The Predators’ Ball (22 page)

Black remembered a time, not long ago, when Drexel was anything but so ubiquitous. It was effectively shut out of the divestiture business—which is the selling of pieces of companies and comprises about 40 percent of M&A—because the big, established companies who were the sellers would never use Drexel. But those companies, one after another, were felled by Drexel's avenging bidders. These companies, all in their past lives the clients of Salomon Brothers, had all now come forcibly, via acquisition, into the Drexel fold: Northwest Industries, Uniroyal, National Can, TWA, Beatrice, Pacific Lumber. “We didn't have the list. We've been
buying
the list,” Black concluded. “And all this has given us the M&A product to work with that we never had.”

After the Avery-Uniroyal negotiations were completed, Drexel set out to raise Avery its $1 billion. When the prospectus, showing the company's proposed recapitalization, was sent out to potential buyers in early September 1986, there was a lot more dilution than the market had expected. Peltz and May, and Drexel, were buying in at very low prices, prompting mutterings of self-dealing from angry shareholders. The stock dropped fast from $6, where it had been selling ever since the Uniroyal deal had been announced several months earlier, to $2.

Jeffrey Steiner, however, was not among those unhappy shareholders. In the last year, Steiner had left the investors' sidelines and taken his leap as a Drexel player, following in the footsteps of his friends Icahn and Peltz. In late 1985, with Drexel financing, Steiner had taken over Banner Industries, a manufacturer of aircraft replacement parts; he now had a $300 million blind pool, also raised by Milken, which he would use in early 1987 to acquire another company, Rexnord, a manufacturer of mechanical parts, chemicals and plastics. Steiner, still close to Peltz, was the second-largest shareholder of the Triangle-controlled entity CJI, was involved in deals in Europe with National Can, and used the same team of investment bankers from Drexel, led by Fred McCarthy, as Peltz did. He said he bought 160,000 shares of Avery at about sixty cents and sold out at $6—for a profit of close to $900,000—the day before the stock dropped. “I didn't think the six-dollar price could be justified,” he said when asked why he sold at that fortuitous moment, “so I sold it.”

In the course of being an exquisitely useful functionary to Milken—who has raised close to $3 billion for him—Peltz has arrived at the heights he always dreamed of. His and Peter May's stake in National Can was valued at about $90 million by the fall of 1986, if one includes an estimated control premium, which is the amount one would pay over and above the price of the stock in order to acquire a controlling block. He bought a 106-acre Bedford, New York, estate, High Winds, with a twenty-two-room house, for about $6 million and did extensive renovations. Less than a year later he bought another estate, in Palm Beach, reportedly for $18 million—which was said to be the second-highest amount ever spent for a residence in this country, exceeded only by that of oilman Marvin Davis in Beverly Hills.

Peltz is not the model of the new, lean corporate manager-owner Milken likes to trumpet. While he falls easily into the
Milken/raiders' harangue about the evils of flaccid corporate life in America (“Uniroyal had a corporate staff of two thousand [Uniroyal says two hundred fifty], headquarters in Connecticut that cost a hundred sixteen million to build—I am telling you, old-fashioned American industry is more like Communism than Communism,” he rails), Peltz has always been profligate. When he acquired control of Triangle, he caused that humdrum company to lease a limousine, a helicopter to carry him from his home in Manhattan to the company's offices in New Brunswick, New Jersey, and a Lear jet. And, of course, he had spent $2 million of company funds on that apartment in Paris.

One way Peltz has rewarded himself is in the long-standing, and common, use of corporate perks. Another, seemingly more straightforward, is in his and May's stellar compensation, as Triangle's chairman and chief executive officer, and president and chief operating officer, respectively. But they have drawn this income in a way that escaped much attention until 1987. It has all come to them not as individuals but through NPM (which Peltz and May own). This is a system of compensation which Peltz and May instituted for themselves when they bought control of Triangle. (In 1983, NPM received $461,396.) Peltz and May, technically not employees of Triangle, do not appear on the proxy statement list of the company's five highest-paid executives. That list, for 1986, was headed by Frank Considine, at $1.6 million.

