In Decade of the Big Deals, Rules Were Rewritten : Takeovers: A new vocabulary took hold amid talk of poison pills, greenmail and junk bonds. Workers were laid off, investment bankers were paid well.

In the 1980s, the world wondered if Americans could still make cars, TV sets, machine tools and computer memory chips. But nobody doubted that Americans could make deals.

This was the golden age of the takeover game, when Yankee ingenuity was so ostentatiously on display in the hugely profitable fusing, dismantling and reshuffling of corporate assets.

Wall Street saw that you could often make more money busting up companies than running them whole. Suddenly, mergers were no longer largely a pursuit of larger companies swallowing smaller ones to gain the advantages of size.

In the new order, it wasn’t only the long-established, well-endowed corporation that could play a hand in the takeover game. With high-risk, high-yield junk bonds and other innovations, industrial parvenus and lone financial entrepreneurs could absorb concerns many times their size. Old rules about prudent limits on borrowing gave way as new, free-spending managers, like aircraft test pilots, launched venture after venture to test the outer limits of indebtedness.

In this decade, it was increasingly acceptable for buyers to chase merger partners who didn’t want to go along quietly. And at larger and larger companies, executives turned their will to acquire toward their own businesses, in a game called the leveraged buyout.

Investment bankers, junk bond kingpins and raiders, the new financial innovators became popular heroes outsmarting the captains of the old industrial order. But as the decade closed, and some of the deal makers’ debt-heavy corporate creations creaked and buckled, it seemed that sometimes they were outsmarting themselves.

A look at the decade’s takeover history shows landmark deals that include some of the biggest acquisitions, involving tens of thousands of employees and multibillions in assets. But among the ground breakers are also smaller, even obscure, transactions--and some deals that were never really expected to take place at all.

Bendix-Martin Marietta, 1982

William M. Agee, an aging MBA Wunderkind, may have set the tone for the decade’s takeovers when he led his Bendix Corp. in a hostile attack on aerospace giant Martin Marietta Corp.

Agee’s motives were a puzzle: Were there business reasons for the bid, outsiders wondered, or did Agee simply regard the hostile deal as the ultimate test of business machismo? Mary Cunningham, Agee’s influential adviser and wife-to-be, was clearly impressed, but the plot took a dark turn when Martin Marietta made a counteroffer for Bendix. This new “Pac-Man defense” raised the disagreeable prospect that Bendix and Martin Marietta might end up owning huge stakes in each other, with true control unclear.

Allied Corp. ended the standoff by buying Bendix, leaving Martin Marietta heavily in debt and Agee jobless. He parachuted to safety with a $4.1-million executive severance package, but questions about the new generation of business strivers lingered.

Gibson Greetings, 1982

William E. Simon, the former Treasury secretary, made himself a legend in the world of buyouts by turning a cast-off property of de-conglomerating RCA Corp. into a money machine. Simon and associates put up $1 million of equity and borrowed the balance of $80 million to purchase the greeting card company. They then cut costs, reorganized and within three years had sold a half interest to the public for an $87-million profit.

The deal suggested how much better businesses sometimes can operate in private hands rather than as units of vast and perhaps neglectful conglomerates. It also helped ignite a decade-long surge of leveraged buyouts, in which managements or outsiders borrow to take control from public shareholders, cut costs and often sell off assets to reduce debt.

Five years after Gibson, Simon’s group hit another vein of gold by buying the Avis car rental company from Beatrice Cos. for $200 million, then reselling it less than two years later to Avis employees for a $700-million profit.

Metromedia, 1984

John W. Kluge, one of the first to see riches in second-rate TV stations, took a long step toward making himself the richest man in America with the $1.6-billion leveraged buyout of his Metromedia broadcast, billboard and cellular telephone chain.

The deal, at the time the largest LBO, was attacked by Wall Street Cassandras as an example of the worst kind of debt gluttony. They seemed to have a point: Metromedia’s stock price had been slumping, and its business prospects were mediocre. A few months after Kluge had bought out the shareholders, the company missed a debt payment and was forced to restructure.

