Hard Work, Bluster Lift Proxy Fighter Don Carter

The boom in hostile takeovers really got up steam a few years ago when corporate raiders realized that they could raise money for their assaults by selling high-risk “junk bonds,” such as those issued by Drexel Burnham Lambert. And the man who dreamed up this history-making idea was Don Carter.

So says Don Carter, at least.

As proxy solicitor Donald C. Carter tells it, the new age of hostile takeovers basically began in 1983, when Carter took corporate raider T. Boone Pickens Jr. aside to suggest that Pickens’ investment group use Drexel “junk” to finance its tender offer for Gulf Oil.

“Drexel hadn’t done any of its megamillion-dollar deals then, but Boone thought it was a good idea,” Carter recounts with relish in his hoarse Brooklynese. “I told him who to call. And after that came all the rest of the big Drexel deals . . .”

Others who were there quarrel with Carter’s account. But if the tale says little about takeover history, it says everything about Carter, who has elevated proxy solicitors from largely invisible functionaries to highly paid takeover consultants through hard work, aggressive pricing and assiduous self-promotion.

The 13-year-old Don Carter Organization now stands with Georgeson & Co. and D. F. King & Co. in the top ranks of proxy solicitors and, by some accounts, is the most profitable of the three. The solicitor of choice for many corporate raiders and dissidents, to his competitors Carter is also a publicity-seeking, credit-grabbing bane.

Proxy solicitors have traditionally handled a variety of tasks, most of them mundane. They oversee shareholder votes for the routine business carried on at corporate annual meetings. When managements war with dissident shareholders in proxy contests, the solicitors locate and try to sway shareholders by mounting telephone campaigns, mailing “fight letters” and placing advertisements.

Carter, in addition, dispenses all manner of strategic advice and describes himself as an “adviser on corporate governance.” A business graduate school dropout, Carter never hesitates to offer his own opinions in high-strategy sessions, no matter how thick the surrounding crowd of investment bankers and takeover lawyers, associates say.

Indeed, when companies start thinking of board-room warfare, “the call goes first to me--not to the lawyers, the investment bankers--but to me,” says Carter, 40, pecking the air with his forefinger.

Carter declaims from behind a green marble desk in a posh office identified by a single sign, “War Room,” near its entrance. In ceaseless motion, Carters paces in and out through sliding steel-plate doors that whoosh open and closed like the portals of some Hollywood space ship.

Carter’s ascendancy has come at a boom time for the solicitation business, for the number of proxy fights has been rising sharply. As state anti-takeover laws have clamped curbs on some tender offers, raiders and other dissidents have been forced to turn to proxy contests to win spots on company boards or otherwise influence management.

Demand on Rise

So far this year, there have been at least 36 proxy contests, up from a recent average of about 25 a year, says the nonprofit Investor Responsibility Research Center in Washington.

Increasing demand has allowed the solicitors to raise their fees steadily--with Carter leading the way. While his fees averaged about $25,000 when Carter began in 1975, they now average around $300,000 and top $1 million for work on major proxy contests.

A takeover adviser familiar with prices of the top firms says he has seen Carter’s bids for a job come in 100% above the competition’s.

“The other solicitors really ought to thank him,” says James E. Heard, executive director of United Shareholders Assn., a lobby group founded by Pickens. “He’s taken what were a bunch of sleepy guys collecting proxy cards and put them in the front ranks of the troops. They all ought to thank him for their second houses on Long Island.”

They’re not thanking him, though.

While Carter has enriched his competitors, he has also enraged them. Solicitors who always looked on discretion as central to their role go out of their way these days to knock Carter, focusing on his recent record of lost proxy fights and what they say is the weakness of his back-office operations.

“His fees have gone up as his record has gone down,” said John J. Gavin, executive vice president of D. F. King.

Their criticism hasn’t stopped Carter from scooping himself a generous helping of credit.

Carter says ITT Corp. scared off a proxy fight threatened by raider Irwin L. Jacobs in 1985 largely because ITT retained Carter as an adviser, at a fee that sources say exceeded $1 million. “Irwin had his mind 98% made up to do it before they took me,” Carter says. “Call him, he’ll tell you.”

“That’s not true at all,” Jacobs responds. Rather, Jacobs dropped plans for the contest when the Pritzer family of Canada, then big ITT stockholders, announced their intention to side with ITT management if a boardroom war broke out, Jacobs says.

