T hey were the corporate cowboys of the 1980s--entrepreneurs who emerged from nowhere to take on established companies and corporate chieftains. The raiders often claimed to be playing a Robin Hood role, wresting undervalued assets from entrenched managers and redistributing the wealth to shareholders. Their critics described them as Jesse James-style bandits, virtually stealing assets to enrich themselves. In any case, the raiders have found new roles as the market for high-risk, high-yield junk bonds--their primary source of takeover financing--has collapsed. Some have become well-established corporate managers, while others are subjects of government and investor probes. Still others seem to be plying their trade in new ways, and some have ridden quietly off into the sunset. The Managers
Weaned as a raider at his father's knee, Ronald O. Perelman became one of the nation's most successful takeover artists after borrowing $1.9 million in 1978 to buy a small, unprofitable chain of jewelry stores. He sold off its retail outlets and its stock of gold and diamonds separately, earning a $15-million profit in the process. Perelman then invested his $15 million in MacAndrews & Forbes, a troubled licorice extract and chocolate concern, borrowing the rest of the $50-million purchase price.
With debt raised by Drexel Burnham Lambert's junk bond king Michael Milken, Perelman used MacAndrews as a vehicle to help him buy a variety of companies, including Los Angeles-based Technicolor, Consolidated Cigar Corp., Pantry Pride and, finally, Revlon Corp. Revlon, which at $1.8 billion was 10 times the size of Perelman's previous acquisitions, was nearly half paid for with a "blind pool" of junk bonds.
Within weeks of taking over, Perelman sold $1.4 billion of Revlon's assets and sliced away corporate fat--such as a lavish corporate jet that transported Revlon's executives on hunting trips.
But in 1986, when troubles with Drexel and the junk bond market started to surface, Perelman saw the writing on the wall. He began to refinance his junk debt with lower-cost bank loans, an indication that he'd turned the corner from raider to a mainstream corporate manager.
Since then, he has bought Marvel Comics for $83 million; New World Entertainment for $145 million; Coleman Co., the camping equipment manufacturer, for $545 million, and five troubled savings and loan associations in Texas. In the S&L; deal, Perelman invested $315 million but got an estimated $900 million in tax breaks that can be used to shelter income from his diverse consumer products empire.
Perelman's operations are largely profitable, and Forbes magazine lists him as one of nation's richest men with an estimated net worth of $2.75 billion.
Perelman slowed his takeover activity in the past year, although industry experts say he has plenty of cash and bank financing available for potential acquisitions. He also has his hands full turning around Coleman and the sick Texas thrifts. And with a growing reputation as a clever corporate manager, Perelman is likely to shun hostile deals in favor of friendly acquisitions, market experts say.
Ronald Vannuki, managing director of Drake Capital in Los Angeles, observed that Perelman "was a Rodney Dangerfield type. Now he's one of the richest men in the country and is really making a move for respectability."
After dropping out of medical school, Carl C. Icahn started his financial career as an arbitrager, a speculator in takeover stocks. But he quickly learned that he could make a lot more money by trying to buy the companies themselves.
At various times, he threatened to buy Tappan Co., Marshall Field & Co., Dan River and Gulf & Western, forcing the companies to restructure or sell out to a higher bidder. In all, Icahn walked away with nearly $100 million for selling his stock back to management--a practice known as "greenmail"--or to other bidders.
He completed an estimated $405-million bid for ACF Industries, an oil field equipment and auto parts manufacturer, in 1983. But he was still considered a greenmailer until he won control of TWA, the troubled airline, in 1985.
Since then, he has been actively managing TWA--struggling to get its costs under control and woo new passengers. In the meantime, he has taken large positions in USX Corp., the Pittsburgh-based steel and energy concern formerly known as U.S. Steel, and in Texaco Inc.
Late last year, Icahn said he may raise his stake in USX because he was dissatisfied with the slow pace of the company's restructuring plan. But while Icahn's statement might once have sent USX shares soaring, the market didn't react this time.
"The market is not responsive to takeover stories because it doesn't believe these raiders can support their buyouts with junk bonds anymore" said one San Diego-based money manager.
Icahn is rumored to be looking for a buyer for TWA. If he gets the $500-million price that industry experts say he is seeking, he will make a healthy $150 million profit on his four-year stint with the airline.
The nickname "Irv the Liquidator" used to annoy Irwin L. Jacobs. The entrepreneur, who started out buying discarded merchandise and reselling it wholesale, won the moniker in 1976 when he bought W. T. Grant & Co. and sold off most of the retailer's assets.