Eventually, however, buoyed by surging values for TV properties, Kluge made a personal fortune of $5.2 billion by selling off assets, including his cellular telephone holdings and the seven stations that Rupert Murdoch bought to form Fox Broadcasting. Forbes magazine recently listed him as the nation’s richest man.

Mesa Partners-Gulf Oil, 1984

T. Boone Pickens Jr.’s raid on Gulf Oil marked the Texas oilman’s greatest triumph and proved that even small outfits could raise billions with a new invention, the high-yield bond.

Backed by Michael Milken, Drexel Burnham Lambert’s junk bond virtuoso, Pickens’ Mesa Partners in a few days lined up commitments to raise $3.6 billion for a tender offer. The fight marked the first use of Drexel’s “highly confident” letters, which the firm sent to clients from then on to pledge that it could raise the money for huge bids.

Pickens, who later confessed that he never really wanted to buy Gulf, made a profit of $518 million when Chevron bought Gulf for $13.4 billion. And managements of even big companies “suddenly realized how vulnerable they were,” says Alan Bromberg, law professor at Southern Methodist University.

The deal didn’t work out so well for Chevron: Absorbing Gulf gave it severe indigestion, depressing its profitability and perhaps setting the stage for a takeover battle with Pennzoil that some analysts feel is about to begin.

Getty Oil-Texaco-Pennzoil, 1984

Possibly the worst deal of the decade, Texaco’s purchase of Getty Oil besmirched the reputation of Texaco, the Texas justice system and the merger game itself.

Texaco had barely agreed to pay $10.1 billion for control of Getty when it was sued by Pennzoil for interfering with Pennzoil’s earlier preliminary agreement to buy the target. In late 1985, after a misbegotten performance by Texaco’s legal team, a Texas jury awarded a history-making $10.53 billion in damages to Houston-based Pennzoil.

The verdict was a shocker. And the grumbling about Texas justice swelled further when the opinion wasn’t accepted for review by the Texas Supreme Court, whose members, it turned out, had received generous campaign contributions from Pennzoil’s lead attorney, Joe Jamail. Texaco was forced into a bankruptcy reorganization and only emerged in 1988 by dint of a radical restructuring and Pennzoil’s agreement to settle for $3 billion.

The deal marked the biggest payoff to a single lawyer: Silver-tongued Jamail got $345 million. In its vulnerable condition in 1984, Texaco also made history’s biggest greenmail payment: the $1.2 billion that it paid to the billionaire Bass brothers of Texas to buy back their shares. Texaco, the third-largest U.S. oil company at the time of the Getty acquisition, faded to two-thirds its size during the prolonged crisis, and it is now No. 7.

Walt Disney Co., 1984

The takeover war at Disney showed that even companies that are part of every American’s childhood came come under the raider’s fire--and that, sometimes, it’s for the best.

After years of stagnation, Disney’s management was threatened separately by big-league raiders Saul P. Steinberg and Irwin L. Jacobs. The company’s salvation came in the form of the Bass brothers of Texas, who took the uncharacteristic role of a white knight by buying a 24% stake.

The Basses and Walt Disney nephew Roy E. Disney brought in a new management team, headed by Chairman Michael D. Eisner. The new blood lifted Disney’s return on equity to 25% last year from 8% in 1984.

The fight also marked the first time that a greenmailer has been forced to pay back a portion of his winnings. Last July, Steinberg paid $20.1 million, and Disney put up $24.2 million, to settle a suit by aggrieved shareholders.

Household International, 1985

This big consumer finance company made takeover history when the Delaware Supreme Court, the takeover game’s most important arbiter, blessed Household’s takeover defense, the “poison pill.” The device, designed by takeover lawyer Martin Lipton, made hostile deals prohibitively expensive by giving shareholders special stock rights in the event of a takeover.

Soon, Fortune 500 chief executives were all taking pills for their takeover headaches. Pills are now corporate America’s principal anti-takeover defense, and some, such as top takeover lawyer Arthur Fleischer Jr., rank the decision as the decade’s most important development in corporate law.

