Martin Davis on the Prowl : Paramount’s chief, a one-time publicist, has surprised doubters before. What’s his next move?

Martin S. Davis, chairman of Paramount Communications, may be a hunter.

Armed with $3 billion in cash since selling Associates First Capital Corp., the finance unit, to Ford Motor Co. last month, the Paramount chief has said he is stalking acquisitions for his media empire.

Or Davis may be the prey.

Wall Street and Hollywood have speculated that Paramount--slimmed down, cash-rich and worth as much as $10 billion--will attract a bid even more dramatic than Sony Corp.’s $3.4-billion purchase of Columbia Pictures Entertainment. Either way, the movie and publishing giant’s future depends to an unusual degree on the nerve and agility of its 62-year-old chief executive.

But how will Davis respond to the challenge?

Taut, trim and simmering with controlled passion, Paramount’s chairman is known for his ability to surprise--witness his sudden attempt last summer to disrupt the Time-Warner merger with his own 11th-hour bid for Time Inc. Often underestimated during a 45-year career that began with criminal investigations work for the Army’s military police, Davis spent years as a movie publicist, only to emerge, seemingly from nowhere, as a key player in delivering Paramount Pictures to what was then known as Gulf & Western Industries Inc.

Despite conflicts with Gulf & Western founder Charles Bluhdorn, Davis eventually leap-frogged corporate superiors to become the company’s chief executive on Bluhdorn’s death in 1983. On taking charge, Davis quickly sold many of its businesses, promising to retool the perennially undervalued conglomerate--it used to be called “the poor man’s Litton”--as a media giant, anchored by Paramount and the Simon & Schuster/Prentice Hall publishing complex.

Unwilling to betray his next surprise, Davis has declined to discuss his plans, nor would he discuss his failed bid for Time. But he did agree to speak about his career and some of the events that brought him, and Paramount, to their current decision point.

Those talks and interviews with Davis’ friends and enemies reveal him to be sly, cynical, angry, tough, aggressive--and yet motivated by a seemingly genuine idealism about a corporate manager’s obligation to get the most from his company, whether by stalking others or simply selling out.

Davis was born in the Bronx in 1927. His father was in the real estate business, “both residential and commercial,” and apparently did well. “I’m not going to say I had a meager upbringing,” is all that Davis, uneasy with personal details, would say of the matter.

Before World War II ended, the younger Davis entered the Army without finishing high school, and served in a branch that he also discusses grudgingly: military intelligence.

While denying an old friend’s claim that Davis had once been a private investigator, the Paramount chief acknowledged that he was attached to the criminal investigations division of the military police, counterintelligence corps. Just 16 years old when he joined the Army, Davis was thrown out for lying about his age and later re-enlisted after finishing high school.

Some Davis intimates claim to be surprised by his intelligence background--even though at least one friend, a movie director, has said privately that Davis spoke openly of his investigative experience during the 1960s and once even offered to use his skills to “check out” a problem for the director.

“I’m stunned. It’s hard for me to imagine him being in any real operational work,” said William Ruder, a 67-year-old public relations executive who hired Davis out of the service as an office boy in the New York branch of Samuel Goldwyn Productions and has remained a friend.

Davis said only that he trained in the United States, served abroad and briefly considered a military career before landing the Goldwyn job through a newspaper want-ad instead.

According to Ruder, Davis beat the crush of postwar job applicants by giving an impressive answer, now forgotten, to the key question: “Why do you want to get a job in motion pictures?”

“Later, he confessed to me that he didn’t (care) whether he got a job in motion pictures or not,” said Ruder. “He just needed a job.”

Later still, Davis would come to resent claims by some Hollywood executives--particularly after his much publicized 1984 tangle with Paramount’s top movie makers, which led to the exodus of Barry Diller, Michael D. Eisner, Jeffrey Katzenberg and others--that he harbored a deep-seated animosity toward the film community.

