Some ‘80s Corporate Raiders in Trouble in ‘90s : Takeovers: Ronald Perelman, T. Boone Pickens and Carl Icahn, whose deal-makings are legendary, have had to sell assets and renegotiate loans.

If the 1980s buyout boom was a binge for takeover strategists and corporate raiders, the 1990s are turning out to be a sober morning-after for some.

Ronald Perelman has been forced to sell assets and restructure finances at Revlon Inc. Carl Icahn and T. Boone Pickens, who also made acquisitions that burdened their companies with debt, have had to take similar steps.

Some observers say these notorious deal-makers may not have cut such good deals after all.

“Arrogance pushed them into making a bad deal,” said John Whitney, a professor of management at Columbia University’s School of Business. “In the spirit of the chase, they lose their perspective.”

Others say managing is not the strategists’ strong suit.

“They’re not managers. They’re financial engineers. . . . The mind-set of a financial engineer is far different from the strategic manager who tries to understand how one competes in a specific industry,” said David Jemison, an associate professor of management at the University of Texas in Austin.

Still others take a more understanding view.

“I don’t think one can ever criticize a manager ex post for a decision that the manager made, for a decision that was a reasonable one at the time,” said Allen Michel, a professor at Boston University’s School of Management.

“We too often fault corporate executives because we have the benefit of hindsight.”

But Michel noted that some takeover strategists were better at orchestrating a leveraged buyout than leading a company.

“Some did an extraordinarily fine job in the process of financially engineering the (leveraged buyout) and also managing the deal. Others have proved that managing the business has turned out to be a more complex task than initially envisioned,” he said.

Some deals were based on analyses “that didn’t incorporate what the previous history of the company was during a recession, so when a recession hit, they ended up with a cash flow that deviated from their projections,” Michel said.

Whitney was even more critical: “The people who look at the world through the financial-model approach get sort of a naivete or childish arrogance that their models, their projections are reflections of the real world. They’re ill-prepared when adversity sets in and don’t know how to handle it.”

Many acquisitions of the ‘80s are faring well. But external forces like recession, war and the weather wreaked havoc on some deals.

Mesa Limited Partnership, Boone Pickens’ energy company, illustrates the problem.

Pickens used Mesa to stalk big oil companies in the ‘80s, then turned to smaller acquisitions after legal decisions blocked many hostile takeovers.

Although Mesa’s $715-million purchase of natural gas reserves from Tenneco Inc. paled in comparison to Pickens’ earlier multibillion-dollar bids, the 1988 acquisition turned out to be more than Mesa could handle.

Mesa was hit by a plunge in natural gas prices as a result of unseasonably warm winter weather. Last year, Mesa received an average of $1.61 per 1,000 cubic feet, substantially below the $2.30 that the partnership needed to break even.

The revenue slide hampered Mesa’s ability to service its $1.5-billion debt. The partnership lost $19.6 million in first quarter of 1991 after a $208.9-million loss in 1990, and Pickens was forced to sell assets to reduce Mesa’s debt.

Pickens conceded the Tenneco deal was a mistake.

“We got over-leveraged. . . . We bet too heavily that the price of natural gas would stay above $2,” he said last month.

Ronald Perelman was considered a business genius after he won a $2.7-billion battle for Revlon in 1985. But as the recession deepened over the past year, Perelman has resembled many other troubled businessmen, having to renegotiate loans with nervous bankers and sell assets to cut his firm’s estimated $3.3-billion debt.

Revlon agreed in April to sell its Max Factor product lines and a German subsidiary. The company also offered a slice of its National Health Laboratories to the public.

There are other examples.

Icahn won control of Trans World Airlines in 1985 and took it private in 1988, reaping a handsome profit. But TWA fell prey to the recession and the Gulf War and is struggling to stay out of bankruptcy court.

Boston University’s Michel doesn’t blame Icahn for TWA’s problems, which he said resulted from the cyclical nature of the airline industry.

“It doesn’t mean Carl Icahn was a bad manager. . . . It’s a matter of the type of business he was running,” he said.

“There was a prevailing standard that took place in the mid-1980s that certain types of deals would take place with a certain amount of leverage,” Michel said.

But Columbia University’s Whitney blamed deal-makers for following that standard. “When you structure a company that way, there’s no slack, there’s no room for error. Even a good operating manager would have very, very difficult times in that situation.”

Jemison, of the University of Texas, agreed: “Prudence would suggest that if one doesn’t allow for the downturn or the possibility of a downturn, and what could indeed happen in any industry,” a company could run into trouble.

Perhaps the most extreme case of a deal gone bad involved Canadian developer Robert Campeau, who paid a premium to land Allied Stores Corp. and Federated Department Stores Inc. Billions of dollars in debt and slumping sales eventually forced the retailers into federal bankruptcy court.

Insilco Corp. is another target mired in Chapter 11 proceedings.

Oilmen Cyril Wagner and Jack Brown went on the takeover prowl in 1988, unsuccessfully pursuing USG Corp. before winning Insilco. They loaded up the diversified manufacturer with debt and when the recession arrived, Insilco couldn’t handle the payments.

Tassos Philippakos, an analyst with Moody’s Investors Service, said at the time that Insilco’s over-leveraged balance sheet was the root of its problems. “There was no cushion. There was no room for any decline in the operating performance of the company.”

While the number of troubled deals has grown in recent years, many others have been successful. Most notable is RJR Nabisco Inc., which has begun to turn a profit after its record $24.5-billion leveraged buyout in 1989--with some help from stock sales and an equity infusion from parent Kohlberg Kravis Roberts Inc.

But even KKR, the 1980s leveraged buyout wizard, has had problems. Its Seaman Furniture Co. was forced to restructure its debt last year when the recession squeezed the retailer’s sales.