Unocal-Mesa Partners II, 1985

The Los Angeles oil company’s successful stand against T. Boone Pickens Jr. brought the oilman’s first major defeat and also established a key precedent in takeover law.

To duck Mesa’s $3.5-billion hostile bid for control, Unocal wanted to buy back 30% of its shares with new securities while excluding one shareholder--Pickens--from the party. The Delaware courts blessed the move, saying Unocal could try to protect shareholders from a proven raider’s coercive offer that would inevitably shortchange some shareholders.

The ruling established the principle that management’s defensive moves in takeover fights must be proportional to the threat they face.

Beatrice Cos., 1986

By far the biggest leveraged buyout at the time, this $6.2-billion transaction has been held out as the proof of all sorts of assertions about ‘80s deal making. It first looked flamboyantly risky, then uncannily wise, and now, well, just mediocre.

Kohlberg Kravis Roberts & Co., the first name in leveraged buyouts, teamed up with Beatrice Chief Executive Donald P. Kelly to take the company private, cut costs and sell off such assets as Avis, Playtex and Tropicana. In 1987, KKR bragged that the deal had yielded a 192% return for investors. But since then, the remaining disposable properties haven’t sold so easily, and some analysts assert that so far the high-risk venture have yielded investors a disappointing 15%.

Chicago, Missouri & Western Railroad, 1987

The buyout group that took over this short-line railroad won a place in deal-making history by borrowing 1,700 times as much as it invested, and then, when the line tumbled into bankruptcy, suing its creditors for lending it too much.

The lenders, Citicorp and Heller Financial, had put up the $85-million purchase price and also advanced the buyout group its entire $50,000 equity stake. A Chapter 11 bankruptcy court filing followed the start-up by a year, and the suit came last August.

Macmillan-Maxwell Communication, 1988

British media conglomerateur Robert Maxwell’s successful $2.6-billion bid for the publishing company set a key Delaware court precedent and crystallized complaints about less-than-impartial behavior of investment banker advisers in takeover fights.

In its ruling, the Delaware Supreme Court castigated one of Wall Street’s most celebrated investment bankers, Bruce Wasserstein, for allegedly tipping a bidding contest away from Maxwell and toward the Kohlberg Kravis Roberts management buyout group that retained him. The banker had allegedly slipped details of the Maxwell group’s bid to the management group, enabling it to offer a barely higher winning bid, the court said.

Indeed, the panel said the banker and two Macmillan managers had perpetrated “a fraud upon the board.” Wasserstein denied the charge, but it wasn’t his only run-in with the court, which last year impugned his impartiality in the battle of Interco and the raiding Rales brothers.

Macmillan’s message to the legal world was that once a company’s directors have decided to sell the concern, they must conduct an impartial auction.

Campeau-Allied Stores, 1986

Campeau-Federated

Department Stores, 1988

The two huge acquisitions that built Robert Campeau’s short-lived retail empire marked a high water mark in deal-making derring-do. Their unraveling has shocked the credit markets and is still rattling the retail industry. Campeau’s agony has also contained a lesson for the investment banks that in recent years have been acting both as advisers and creditors in the same deals, providing so-called bridge loans to close deals that still need long-term financing.

The former Ontario, Canada, building contractor paid $3.6 billion to buy Allied, which included the Brooks Bros. and Jordan Marsh chains. To top this feat, last year he outbid R. H. Macy in the $6.6-billion acquisition of Federated, which was then the largest department store operator in the country and owned a glittering prize in the Bloomingdale’s chain.

The Allied deal marked one of the first major bridge loans, an $865-million sum that was loaned by First Boston. Campeau ended 1988 with a balance sheet carrying a sliver of $88 million in equity and debt of $11.4 billion. Last September, when he couldn’t pay his debts, Campeau ceded control of the empire. Now, as the company talks about a possible bankruptcy filing next year, the consortium of investment banks led by First Boston is stuck with an outstanding $400 million in loans that likely won’t be repaid soon.