“Supposedly, I’m anti-Hollywood. I hate the movies. . . . You’ve got to be a jackass to believe that,” Davis said of the dispute, which was triggered partly by his refusal to grant what he regarded as extravagant pay demands by the movie makers.

Some tension may also have grown from the fact that glamour-averse Davis--who lives quietly in Connecticut with his British-born wife, Luella--has always worked in the East, and so remained an outsider to the deal makers in Malibu, Burbank and Beverly Hills.

Despite his film experience, Davis keeps a certain distance from the movie and TV operation, even though it accounts for fully 60% of the parent company’s revenue. “He has a total hands-off attitude. . . . He knows what’s going on. But he doesn’t participate in any of the production decisions,” said Frank Mancuso, the longtime Paramount distribution and marketing executive who succeeded Diller as chairman of the studio.

The Goldwyn Years

At Goldwyn, where he worked eight years, Davis became a movie publicist under the occasional tutelage of Samuel Goldwyn Sr. He says he ran errands, read scripts, toured the United States with Harold Russell--the amputee veteran who starred in “The Best Years of Our Lives”--and liked the business enough to take a second film job, with the New York sales office of Allied Artists, in 1955.

Davis was 30 when he left Allied, where he spent two years, to join Paramount Pictures.

Paramount, as he remembers it, was then regarded as a “bank” that kept paying a hefty stock dividend by selling assets and where producers such as Joseph E. Levine and Otto Preminger cashed in on big, multi-picture deals that kept aging studio managers from exercising real power.

George Weltner, Paramount’s president at the time, was in his 60s, while company patriarchs Barney Balaban and Adolph Zukor, both well over 70, remained active. Davis vividly recalls being accused of planting a newspaper story that identified him as the youngest member of a management team whose aggregate age was 278 years. “I guarantee you, I didn’t plant it,” he said.

Davis prides himself in having established at Paramount the first studio “marketing” department--a step away from the era when movie advertising and publicity executives often carried the title “director of exploitation.”

But his real achievement at Paramount was to deliver the studio into the hands of Gulf & Western and its chairman, Charles Bluhdorn, a Vienna-born romantic who was bent on turning his fast-growing grab bag of industrial and commodities companies into one of the world’s great corporations.

That Davis, a marketing director in his 30s, should have played a key role in selling Paramount is extraordinary. He didn’t have a board seat until Bluhdorn became involved--”I was considered too young,” he explained--but simply assumed power because no one else at the company seemed capable of wielding it.

Much later, he became chairman at Gulf & Western by leaping into a similar void. And he may have perceived just such a leadership gap at Time Inc. last summer when he made his ill-fated bid for that company. One highly placed Paramount executive said recently that Davis expected to be greeted as a “savior” by rank-and-file Time employees, whom he believed were disaffected with their own top managers.

Building Alliances

Paramount came under pressure in 1965 when investors Herb Siegel and Ernest Martin accumulated a stake in the company and joined its board. Siegel and Martin made themselves unwelcome by using their position to jab at the company’s management. Davis, who had brought investor relations into his realm, began lobbying shareholders and Wall Street figures for support against the interlopers.

Davis’ influence owed much to a personal understanding that he reached at this time with Samuel Bronfman, a major Paramount holder. “I was the confidence point,” Davis said of the arrangement, under which he was allowed to represent Bronfman’s stock.

As the battle unfolded, Davis struck further alliances with attorney Louis Nizer, then at the height of his career, and Sumner M. Redstone, another Paramount investor. Both would figure briefly in Paramount’s bid for Time 24 years later.

Redstone, who became a lifelong Davis intimate, was apparently suspected by Time of having played a role in backing the bid, perhaps by agreeing that his Viacom Inc. entertainment conglomerate would purchase some Time assets. In the ensuing court fight, Time lawyers demanded documents and depositions from Viacom. That material remains sealed, however, and Redstone, in an interview, said only that he had no advance knowledge of the bid. “It was a shock,” he said.