Pickens wouldn’t return phone calls seeking comment on how his group, which included Mesa Petroleum, decided to use Drexel bonds to finance a tender offer for some Gulf Oil stock in 1983. But Sidney Tassin, Pickens’ chief strategist, gives credit for the idea to others who were on the Mesa team.

“I don’t want to tank Don, but (Carter’s version) is a bit of a stretch,” drawls Tassin. “Don may have supported the idea.”

Carter may owe part of his success to his image as a street fighter, a man always willing to be a little meaner than the next guy in a proxy fight. This image fits in well with an old-time view of solicitors, who in business lore have sometimes been portrayed as cigar-smoking, hard-drinking New Yorkers.

One portfolio manager suggested Carter’s brash manner and Brooklyn patois lend him the image he wants. “The accent works for him just like Henry Kissinger’s did for him,” this investment manager observes.

In fact, Carter was raised in the genteel Long Island suburb of Great Neck, though he says his first important job was as an accountant in his father’s Brooklyn paint factory.

People in the business say Carter is a master of the “fight ad” that denigrates the opposition yet doesn’t violate Securities and Exchange Commission rules against defamation.

Goes for the Throat

A classic was a pro-management ad he wrote when the brokerage Rooney, Pace & Co. was battling for control of Pantry Pride Inc. Carter’s ad described Patrick J. Rooney, then Rooney Pace’s chairman, as “a Canadian investor living in Greenwich Village.”

People on both sides of the fight interpreted this as a suggesting that Rooney was a foreigner and a homosexual. “Only Don would have that kind of idea,” says Marc Weingarten, a New York takeover lawyer who has worked with raider Asher B. Edelman. “The SEC can’t object to the mention of Greenwich Village, because that objection would insult everybody who lives there.”

Carter denies he intended anything about Rooney’s sexuality but says the ad “hurt (Rooney) a great deal with investors.” (Rooney contends that the ad had no effect on the vote. “In any case, I’m still Don’s friend,” he says.)

The Rooney Pace fight illustrates the ever-shifting allegiances of the business. Just days before he blasted Rooney in the Pantry Pride proxy fight, Carter was working for him in a separate contest--and was even a Halloween party guest at Rooney’s Greenwich Village home.

More recently, Carter has gotten public notice for an ad he wrote in the cause of Beverly Hills producer Burt Sugarman’s run at Media General, the newspaper and television company controlled by the Bryan family of Richmond, Va. Carter taunted D. Tennant Bryan, the largest shareholder, by publishing a quote in which Bryan had said he would never sell the company “as long as I live.”

Just after the quote, Carter’s ad listed Bryan’s age, 81, apparently to hint at his mortality. Chuckling, Carter says he wrote the line “just to be nasty. I think if somebody tells you he won’t do something for as long as he lives, I think you ought to know how old he is.” A moment later, Carter denies he meant to be nasty.

Carter stunned competitors last year when he sold his company for what seemed to them an astonishing sum to a British public relations firm, VPI Group. If Carter Organization meets certain profit goals over the next three years, the deal will bring $135 million to Carter, who says he plans to stay on indefinitely as president.

“The eyebrows rose above the hairlines,” said John Wilcox, senior vice president at Georgeson & Co.

Indeed, Edward J. Novotny, a New York public relations man who works regularly with the solicitors, insists: “With the money he made, Carter could buy all the others out. I have to assume he doesn’t just because he loves the game.”

Ranking the top firms in size is difficult, since only Carter is publicly owned. For the fiscal year that ended last Sept. 30, Carter Organization had pretax income of $18.1 million on total revenue of $37.5 million.

For the first seven months of this fiscal year, through April, Carter Organization revenue came to $23.9 million.

Takeover lawyers, who size up proxy solicitors because they often hire them for their clients, say Carter and King have the greatest share of high-priced proxy fight work.

Takeover specialists rate all the leading solicitation firms highly in the key task of tracking down the persons who actually own and vote the shares that are registered in huge blocks under the names of banks and brokerages. There are often many layers of intermediary banks and investment firms between the “street name” holder and the ultimate owner.

Shareholder Breakdown Key

“A big part of this job is just digging through details and more details,” said William Willis, president of the Kissel-Blake proxy solicitation firm. Over the years, each of the solicitors has accumulated mounds of information in computer databases on just who holds votes the stock behind the various street names.