Dayton-Hudson, 1987

As a sign of the times, the most significant offer for the big Minneapolis retailer was not the possibly legitimate one that came from the Haft family of Landover, Md., but the clearly bogus offer that cost speculators millions in June, 1987. When an emotionally troubled Cincinnati investment adviser named P. David Herrlinger telephoned a financial news service claiming to be offering $70 a share for Dayton-Hudson, the shares briefly rocketed from $54 to an all-time high of $64.

The stock’s ensuing fall cost takeover-stock speculators millions and provided the definitive illustration of the way that takeover rumors have moved the stock market’s vast reservoir of “hot money” in the 1980s.

Cain Chemical, 1988

A 77-year-old chemical industry veteran named Gordon M. Cain made himself fabulously wealthy, proving that lone entrepreneurs can find value in places that corporate long-term planners overlook. As significantly, his saga shows deal makers can have a heart, too.

Cain, of Houston, bought seven ethylene plants as big petrochemical firms were divesting them for “strategic” reasons. Last year, his LBO firm sold the resulting company to Occidental Petroleum for $2.2 billion. Cain personally made $120 million profit, but also divided $537 million among 1,350 employees, giving windfalls of tens of thousands of dollars to mail-room clerks, secretaries and chemical plant workers.

RJR Nabisco, 1988

The $25.4-billion leveraged buyout of RJR Nabisco was the biggest ever, in any number of ways. Kohlberg Kravis Roberts defeated a management-led buyout group with a bid that was nearly twice as big as history’s No. 2 takeover price. The deal activated the biggest golden parachute: the $53.8 million that went to Chief Executive Ross Johnson, head of the losing team. Also a record was the total of fees paid lawyers, commercial bankers, investment bankers, KKR and others. Estimates have ranged from $850 million and $1 billion.

And the deal may have marked the biggest failed grab-for-gold by a management team. The LBO first proposed by Johnson--and rejected by RJR’s outside directors--could have yielded as much as $2.6 billion for Johnson and friends. The size of the buyout deal set off a new round of soul-searching about the excesses of the takeover binge. Among other issues, the deal highlighted the harm that bondholders can suffer in LBOs. RJR bondholders saw the price of their securities fall 20% overnight when the markets learned that RJR would soon be carrying a mountain of LBO debt.

Time Inc.-Warner Communications, 1989

Time Inc.’s battle to elude Paramount Communications and buy Warner Communications set a legal precedent that gave corporations another layer of armor against hostile bids.

In refusing to set aside Time’s $14-billion offer for Warner, the Delaware Supreme Court said a management can snub a takeover offer if such a takeover would disrupt an established strategic plan. Time had done just that to Paramount’s $200-a-share, $12.2-billion bid, saying that its own proposed acquisition of Warner would create “synergies” that could lift Time Warner Inc. shares to as much as $402 in 1993.

Some Time shareholders and others have called this balderdash and griped that Warner shareholders got one of the decade’s best deals while Time’s holders were stuck with one of the worst. One happy stockholder: Warner Chairman Steven J. Ross, now Time Warner co-chief executive, whose contract may give him $180 million over the next 10 years.

Some experts have predicted that the ruling will set off a rush among corporations to draw up strategic plans to brandish in the event of an attack. But some scholars point out that the true scope of the opinion wasn’t at all clear in the oral ruling delivered last July and won’t be until the jurists release their written opinion.

UAL Corp., 1989

To many, the failure of the $6.8-billion buyout of United Airlines’ corporate parent embodied everything that was wrong with the decade’s deals; its collapse brought predictions of the end of an era of highly leveraged acquisitions. When the bank lenders pulled the plug on the pilot-management plan last Oct. 13, the stock market suffered a mini-collapse, the junk bond market went into a tailspin and Wall Street’s arbitragers were bloodied with paper losses of $1 billion.

Among its many problems, the bid was based on unrealistic business projections and an unrealistic price of $300 a share--twice what UAL’s stock had traded for before the takeover rumors. The plan also gave too much to participants, including UAL Chairman Stephen Wolf, who would have gotten nearly $100 million in various benefits.

Though the deal reflected no glory on any participants, its investment bankers, commercial bankers and takeover lawyers nonetheless were consoled afterward with $53.7 million in fees.