In a more peculiar aside, Davis chose a moment amid the Time-Warner confrontation to honor the aging Nizer while joining Siegel to reminisce about their ancient fight for control of Paramount.

Siegel--whose Chris-Craft Industries by then controlled a big stake in Warner and held enormous potential for disrupting that company’s own bid to merge with Time--called the Paramount chief and proposed that they take the 87-year-old Nizer to lunch to commemorate their quarter-century-old battle. Davis usually refuses lunch invitations. But he met Siegel and Nizer at Le Cirque and reveled in the presumed speculation (representatives of investor Ronald Perelman sat at the next table) that he had struck a deal with his old nemesis.

Davis takes credit for having asked Bluhdorn to become a “white knight” for Paramount. With television promising new life for the studios, Bluhdorn saw Paramount as yet another undervalued asset for his collection. He was also impressed by Davis. On sealing his ownership of the studio, Bluhdorn, at his old office in the Time-Life building, said to Siegel: “What do you make of this guy Davis? I’m thinking about making him president (of Paramount).”

Davis, in fact, became executive vice president of the studio and soon moved to Gulf & Western’s small corporate staff as senior vice president, with duties ranging from publicity to internal administration.

Speaking of the Paramount-Siegel battle, Davis noted that relatively relaxed securities regulation in the ‘60s allowed him--a green, young executive--to solicit Bluhdorn, to reveal details about his company’s value and ultimately to strike a deal without the barrage of paper work that accompanied his later bid for Time. “You didn’t have all the government supervision you have today,” he said.

In their first encounter, Bluhdorn simply fetched Davis from Paramount’s Broadway office in a black limousine and spent the better part of a six-hour dinner exchanging information about Paramount. The next morning, Gulf & Western bought its first 25,000-share stake in the studio.

Davis also said the fight, which had cruelly exposed his bosses’ weaknesses, left him “cynical. . . . At that point, too cynical.”

Gulf & Western

Davis’ cynical side found room to grow at Gulf & Western in the 1970s, as the company became embroiled in its fight with the SEC over allegations that Bluhdorn and other officers had violated federal laws by misreporting its tax practices and banking relationships.

The investigation stemmed from the 1974 prosecution of Joel Dolkart, Gulf & Western’s outside counsel, for misappropriating $2 million from fees that the conglomerate had intended for his law firm. In a bid for leniency, Dolkart cooperated with federal authorities against Bluhdorn. The ensuing legal tangle--at Gulf & Western it was called “the cancer”--ended seven years later with a settlement under which the company admitted no guilt.

The resolution left Davis, who coordinated the company’s defense, convinced that the government had no real evidence but had committed an abuse of prosecutorial power, possibly because the Austrian-born Bluhdorn had moved too fast and was simply too foreign for the legal and corporate establishment.

Recalling the affair, Davis said: “I found the system blatantly unfair and seriously flawed. Notice, I didn’t say ‘corrupt’ but ‘flawed.’ There are different sets of standards for different people. . . . Charlie Bluhdorn was made to suffer in a way that was very unfair. I personally resented it.”

By Davis’ account, Bluhdorn was personally crushed by Dolkart’s betrayal, which he regarded as a form of adultery. “It took a toll in terms of his trusting anybody in the future.”

True to his publicist’s training, however, Davis assessed the problem in terms of image. Part of his mission when he joined Gulf & Western had been to bolster Bluhdorn’s credibility, which, he says, “on a scale of 1 to 100, was 0” in 1967, thanks to a Life magazine story that had tagged the conglomerateur “Wall Street’s ‘Mad Austrian.’ ”

Davis believes that he had worked Bluhdorn up to “about 40” on the credibility scale before Dolkart, only to see him slide back toward “minus 000” in July, 1977, when the New York Times ran three consecutive Page 1 stories by Seymour Hersh detailing Dolkart’s sworn allegations, from a deposition that Gulf & Western hadn’t yet seen, about wrongdoing at the company.

