Inside Trader Was Known as the King of Takeover Defenses
To the many companies that feared hostile takeover bids in recent years, Martin A. Siegel was Chief Rescuer.
Siegel was Wall Street’s king of the takeover defense. In his 15-year stint as a takeover specialist at Kidder, Peabody & Co., he devised defensive strategies for hundreds of companies, reaping annual compensation of well over $1 million by the time he left Kidder a year ago to join the rival investment firm of Drexel Burnham Lambert.
But high pay and nationwide respect apparently were not enough. During his later years at Kidder, Siegel admitted, he passed inside information about takeover deals to a prominent Wall Street stock speculator.
And, on Friday, Siegel, 38, finally paid the price for such illegal activity. He resigned from his highly paid job at Drexel, agreed to give up $9 million in cash and stock and pleaded guilty to one felony count of insider trading and another felony count of tax evasion.
Ends His Career
The episode sent shock waves through Wall Street and ended the career of one of the nation’s most respected investment bankers.
Although Siegel has been the subject of insider trading rumors for weeks, friends and others said Friday that he seemed an unlikely candidate for such criminal wrongdoing.
“Of all the people in the (mergers and acquisitions) field, he was the least likely to be involved in something like this,” said A. A. Sommer Jr., a Washington securities attorney and former commissioner of the Securities and Exchange Commission, who described Siegel as a “good friend” who was “widely respected.”
“He certainly was highly regarded, extremely bright and capable,” said E. Norman Veasey, a Wilmington, Del., attorney specializing in takeover defenses. “He had a lot of ideas in different areas.”
High Stakes World
Those ideas clearly made Martin Siegel highly sought after in the high-stakes world of corporate takeovers. The handsome, articulate former Harvard Business School whiz kid worked on more than 500 mergers and acquisitions when at Kidder, including some of biggest takeover fights of the last decade.
“For a while, Marty Siegel was the only thing going for Kidder, Peabody” in the merger and acquisitions field, a competing merger specialist said Friday. “Many companies have Kidder, Peabody as their investment bankers because Marty Siegel developed their defense strategies.”
Siegel was described as a master marketer and leader in the business of “defense retainers,” in which an investment banker helps a possible takeover target develop and implement defensive strategies before attackers enter the scene.
“He really did a tremendous job in developing defensive strategies in advance of a problem,” said John C. Siciliano, head of corporate finance in Los Angeles for the Smith Barney, Harris Upham investment firm.
Financial Restructurings
Defense techniques advocated and perfected by Siegel included a variety of financial restructurings to raise share prices, such as selling off divisions, as well as financial reorganizations and the repurchase of a company’s own shares.
In addition, he advised firms in setting up such defensive maneuvers as “super-majority voting,” which requires the favorable vote of 75% or more of a company’s shares to approve changes in ownership, and requiring that directors be elected to staggered terms to prevent a suitor from ousting an entire board in one election.
He devised also the so-called “shark repellent” and “poison pill” defenses such as the issuance of special preferred stock to dilute the voting position held by an unwanted suitor.
And, once takeover fights began, Siegel was equally effective. In one of his most prominent cases, he devised Martin Marietta’s successful “Pac Man” defense against Bendix, in which Martin Marietta began its own, retaliatory takeover bid for Bendix. And he advised Richardson-Vicks both in its escape from the clutches of Unilever NV and its subsequent “friendly” acquisition by Procter & Gamble.
Didn’t Stick to Defenses
But Siegel did not stick to takeover defenses. On offense he was also valuable, in some cases helping attackers anticipate possible defenses. He counseled GAF in its unsuccessful bid to acquire Union Carbide and represented Kohlberg Kravis Roberts in its leveraged buyout of Beatrice Foods.
Sources say Siegel became concerned in recent years about Kidder’s relatively limited ability to finance big takeover deals. Drexel Burnham Lambert, on the other hand, had such clout thanks to its growing high-yield “junk” bond operation, run out of Beverly Hills by financial whiz Michael Milken. But Drexel needed greater capabilities to develop takeover strategies for clients.
And its hiring of Siegel, for compensation reportedly as high as $4 million a year, was seen as a major coup.
Several investment bankers familiar with Siegel’s short stint at Drexel said he did not have time there to get his operation fully rolling. “He didn’t have the profile he had while at Kidder, Peabody,” said one competing merger specialist, adding that it appeared Siegel operated under the shadow of Milken.
Linked to Speculator
Siegel’s plans began to fade when speculator Ivan F. Boesky was charged last year with widespread insider trading violations. Siegel was known to have been subpoenaed in the Boesky case, and rumors spread that he, too, was part of Boesky’s insider-trading ring.
The SEC, in announcing its charges against Siegel on Friday, contended that Boesky received inside information from Siegel on possible takeover bids in exchange for $700,000. Boesky’s agents met Siegel in public places and handed him briefcases stuffed with cash, the SEC alleged.
U.S. Atty. Rudolph W. Giuliani in Manhattan said Friday that Siegel became an informant, code named CS-1, who gave evidence leading to the arrests Thursday of top stock speculators Richard M. Freeman of Goldman, Sachs; Richard B. Wigton of Kidder and Timothy L. Tabor, formerly of Kidder.
Siegel, in a statement Friday, acknowledged that he “made some serious mistakes and violated the law.”
Friends, however, wondered why. “He made so damn much money already,” former SEC Commissioner Sommer said Friday. “I can’t understand why the hell he or the others had to make extra bucks in this way.”