The deal earned Jacobs a hefty profit, though, which he used in 1978 to buy Minstar, a company that made small boats and snowmobiles. He then used Minstar as the engine of a takeover vehicle that bought large stakes in everything from Kaiser Steel to Walt Disney Co., and from Avco to AMF.
Most of these deals didn't go through, but Jacobs earned $90 million by selling his stock in the other companies back to managers eager to get rid of him. Jacobs went on to buy big stakes in Castle & Cooke, the parent of Dole Foods, and in Borg-Warner, ITT, Tidewater Inc. and Allegheny International.
Then, last year, he made runs for Avon Products, the giant cosmetics company, and Shaklee Corp., a food, vitamin and cosmetics firm.
Lately, Jacobs has taken to buying back small amounts of his company's debt in the open market. But he says he's definitely not out of the takeover game. A few months ago, he offered to buy CML Corp. for $145 million. And he says he's looking for other opportunities.
Now Jacobs talks about his responsibilities to more than 1,000 workers. His companies are healthier than ever before, Jacobs added. And that has allowed him to shun high-rate junk debt for bank financing when he's in need of capital.
There's one difference from the old days, though. Jacobs, who now has an estimated net worth in the $250-million range, said buying with junk bonds no longer makes sense. He's now buying with bank financing or cash.
The Down and Out
Paul A. Bilzerian jumped into the takeover game with gusto in the mid-1980s. At the time, it wasn't quite apparent where this high school dropout's resources came from, but he made a series of runs for Hammermill Paper; Pay 'N Pak Stores; Cluett, Peabody & Co., and H. H. Roberts Co. None succeeded.
Then, in one final and fantastic hurrah, Bilzerian took control of Singer Co. in 1988 in a $1.06-billion deal that was partly financed by Texas raider T. Boone Pickens Jr. and shopping center magnate Edward J. DeBartolo Sr.
Bilzerian didn't have much time to enjoy his success, however. Last June, a New York jury determined that many of Bilzerian's takeover attempts relied on fraud. And Bilzerian was convicted on nine counts of securities and tax violations relating to illegally amassing millions in the failed raids by concealing his interests in the companies and lying about where he got the funds to launch the takeovers.
The Securities and Exchange Commission later charged him with similar violations in a civil suit, and Bilzerian resigned as chairman of Singer's board. In addition, Singer faces a host of lawsuits partially related to Bilzerian's sale of Singer assets.
In September, Bilzerian was sentenced to four years in prison and a $1.5-million fine, but a federal judge allowed him to stay out of jail while his attorneys attempt an appeal. His appeal hearing is scheduled for next month.
Victor Posner is another raider who could argue that his takeover days were cut short by the feds. The 71-year-old raider started out buying real estate in Baltimore but quickly springboarded into corporate acquisitions.
Posner is one of the pioneers of the highly leveraged takeover, but he is also considered one of the most controversial raiders in the nation. Posner owns majority interests in a variety of concerns, including DWG, Pennsylvania Engineering, Sharon Steel, Royal Crown, Arby's, Salem Corp., Fischbach Corp. and Birdsboro.
During a two-year period ending in 1989, Posner had the companies that he controls remove pension surpluses from Fischbach, Salem, Royal Crown and Arby's, netting Posner a tidy $43 million. Meanwhile, Sharon Steel filed for bankruptcy in 1987 with a pension plan that's underfunded to the tune of $113 million.
Similarly, Birdsboro's pension plan for hourly workers was $2 million short and unable to make past-due payments, but the same company's non-hourly worker fund had a $2.3-million surplus. Did Posner allow Birdsboro to transfer the surplus to the underfunded plan? Not a chance.
Meanwhile, DWG paid Posner more than $18 million for corporate overhead and rent on office space in a Miami building he owns. DWG was supposed to be reimbursed by Sharon Steel and Pennsylvania Engineering. But these Posner-controlled companies were way behind in their payments, and DWG ended up reporting a $10.1-million loss on the transaction.
That doesn't account for the fact that he takes separate multimillion-dollar salaries from many of the companies that he controls.
Not surprisingly, he has been sued by a wide array of shareholders, and bond experts say no one is likely to lend him any more money. And he's on probation for a 1987 tax evasion conviction, spending 5,000 hours serving food to the homeless.
He's not completely finished in the takeover game, though. In December, Posner was part of a group that bought a 5.1% stake in National Convenience Stores for about $1.2 million.
Robert Campeau was a successful Canadian real estate developer until the lure of big money in U.S. retailing pulled him over the border to buy Allied Stores in 1986 and Federated Department Stores in 1988 for a total of $10.1 billion.
