At lunchtime at the annual Drexel Burnham Lambert "junk bond" extravaganza, the rich, the mighty and the famous found little white books next to their plates titled, "Tom Smith and his Incredible Bread Machine."
The book is a parable in verse about a man who invents an amazing machine that produces bread for under a penny a loaf. He feeds the world and becomes tremendously rich. But he then is vilified by the press, indicted on false charges and cast down. The book jacket says it's about "the age-old conflict between the productive individual and the compulsory state."
The point of passing out the book was lost on no one.
As Drexel's 11th high-yield bond conference got under way Wednesday at the Beverly Hilton, there were few signs of contrition for the legal problems that have beset the firm and led to the racketeering indictment of Michael Milken, the man who had built Drexel's own incredible bread machine.
For the first time, Milken, the former chief of Drexel's junk bond department, wasn't there to preside over what is known unofficially as "the Predators' Ball." His traditional role as keynote speaker and ringmaster for the rounds of financial presentations was being filled by others. But there was a record turnout of more than 3,000 top corporate executives and institutional investors. And the message was still the same: Junk bonds are great. Junk bonds create jobs. Corporate buyout artists and raiders help keep the American economy strong by eliminating waste and keeping alive the entrepreneurial spirit.
The Drexel speakers made clear that even though Milken has taken a leave of absence since his indictment and is expected to permanently sever his ties to the firm, they aren't about to disown the man who almost single-handedly built the $183-billion junk bond market. John H. Kissick, the newly designated head of the junk bond department, referred almost immediately to Milken in his remarks opening the conference.
Speaking of Milken's "vision and genius" and enormous contribution to Drexel's growth, Kissick said that "over the coming months our thoughts will be with Mike" and the two other former Drexel employees indicted with him.
Frederick H. Joseph, the firm's chief executive, drew sustained applause at lunch when he mentioned Milken's absence and said: "From a personal point of view, we certainly miss his immense brainpower."
The remarks were all the more remarkable because Drexel itself has agreed to plead guilty to six felony counts and pay $650 million in penalties on charges of securities fraud and defrauding customers. The firm is under intense pressure from the U.S. Attorney's Office in Manhattan to publicly admit guilt and not minimize the importance of its guilty plea. But the decision to plead guilty was hardly mentioned by Drexel officials in their speeches.
Under original plans, according to well-placed sources at the conference, Milken was scheduled to make a surprise appearance Wednesday night at one of the Drexel-sponsored dinners. But Drexel spokesman Steven Anreder confirmed that the firm's lawyers passed word to Milken at the last minute that his presence at the dinner probably wouldn't be appreciated by the U.S. Attorney's Office.
But if Milken couldn't be physically present, many at the conference whose fortunes were made by his creative use of high-yield, high-risk junk bonds went to him. Sources said Milken spent the day in an office just blocks from the Beverly Hilton, receiving a parade of well-wishers. More than 100 others were said to have telephoned.
Milken, who denies any wrongdoing and plans to vigorously fight the charges against him, was ensconced in an office in the same building that houses the Drexel junk bond department in Beverly Hills. Since he is on a leave of absence, he isn't officially allowed in Drexel's offices. But Milken, his brother Lowell and several other individuals own the building. And he was said to be in an office there that was separate from Drexel's rented premises.
If Drexel's legal misfortunes were about to have an impact on the firm, there was little evidence of it in the crowded meeting rooms and corridors of the hotel. As dawn broke over the hotel Wednesday, droves of limousines had already deposited most of the attendees. Men in thousand-dollar suits eagerly clutched canvas maroon-and-white Drexel tote bags handed out with free goodies and schedules of events.
There was no shortage of big names in the corporate world who were there or would be shortly--including corporate raider T. Boone Pickens Jr., television mogul Ted Turner and Henry Kravis of the leveraged buyout firm Kohlberg Kravis Roberts & Co. With major help from Drexel, Kravis' company recently completed the largest buyout in history, that of RJR Nabisco.
And dozens of executives interviewed said they stand by the firm, that they think it was victimized by the government and that Drexel will remain a powerhouse even though Milken is gone.
"It's not one person, it's an entire company," said Geoffrey H. Ramsden, an executive at Kansas City-based Ferrell Cos. Referring to the $25-billion RJR Nabisco deal, he said: "They've just completed the largest debt offering in the history of corporate finance. The organization has transcended Michael Milken."
Although the annual conference is noted for extravagance and lavish entertainment that in past years included Frank Sinatra, Diana Ross and Dolly Parton, the real purpose is to conduct business. Corporations that raise capital by issuing junk bonds put on presentations to institutional investors who buy them. Big companies in a single meeting get to make a presentation to what is undeniably the biggest assemblage of junk bond buyers. And there are similar chances for the Cinderellas at the junk bonds ball--the small, upstart companies--to make a pitch for the money that could mean big expansion and success. In the side rooms and hallways, Drexel employees stand by to sign up deals.
Junk Will 'Clearly Survive'
Comparing this year's conference to previous years' Fredric M. Roberts, the head of the investment banking firm F. M. Roberts & Co., said: "While there is a perceptible reduction in the electricity in the atmosphere, the crowds are clearly larger, and the amount of fundamental business being done is as great or greater."
He said this is an indication that "the business is now institutionalized, and that it will clearly survive any individual."
And while some at the conference admitted that they had been shocked by the amount of Milken's annual compensation, recently disclosed by prosecutors, which in 1987 reached $550 million, nearly everyone interviewed voiced solidarity and support for him. "He's being pilloried," said Philip N. Cohen, chief financial officer of Integrated Resources, which has long done business with Drexel. "I just don't believe that somebody who was making that kind of money was going to bother to chisel on a couple of minor things."
Jaime Escalante, the school teacher portrayed in the film "Stand and Deliver" was the second speaker at the conference, extolling the importance of education, a favorite Milken theme.
And although the atmosphere was more subdued than in previous years, hype was still in evidence. In the center of the Hilton lobby was a six-foot revolving space station, modeled on something in "Star Wars," labeled "Drexel Burnham presents High Yield City 2089 A.D." The space station included rotating TV monitors promoting Drexel's clients and emitting Top 40 rock 'n' roll songs with special Drexel lyrics dubbed in. Above the din of investment bankers and corporate CEOs doing business, one could catch strains of: "Drexel makes it real/We've got that higher yield," and another favorite, "They built this city on high-yield bonds."