The leaks and ensuing coverage provided Davis with some strong opinions about fairness in journalism that could test his hands-off promise should Paramount ever succeed in taking over a major news operation such as Time.

“When the settlement was reached, the New York Times put it at the bottom of the first financial page,” Davis complains today. “I think I know a little bit about the media business. I know about the making of a story. . . . This ‘two sources’ stuff is all bull.”

(Warner Chairman Steven J. Ross, of course, survived a similar investigation in the 1970s, as prosecutors failed in attempts to implicate him in a kickback scheme at his company. Similarities with Bluhdorn notwithstanding, Paramount, perhaps cynically, made headlines at the height of the Time battle by citing the old allegations in a court filing that raised questions about Ross’ fitness to help run the Time Warner combination.)

Split With Bluhdorn

Bluhdorn’s post-Dolkart inability to trust people extended even to his eventual successor.

Davis declined to discuss the matter. But individuals familiar with Bluhdorn in his last years said the executive’s deteriorating frame of mind eroded a substantial part of his relationships with a number of associates, including Davis. “It was not easy for (Davis) to keep clear of the animosity--no, the better word is tension--that built up. The closer you were, the more tension there was,” said one executive who dealt intimately with Bluhdorn.

The split had philosophical roots. Davis had come to believe that conglomerates don’t work. Bluhdorn resisted that view until his death, though he was persuaded by Davis and others to part with a handful of companies, including parts of New Jersey Zinc and Brown Paper Co., that weren’t performing and required large new capital investments.

All of which touched on one of Davis’ most deeply held tenets--that corporate managers are supposed to maximize value for their shareholders. Period.

In Davis’ world view, there are only two kinds of bosses. He calls them “owner-captains” and “employee-captains.”

Owners, such as Rupert Murdoch or Ted Turner, may have the luxury of swashbuckling, empire-building behavior. But employee-captains--such as himself, or J. Richard Munro of Time, or Steve Ross of Warner--must get the best return on the stockholders’ dollars or pay a severe price. “I recognize I am dealing with other people’s money,” he said.

Detractors have argued that Davis’ supposed devotion to maximizing stock value is simply cover for his own lack of vision or, worse, convenient rhetoric in his attacks on others. “I’m afraid you’re becoming used to playing with the truth,” Time’s Munro chided Davis in a widely quoted letter pointing out that Paramount’s own earnings would have been depressed for years if its Time bid had succeeded. (Paramount planned to reduce takeover debt and recover its earnings momentum within five years, one executive explained.)

Yet Davis has advanced his maximum-value position even when it cost him dearly. Several friends point out, for instance, that he was a major force in persuading fellow directors at RJR Nabisco to resist what he considered an underpriced management buyout of that company, even though the buyout’s principal beneficiary, Chairman Ross Johnson, was Davis’ close personal friend.

At Gulf & Western, Davis found himself at odds with Bluhdorn as his own experience with the investors and lenders persuaded him that the company faced great risk. The company had borrowed heavily to pay for 20 years of acquisitions, and Davis believed that the stock market would consistently undervalue such a mixed enterprise--yet another image problem--making the whole worth less than its parts.

Davis said he was not aware of another factor that helped poison Bluhdorn’s relationships in his last years. According to individuals closely familiar with the situation, Bluhdorn was mortally ill with leukemia and was undergoing debilitating chemotherapy for a long period before his death of heart failure on Feb. 19, 1983.

Davis and others noted changes in the usually frenetic executive, but didn’t suspect that he was dying. “I thought he had problems. But they seemed more mental than physical,” said one Bluhdorn intimate.

Taking Control

Despite his illness, Bluhdorn didn’t name a preferred successor at Gulf & Western.

Yet Davis--whose corporate communications duties put him on close terms with many members of the Gulf & Western board--moved quickly to fill the void left by Bluhdorn’s death, much as he had 17 years earlier at Paramount. According to Gulf & Western attorney Donald Oresman, a corporate director who played a key role in the succession, Davis came to a crucial board meeting after the funeral with a clear majority of directors prepared to name him chief executive.