He borrowed virtually all of the money from banks, brokerages and about $2.8 billion through junk bond debt. His plan was to do what Perelman did--sell off less profitable units at a hefty profit, pay off the debt and keep the cash cows for himself.
But it didn't work out that way. The chains that Campeau put up for sale failed to bring the lucrative prices that he had expected, and anticipated sales and earnings gains at the remaining units never materialized.
In the end, Allied, Federated and Campeau Corp. all reported losses for their most recent quarters, and, after much speculation, Allied and Federated filed for Chapter 11 bankruptcy protection two weeks ago.
Shortly before the bankruptcies, Campeau Corp. stripped its founder and namesake of the company's operating control, allowing him to manage only its real estate holdings. By all indications, he's out of the takeover game for good.
He used to be known as the Learjet cowboy, and T. Boone Pickens Jr. lived up to the image. A geologist by training, Pickens worked for Phillips Petroleum before setting out on his own, starting the predecessor to Mesa Limited Partnership with a $2,500 investment.
Not surprisingly, Pickens concentrated on oil when he started in the takeover game, including going after his former employer Phillips in 1984.
His most noteworthy bids: He bought 13% of Gulf Oil in 1984 and demanded that its oil and gas properties be spun off. Gulf evaded Pickens only by agreeing to a buyout by Standard Oil of California, now Chevron Corp. Pickens cleared about $214 million on the deal.
Within a year, he was threatening Los Angeles oil giant Unocal Corp., which eventually restructured to thwart Pickens' buyout. Pickens made $83 million. He also tried, unsuccessfully, to buy Diamond Shamrock Corp. and has taken stakes in Avon, Campbell Soup, Eastman Kodak and Lin Broadcasting, among others.
But his raids have been stymied by disappointing natural gas prices, which support Mesa's earnings and dividends.
Last year, Pickens took his takeover game on the road--buying a 26% stake in Koito Manufacturing Co. of Japan. But his attempts to win representation on the company's board, or to persuade management to raise the quarterly dividend, have been unsuccessful.
Meanwhile, the shareholder rights group that he formed in the height of his takeover days has recently claimed a victory. The Securities and Exchange Commission ruled that "golden parachute" plans, which pay managers whopping amounts when a company is acquired, may require shareholder ratification.
Asher B. Edelman has hit hard times since he bought a controlling interest in Datapoint, a troubled San Antonio-based computer company in 1985. Previously, the one-time arbitrager made his mark by buying stakes in small, relatively unknown companies such as Canal-Randolph Corp., Mohawk Data Sciences and Management Assistance. With Edelman's urging, these companies sold off assets and increased their market values. He later went after bigger game in Fruehauf Corp. and Burlington Industries.
But he virtually retired from the U.S. takeover business three years ago when congressional investigators began to question whether Edelman was benefiting from insider information on some of his deals.
He moved to Switzerland and continued to play in the European markets, first buying a 5% stake in Lonrho PLC of London and then taking a hefty position in Storehouse PLC, a British retailer. The Lonrho investment paid off big, earning Edelman a $40-million profit, but the value of his Storehouse shares have slid.
Still, Edelman's undoing appears to be Datapoint, where he serves as chairman of the board. The money-losing firm, for which Edelman paid more than $400 million, was one of the biggest percentage losers on the New York Stock Exchange last year. Shares that cost Edelman $18 each are now selling for $4. To add insult to injury, one of Datapoint's shareholders says he wants to oust Edelman from the board.
Marvin Davis is a relative newcomer to the takeover game. The oilman and real estate developer started pursuing corporate acquisitions three years ago. So far, he has won only one company--Spectradyne, which was purchased last March for $635 million in cash and debt.
He has done plenty of looking, though. He considered buying Lorimar Telepictures, MGM/UA Communications and the Los Angeles Herald Examiner at various points. And he has made formal bids for several others, including a $3.75-billion offer for CBS Inc.; a $3.5-billion offer for NWA, the parent of Northwest Airlines, and his $5.4-billion offer for UAL, United Airlines' parent.
He ducked out of the United deal late last year after the bidding hit $300 a share--$60 a share more than Davis offered--saying the bidding just got too rich. But in recent months he has been remarkably quiet, even though the United deal fell out of bed and the stock is currently selling in the $160 range.
His only completed deal: Davis recently opened a West Coast version of the Carnegie Deli in Beverly Hills.
Saul P. Steinberg, one of the Wunderkinds of the takeover game, founded a computer leasing firm when he was 21 years old. He took Leasco public in 1965 and used the proceeds to launch a long and lucrative career in takeovers and greenmail.
