacher and cantor.
Icahn was the first student from Far Rockaway High School to attend Princeton, from which he graduated in 1957 and where he distinguished himself by winning a prize for his senior philosophy thesis, “An Explication of the Empiricist Criterion of Meaning.”
Not Extraordinary Student
He chose a pre-med curriculum and joined the Prospect eating club, a fraternity-like group that was then one of few at Princeton to admit Jews, recalls W. Speed Hill, a former classmate and club member who is now an English professor at New York’s Lehman College.
The eating club was “as close to being left-wing as any was at Princeton in those days,” he said.
Hill and other former classmates say Icahn was a diligent but not extraordinary student. “One could not have anticipated his rise in those days,” Hill said.
Icahn quit New York University medical school after three years, began a career on Wall Street as a securities broker and options trader and, in 1968, opened Icahn & Co., a member of the New York Stock Exchange.
The firm’s first principal business was arbitrage, or takeover stock speculation, until Icahn discovered that he could reduce his risks by assuming an active role in takeovers.
The financier says he’s not a regular party-goer and has been told by one hostess that he would have to leave if he didn’t stop talking about the takeover business.
Icahn won’t discuss his personal wealth and scoffs at suggestions that he’s joined the ranks of the nation’s wealthiest. His earnings have been sufficient to buy him a Park Avenue apartment and a 38-acre Westchester County estate, situated near the home of arbitrageur Ivan F. Boesky, a friend and sometime business ally.
Although his garage shelters a maroon Cadillac and silver Rolls-Royce, Icahn insists that he’s not part of the pampered executive class. He got rid of ACF Industries’ Learjet after his company bought the firm in 1983 and now travels only by commercial flight, he says.
“It was fun while it lasted,” he conceded.
Some business associates find his rambling attacks on management a little hard to take. One takeover specialist recalls a tense takeover negotiation that Icahn interrupted with a long diatribe against the company’s executives.
“You could hear all these hard-nosed types thinking, ‘Come on, Carl, let’s get serious,’ ” the source recalled.
Icahn insists he is serious and gets more than a few laughs when he lampoons the executive-suite elite in public. He likes to tell how financial officers use complicated slide presentations at board meetings to conceal their companies’ condition.
He says he sat on the board of one company for four months without really understanding where it stood. Later he was asked in court whether he had bought company stock using information he gained as a board member, he said.
“I said, ‘Look, I couldn’t tell what the hell they were talking about--how could I have inside information?’ ” he replied.
Times staff member Tony Robinson contributed to this story.
HOW CARL ICAHN HAS PROFITED FROM HIS INVESTMENTS
Amount Company Year Invested Profit Tappan 1979 $1.4 million $2.7 million Saxon ’79 2.3 million 1.9 million Hammermill ’80 10.6 million 9.6 million Simplicity ’81 8.3 million 7.3 million Marshall field ’82 13.0 million 17.6 million American Can ’82 13.3 million 6.6 million Anchor Hocking ’82 4.4 million 3.0 million Owens Illinois ’82 14.3 million 9.7 million Dan River ’82 14.3 million 8.5 million Gulf and Western ’83 35.5 million 19.0 million ACF Industries ’83 48.6 million J.P. Stevens ’84 8.8 million 6.7 million Chesebrough-pond’s ’84 30.5 million 6.0 million Pioneer ’84 21.6 million 12.6 million Phillips Petroleum ’85 175.0 million 40.0 million Uniroyal ’85 26.0 million 15.0 million Trans World Airlines ’85 90.0 million
Tappan Tappan acquired by Electrolux of Sweden after a proxy contest. Saxon Sold stock back to company. Hammermill Sold stock back to company after proxy contest. Simplicity Icahn stake purchased by ally of another large shareholder. Marshall field Company acquired by U.S. unit of B.A.T., a British firm. American Can Sold stock back to company. Anchor Hocking Sold stock back to company. Owens Illinois Sold stock back to company. Dan River Company acquired by employee stock ownership plan Gulf and Western Stock sold on New York Stock Exchange. ACF Industries Ultimately acquired by Icahn. J.P. Stevens Sold stock back to company. Chesebrough-Pond’s Sold stock back to company. Pioneer Sold stock back to compnay. Phillips Petroleum Sold stock back to company under restructuring plan. Uniroyal Firm goes private in leveraged buyout. Trans World Airlines Icahn currently seeking control.
Source: The Icahn Group