By analyzing the breakdown of ownership, a proxy solicitor can give a client a quick advance reading on the client’s chances of winning a proxy contest. A management that has 30% of its shares in the hands of individual investors may feel confident in such circumstances, because individual shareholders tend to vote with management.

If the top firms’ skills are similar in this area, Carter has stood out for his aggressive marketing of his firm’s services. Carter actively courts takeover lawyers, arbitragers and others on Wall Street, associates say.

The takeover lawyers are key because they often recommend which solicitor to hire. The arbs and other investment house officials are important because they know who holds stock and has been trading in it. They can also tell the solicitor how the shareholders are disposed toward his clients.

Carter calls raiders or company officials as soon as he hears that they are about to launch a takeover fight. He’s been known to spread theater and sporting tickets among lawyers and has been the only solicitor to attend the annual promotional conference that Drexel holds each year in Beverly Hills.

Some say Carter, who drives a red Bentley with the license plate PROXY, is retained by raiders such as Pickens, Edelman and Irwin L. Jacobs in part because they like his flashy style. Carter once received from Jacobs a blue silk boxer’s robe with “Don Carter, Proxy Fighter” embroidered on the back.

“These people call me when they come to town because I’m just more fun to be with than these lawyers or bankers,” Carter says.

In a recent magazine article for New York University’s undergraduate business school, from which he graduated, Carter advised students that they needn’t bother filling their minds with the names of ancient Greeks. A key to business success, he advised, is “be nice to the press. Tell a good story.”

Carter clearly knows how, and it has gotten him a stream of favorable publicity that rankles his competitors. He interrupted a recent newspaper interview to call Houston investor Charles Hurwitz, who has been a regular client and has recently agreed to buy KaiserTech, the parent of Kaiser Aluminum & Chemical.

Carter asked Hurwitz if KaiserTech would now use his services, then switched on his speaker phone just long enough for a reporter to hear Hurwitz gush: “You know I’d never do anything without you, Don.”

Still, Carter has been somewhat on the defensive lately.

Kissel-Blake’s Willis criticized Carter in a magazine story not long ago for acting as a solicitor while he also was mounting a proxy fight for himself against a firm called Comdata Network, of Nashville, Tenn. Willis said the dual role created a conflict of interest.

No soon had the article appeared than Willis got an angry call from Carter’s lawyer. Soon came a call from Carter himself. “He seems pretty sensitive,” Willis says.

More recently, Georgeson officials stirred Carter’s wrath by distributing a list of what they say is their lopsided record of victories in proxy fights against Carter. “We bring Carter up with any reporter who calls,” says one Georgeson official.

Other solicitors say Carter’s clients have suffered bruising losses in three highly publicized proxy battles this year. Client Coniston Group lost to Gillette Co., while Bank of New York lost to Irving Trust, and Burt Sugarman lost to Media General. (Coniston and Bank of New York are contesting those outcomes in court.)

“This year’s been a disaster for him,” said Georgeson’s Wilcox. “He wasn’t the underdog in either the Gillette or Irving fights, and he flubbed them.”

But while many on Wall Street expected Coniston and Bank of New York to win their proxy votes, they disagree on whether such defeats are black marks against a solicitor. Carter often defends dissidents, who frequently lose proxy votes, though they may prevail in a later stage of a takeover battle, sympathetic observers argue.

Carter contends he isn’t concerned about a lost proxy fight if the client ultimately makes money. Pickens lost his proxy contest against Gulf Oil, Carter points out, but Pickens’ group made a pretax profit of about $782 million when Gulf was ultimately bought by Chevron.

His clients at Bank of New York and Coniston Partners won’t speak ill of him. “He did a fine job for us,” said Augustus K. Oliver, a Coniston principal.

Some takeover lawyers do, however, worry that Carter may be spread too thin these days, particularly as he labors to sustain profits so he can get the maximum price for his company. Says lawyer Marc Weingarten, generally a fan of Carter’s: “If he has a shortcoming, it’s that he may spread himself too thin. We wanted him recently, and he was off counting votes on the Gillette contest.”

Others takeover lawyers wonder if Carter’s firm has the depth of talent of some of the others do. “When you hire Carter, you’re getting Don Mattingly,” said one lawyer, referring to the versatile New York Yankees baseball player. “Trouble is, a lot of the team is fresh up from the Massapequa Little League.”

Carter insists that his backup team is better and more numerous than the competitors’. “What we brought to this business is brains,” he says.