His buyout of Reliance Insurance in 1968 provided Steinberg with the takeover vehicle that he would use for the bulk of his career. Insurance companies are particularly good for this type of game because they collect tremendous sums in insurance premiums and are able to invest that cash in stocks, bonds, bank deposits or whatever else seems prudent.
Steinberg almost immediately went after New York's Chemical Bank but failed to win the closely regulated concern. He then threatened Quaker State Refining Corp., which paid him nearly $11 million to go away. He tried the same gambit at Walt Disney Co. in 1984, and Disney's management gave him a $59-million greenmail payment. However, Steinberg had to give back nearly half of the payment to settle a suit by Disney's shareholders last year.
Meanwhile, Reliance purchased interests in a variety of concerns, including Telemundo, Days Inns and UAL Corp. Late last year, when UAL had a buyout offer of $300 a share, Steinberg sold his stake, earning an estimated $100 million. He also recently sold Days Inns' hotels, retaining only a management contract.
Steinberg illustrates the new trend in the takeover game. He has been building up cash and buying back bonds owned by companies that he controls, such as Telemundo. With Telemundo's debt selling for 60 cents on the dollar, Steinberg bought back a $28-million chunk, which he sold back to the company. Industry experts believe that he's also weighing possibilities of buying distressed bonds owned by other companies with an eye to taking over if the bonds ever fall into default.
"I think he's getting his cash on hand because a lot of these investors want to be ready to pick up the pieces when the junk bond market hits bottom," said Bruce Benteman, an analyst with Wealth Monitors in Kansas City, Mo.
Carl M. Lindner dropped out of high school when he was 14 to help run a family dairy business during the Depression. Within a few years, he and his brothers were starting ice cream stores and buying supermarkets. In 1959, he took some of the dairy's profits and bought a small savings and loan, which served as a toehold in the financial services arena, where Lindner would thrive. He continued to buy savings and loans for a decade, before expanding into property and casualty insurance.
In the late '60s, Lindner launched a hostile takeover of Cincinnati's Provident Bank from Barney Kroger, patriarch of the Kroger supermarket chain. And over the years, he bought controlling stakes in a wide variety of firms, including Computer Automation, Gannett Co., Gulf & Western, Penn Central, United Brands, Great American Communications, Circle K, Sprague Technologies, Scripps Howard Newspapers, Marsh Supermarkets and Aaron Spelling Productions.
Although the bulk of his investments have been profitable, Lindner has also made mistakes. In the early 1980s, he bought a controlling interest in Mission Insurance Group of Los Angeles, one of the nation's biggest workers' compensation insurance carriers. Mission failed a few years later, leaving Lindner with a whopping loss and nearly four years of legal wrangling with California insurance regulators.
People who know Lindner well said he expected the junk bond market to turn, so he marshalled cash in 1989 and is "de-leveraging" his companies. He already has shaved about $250 million of debt off his balance sheet. And Lindner's Penn Central has been hoarding a $1-billion war chest, ostensibly to buy more debt.
In his early days, Meshulam Riklis played disc jockey to wealthy families in Minneapolis. He went on to become a securities analyst, learning to find and capitalize on undervalued assets on a company's books.
Another pioneer of leveraged deals, Riklis started purchasing with other people's money by forming investment syndicates. But he soon broke out on his own with Rapid-American Corp., an office machine company. He used Rapid-American as collateral to win a stream of tire, clothing and packaging companies in heavily leveraged deals. Later, problems at another Riklis unit, McCrory Stores, forced him to sell nearly all of Rapid's holdings except his controlling interest in McCrory, which owned the Playtex and BVD lines.
He ran into several disputes with the Securities and Exchange Commission, which charged that Riklis had his companies pay his personal debts and that he failed to disclose his interest in one target. Riklis never admitted guilt but agreed not to violate securities laws in the future.
In 1988, he bought E-II, a Beatrice Cos. spinoff. And he began to shuffle money and debt between McCrory and E-II, taking out cash for Riklis Family Corp. In one of the most controversial transactions, he sold Faberge to E-II for $925 million--nearly $750 million more than he paid for the company in 1984. Bondholders sued him, saying Faberge was not worth the price. A few months later, E-II agreed to sell Faberge to Unilever for $1.5 billion, quelling the shareholder suits. The Unilever deal fell through, but not until the question of Faberge's worth seemed well established.
Now, Riklis too, is taking advantage of depressed market prices to buy back his own debt. In a circular sent to E-II's bondholders, he has offered to buy $300 million of the company's debt for 62 cents on the dollar.