Dusk Is Falling on the Day of the Raider

Whatever happened to the corporate raider? Only a few years after they were featured on magazine covers as business geniuses--or ruthless predators--who were changing corporate America, the raiders are loping into the sunset like gunslingers of the old West when the towns turned into cities.

The latest news is that Carl C. Icahn, the raider who eventually took over Trans World Airlines, settled with Texaco, the giant oil company, and will not be mounting a second proxy fight at the company’s annual meeting this May. (He lost the first proxy fight last year.) The word on Wall Street was that Icahn just couldn’t get financing to mount a buyout of Texaco.

Elsewhere, T. Boone Pickens Jr., general partner of Mesa Limited Partnership, stated publicly the other day that he was through with corporate takeovers. Pickens, citing the difficulty of doing deals these days, said he may run for governor of Texas.

Sir James Goldsmith, the Anglo-French raider, who hit St. Regis Paper in 1985 and threatened Goodyear Tire in 1986, hasn’t been heard from lately, nor have Canada’s Belzbergs. Oscar Wyatt’s Coastal Corp. is going after Texas Eastern, but the proceedings are more of a drawn-out court case than a takeover drama.

Gone is the feverish atmosphere of yesterday: Then a raider would announce in the morning that he held shares in a company, other investors would jump on his bandwagon, and, by mid-afternoon, the company’s stock would be rising in anticipation of a buyout.

These days, company management has more room to maneuver and often prevails. Polaroid, the instant photo company, is standing off a takeover bid with financing from a Wall Street firm set up specifically to help managements under siege. Procter & Gamble recently put $1 billion in an employee stock ownership plan as a defense against takeovers.

‘Better Price’ Than Icahn

The changed atmosphere signals good news on the inflation front, at least so far as oil prices are concerned. The fact that nobody rushed in to finance Icahn means that speculators couldn’t count on a rise in the price of oil making Texaco’s assets more valuable.

The change also signals that institutional investors now believe that corporate managements know more than outsiders about how to wring value from the company--as happened recently when Texaco sold its Canadian properties for more than $3 billion. “They got a better price than Icahn could have,” says analyst Bruce Lazier of Prescott, Ball & Turben, a brokerage firm. “Buyers would have pushed down the price, knowing Icahn was desperate to sell.”

And the change may indicate that investors are becoming more patient--or realistic.

In the raiders’ heyday--the early to mid-1980s--the great delusion was that if a company’s stock price was lower than the full, liquidation value of its assets, that reflected poor management; raiders regularly promised to instantly boost the stock price to asset value.

Well, Texaco’s asset value per share is $67, according to the research firm John S. Herold Inc., while Texaco stock is selling for about $51--a 24% discount. Yet Icahn couldn’t attract financing for a takeover attempt.

Why not? Because selling at a discount is normal for companies with natural assets, such as oil or timber. “Asset-rich companies always sell at a discount,” says Texaco President James W. Kinnear, “because it takes time for the value to be produced. That’s common sense.”

But common sense didn’t prevail in the early ‘80s. And there’s no use blaming the raiders; they only followed a trail blazed by big companies. The oil takeover game for example was begun in 1981 by DuPont, the chemical company, Seagrams, the liquor company, and Mobil, the oil company, as they fought over Conoco. Then U.S. Steel and Mobil fought for Marathon Oil.

Later, big companies would often take advantage of the disruption caused by a raider to buy a competing company--as Champion Papers did with St. Regis Paper after Jimmy Goldsmith had attacked it.

Antitrust law didn’t change the game, but the courts in Delaware did. (Many big companies are incorporated in Delaware). “The courts gave boards of directors a lot of discretion, unless a takeover offer was 100% cash on the barrel head,” says David Batchelder, former executive vice president of Boone Pickens’ company who now has his own merger advisory firm in La Jolla. As a result, the merger game has become too expensive for many raiders to play.

That doesn’t stop the game, of course; there are still a lot of takeovers. In 1988, according to IDD Information Services, more than $300 billion changed hands in 3,637 transactions.

But now it’s more a case of big companies acquiring one another--Philip Morris buying Kraft, for example--or swapping divisions to gain position in the market place. They no longer need the raider. When Western towns became urban centers, the day of the gunfighter was past.