Davis’ main competitor for the top spot was David N. (Jim) Judelson, a company co-founder who served as president and clearly believed himself to be the best candidate. Judelson declined to comment.

Executives familiar with the company, however, said about a dozen of the conglomerate’s top divisional heads assembled at Gulf & Western headquarters during the board meeting and asked to speak in Judelson’s favor. But Judelson, politically less adroit than Davis, had already undercut his own position by letting it be known that he intended as chairman to restructure the board, possibly threatening the position of those he regarded as its weaker members. The directors refused to hear his supporters, and Judelson resigned soon after Davis took office.

By some reports, Richard Snyder, then head of Simon & Schuster and now in charge of the company’s expanded publishing division, was among the Judelson supporters.

(“I was not even a player. I wasn’t on the board, had no contacts with them and wasn’t asked my opinion,” Snyder recently insisted.)

By contrast, Barry Diller, then chairman of the Paramount Pictures division, was one of the few Davis supporters among the operating heads. Yet Diller soon fell out with Davis, while Synder rapidly bolstered his publishing operations with the help of massive acquisitions such as the Prentice Hall textbook and professional publishing operation.

Restructuring

With help from Bluhdorn’s widow, Yvette, Davis prevailed. His record since has been highly public, and consistent with his past.

Barely a year after taking charge, he fought with Diller and other top executives of the highly successful movie unit. Davis had dragged his feet when it came time to renew Diller’s contract, as the two sparred over the movie executive’s share of the bonus pool and other issues.

When Diller bolted for Fox, Davis bypassed the executive’s understudy, Michael Eisner, to name Mancuso, then his marketing and distribution chief, to the chairman’s post. Both Eisner and his lieutenant, Jeffrey Katzenberg, abruptly quit after reading of the Mancuso appointment in a Wall Street Journal story that included negative remarks about their regime that were attributed to unidentified Gulf & Western executives. The movie executives believed that Davis was the story’s source, but he has denied that claim.

In short order, Davis sold Gulf & Western’s $900-million stock portfolio, its grab bag of manufacturing businesses and even Associates First Capital Corp., its big finance unit. The sales slashed the company’s revenue and earnings but have pushed the price-earnings ratio of its stock over 18, compared to as low as 4 or 5 in Bluhdorn’s day. Image-conscious Davis had wooed the market by promising to focus on media acquisitions, the go-go business of the late 1980s.

Paramount stock is now trading at about $55, about four times its price when Davis took charge. Merrill Lynch entertainment analyst Harold Vogel has estimated that the company might bring roughly $80 a share, or $9.5 billion, plus assumed debt, should Davis decide simply to sell. (“It’s trading on breakup value. Can you believe it?” one Gulf & Western veteran, who helped build the corporation side by side with Bluhdorn, complained recently.)

A year ago, Davis assessed whether selling the Paramount studio rather than Associates First Capital might deliver the most punch for shareholders. It isn’t clear whether cold calculation, or his long ties to movies and the media, led to the opposite decision, to build a new enterprise around the studio and the publishing operations.

According to some associates, a key point in the final decision was that Davis, the old publicist, became fixed on the value of the Paramount trademark and was determined to enhance the worth of the entire corporation by renaming it for the studio--as he did last June.

One recent report said that Davis was considering a purchase of Six Flags Corp., a closely held theme park operation. But that purchase, which might cost roughly $700 million, wouldn’t exhaust his war chest and probably wouldn’t satisfy Davis’ penchant for the bold stroke.

“It’s clear from his attempt to win Time that he has, if not global, at least very major plans for Paramount,” said Redstone, who was reported earlier this year to have discussed a possible combination between Paramount and his own Viacom.

While declining to second-guess his friend’s intentions, Redstone added: “Marty is used to winning. That is part of his personality.”