TIME INC. STRIKES BACK : Time’s Strategy Showcases Wasserstein Perella & Co. as Superstar in Merger Battles
Time Inc.’s decision to merge with Warner Communications, while rejecting a hostile offer from Paramount Communications, is bound to irk Time shareholders who wanted to accept Paramount’s lucrative stock offer.
But to Wasserstein, Perella & Co., one of two investment banking firms that helped devise Time’s complex takeover and defense strategy, such controversy has become part of the territory.
In just the year and a half since it was formed, the small New York-based firm has become a mergers and acquisitions powerhouse, having a hand in many of the biggest and most controversial takeovers of the day.
All told, its $36 billion in deals completed last year propelled it virtually overnight into the sixth-largest mergers and acquisition adviser, ahead of such giants as Salomon Bros. and Merrill Lynch. If some of its pending deals, such as Time-Warner, are completed this year, the firm could challenge Morgan Stanley for the top spot later this year, according to IDD Information Services, which ranks investment houses.
In the process, Wasserstein Perella has come to wield tremendous influence in the executive suites and board rooms of America’s corporate elite, boasting 20% of the nation’s 300 largest corporations as ongoing clients. It’s amassed a $1-billion war chest that can be used to finance leveraged buyouts or buy equity positions in firms involved in deals.
And its partnership with giant Nomura Securities of Japan, which owns 20% of Wasserstein Perella, gives it an entree into the fast-growing investment banking business in Asia, part of its goal to be a worldwide force in mergers and acquisitions.
Firm Has Its Critics
“They’ve done a damn good job and have carved out a good niche,” says Perrin Long, industry analyst with Lipper Analytical Services.
But the firm’s rise has not come without its criticisms. As in the case of Time, some critics say Wasserstein Perella’s staunch loyalty to defend its management clients against hostile takeovers has come at the expense of those firms’ shareholders.
Critics also have questioned the firm’s judgment. A Delaware judge criticized the firm last November for a “conflict of interest” in backing a financial restructuring of Interco, a large furniture and shoe manufacturer, over a hostile takeover bid by the Rales brothers of Washington. Wasserstein Perella stood to receive higher fees if the restructuring succeeded, the judge argued.
And although the firm professes to be as busy as ever, some Wall Street experts say it has grown too fast, increasing its vulnerability to layoffs or other troubles when merger activity subsides and the economy falls into recession.
Such criticisms are not surprising, given the wide reach and high profile of the firm and its co-founders, Bruce Wasserstein and Joseph Perella. The two arguably were Wall Street’s most respected merger and acquisitions advisers when they left the investment banking house of First Boston in February, 1988, after a disagreement with management over the firm’s direction.
Wasserstein in particular was regarded as a creative genius, having devised many innovative takeover strategies while co-head of mergers and acquisitions at First Boston along with Perella. Their work was credited with propelling First Boston into the elite among investment bankers, and their departure to form a “boutique” investment house was seen as part of a new era where high-paid superstars no longer wanted to be constricted by the large bureaucracies and demands of full-service firms.
Several Major Deals
Since leaving to form Wasserstein Perella, the duo have amassed an impressive list of deals. The firm advised Kohlberg Kravis Roberts in its record $25-billion leveraged buyout of RJR Nabisco, and Philip Morris in its $12-billion takeover of Kraft.
Pending deals, besides Time-Warner, include advising LIN Broadcasting in its $6.5-billion acquisition by McCaw Cellular, and advising Beecham Group in its $7.8-billion bid for SmithKline Beckman.
“At the moment, we’re stretched as thin as can be,” said Mack Rossoff, a Wasserstein Perella managing director.
To augment its deals, the firm also takes ownership positions in clients. For example, it owns 50% of Santa Monica-based Wickes Cos.
The firm also performs ongoing advisory work for dozens of clients not involved in pending deals, helping them devise growth strategies or making them more resistant to possible hostile takeovers. Such clients include Alaska Airlines, Walt Disney Co. and Henley Group.
Many of these clients, including Time, followed Wasserstein and Perella from First Boston. But the firm attracts and keeps them by hiring superstars.
“We’ve tried to create an M&A; all-star team at the senior level and build around it,” says Jon D. Kutler, head of Wasserstein Perella’s Los Angeles office, one of six worldwide.
The firm’s now employs about 100 professionals, close in size to the mergers and acquisitions departments of major full-service firms, Kutler says.
The firm also keeps clients by focusing on advisory work, avoiding underwriting, trading and other activities, he says. The firm also keeps clients by stressing takeover-defense work, generally avoiding working for corporate raiders.
This defense orientation is key in the case of Time, which is also using Shearson Lehman Hutton as a co-adviser.