DEALS OF THE 1980S: WINNERS AND LOSERS TEN OF THE DECADE’S SMARTEST DEALS Gibson Greeting Card, 1982: William Simon’s Wesray put up $1 million and borrowed $80 million to buy an RCA unit, and soon had earned $87 million.

Metromedia, 1985: TV entrepreneur John Kluge personally made $3 billion in the $1.6-billion buyout of his broadcast and cellular-phone company.

Avis Rent A Car, 1986: Wesray bought Avis from Beatrice for $200 million, and sold it to employees in 1987 for a $700-million profit.

Revlon/Pantry Pride, 1986: Ronald Perelman bought the firm for $3 billion, recouped most of the sale price with asset sales, and turned around its cosmetics business.

Safeway, 1986: Kohlberg, Kravis’ $4.2-billion deal has been the most successful of the grocery-store leveraged buyouts.

SCM Corp./Hanson, 1987: Britain’s Hanson PLC bought the conglomerate for $900 million and quickly sold the pieces for $3 billion.

Triangle Industries/Pechiney, 1988: The junk-funded packaging empire of Nelson Peltz was sold to the French firm for $1.3 billion--turning a personal profit of $520 million for Peltz.

CBS Magazines, 1988: Executive Peter Diamandis bought CBS’s magazines for $650 million, in October, 1987, and sold them six months later for $1 billion.

Cain Chemical/Occidental, 1988: Entrepreneur Gordon Cain bought 7 divested chemical plants, then resold them to Occidental Petroleum for $1.2 billion.

Kraft/Philip Morris, 1988: Since Philip Morris’ $13.1-billion acquisition of the huge food concern, profits are up 35% and Philip Morris’s stock has surged.

TEN OF THE DECADE’S WORST DEALS Martin-Marietta/Allied, 1982: Bendix Chairman William M. Agee failed in a bid to buy Martin-Marietta, and was forced to sell his firm to Allied to avoid a takeover by its erstwhile target.

Texaco/Getty, 1984: Texaco paid a $3-billion settlement and endured bankruptcy reorganization after a jury found Texaco had illegally busted up Getty’s deal with Pennzoil.

Warner-Amex Cable, 1985: American Express sold its 50% share in the cable and entertainment firm to Warner Communications for $385 million. Within a year, Warner’s cable assets alone were worth $1.6 billion.

Revco D.S., 1986: The big drug chain, taken private for $1.45 billion, became the first major failure of junk bond financing when it sought bankruptcy reorganization last year.

Eastern Airlines/Texas Air, 1986: Frank Lorenzo paid $600 million for a weak airline that last March filed for bankruptcy court protection.

Southland, 1987: The family owners of the 7-Eleven chain paid too much in a $4-billion buyout, and, amid losses, now predict a future cash crisis.

SCI Television, 1987: A $1.2-billion buyout of 6 TV stations by Kohlberg, Kravis and entrepreneur George N. Gillett Jr. has struggled to pay debts; now some bondholders want to force it into bankruptcy court.

Resorts International, 1988: The $365 million that Merv Griffin paid to outbid Donald Trump for the gaming company was too much, and in September, after bond defaults, he was forced to surrender majority control.

Federated/Campeau, 1988: Robert Campeau grossly overpaid in his $6.6-billion buyout of retail chain; now Campeau is talking about bankruptcy reorganization.

UAL Corp., 1989: An overpriced, $6.8-billion pilot-management buyout proposal collapsed in October, sending stock and bond markets into a tailspin.

10 BIGGEST DEALS OF THE 1980s

Target/Acquirer Value (billions) Year 1 RJR Nabisco/KKR $24.6 ’89 2 SmithKline 16.1 ’89 Beckman/Beecham 3 Gulf Oil/Chevron 13.2 ’84 4 Kraft/Philip Morris 13.1 ’88 5 Squibb/Bristol-Myers 12.0 ’89 6 Warner Comm./Time 11.7 ’89 7 Getty Oil/Texaco 10.2 ’84 8 Conoco/Du Pont 8.0 ’89 9 Standard Oil 7.8 ’87 (45%)/British Pet. 10 Marathon Oil/USX 6.6 ’81