For 1986, however, NPM received $7,644,228 (including a $5 million bonus), which was split two thirds/one third between Peltz and May. Those compensations, of $5.1 million and $2.5 million respectively, would have placed both men among the thirty highest-paid U.S. executives, as ranked by
Business Week.
Only Capital Cities/ABC and Salomon Inc. had two executives who made that list. Furthermore, as of January 1, 1987, the Triangle board raised NPM's annual base fee to $7.4 million.

When asked by
Wall Street Journal
reporter Randall Smith about his and May's compensation, which was creating a stir among analysts and some shareholders in the spring of 1987 and apparently had hurt the price of Triangle stock, Peltz replied, “The industrialists of the nineteenth century were highly paid and highly criticized, and I guess we'll have to bear that burden, too. But those were the guys that did things. It was under Carnegie that the U.S. steel industry outperformed England.”

In reaping the rewards of National Can, Peltz could not be
accused of thinking only of himself. Within months of the National Can acquisition, some of its pension-fund assets were placed under the management of Mount Vernon Associates, Inc., of which William Heffner, a Triangle director, is chairman and president. Heffner is Peltz's father-in-law.

The new Triangle offices, in New Brunswick no longer but in Manhattan, are spectacular. Both Peltz's and May's offices are on the top floor of the Lexington Avenue building, and these rooms have ceilings about thirty feet high, with sloping walls that are all glass and exposed steel beams. They are a far cry from the back room Peltz leased from Sassower, Goren and Schneider (who bought Flagstaff) in the early eighties.

Interviewed in his new digs in the fall of 1986, Peltz offered his visitor coffee in a Triangle mug inscribed with the words “Cash is King.” He took a phone call, said heatedly, “You're
wrong!
I'll talk to you about it later, I've got someone here,” and hung up on Milken. When his visitor expressed surprise at his tone, Peltz said, “What do you think I do, stand up and face east? That guy gets up and puts on his pants in the morning, just like I do.”

P
ELTZ MAY PROTEST
, but he surely knows that Milken has been the true principal here, the shadow behind Peltz's ornate carved-wood chair. It was Milken who determined that Posner would not do the National Can buyout. He canvassed his troops for someone to rescue Posner. He chose Peltz only when no one else was willing. He decided how much would be paid. He put Drexel in for $10 million when Knapp dropped out. He placed the debt as no one else could have, some with lenders who did not know who Nelson Peltz was. He told Peltz to put the Paris apartment on the market. And he has engineered the breathtaking expansion of the Triangle empire.

But Peltz is now enthroned. And publicly, at least, he does not play the role of Milken's subject. He makes fewer obeisances to Drexel than he did in interviews six months earlier, and is less self-deprecating. “We never could have done it without Drexel—but we were the only Drexel client who was in love with National Can. And we were the only ones willing to pay all cash.”

Many who have dealt with May and Peltz see May, with his Peat, Marwick background, as the more substantial partner. One longtime associate noted, “Nelson will not make a move without
checking with Peter. And if he shows Peter the figures and Peter says no, then Nelson doesn't do it.”

One man who has dealt with the two in negotiations for Uniroyal remarked, “Nelson is like a guy in the back of a covered wagon, selling medicine—and Peter May is the guy inside, making the stuff, packaging it, making sure it all works.”

Peltz's analysis of the partnership varies from this. “Peter's very good at administration, at neatening things up. I conceptualize, I strategize. In American Can, for example, Gerry [Tsai] and I met privately until we agreed on the price. Then, after that, Peter took over the deal. And on financings I structure the broad outline, he does the details.”

As for Considine, Peltz commented, “He has a tremendous amount of independence. I corral my ego. It's done in a way that makes him feel he's leading the band.”

In his unimposing conference room at National Can headquarters in Chicago, Considine gave a short laugh upon being told that Peltz said he corrals his ego. “Nelson is chairman and CEO of Triangle and I am chairman and CEO of National Can,” Considine said. “That means I run National Can. It's OK with me that he owns the stock—as long as it's clear that I'm running the company.” (In January 1988, William Sick would be brought in as chief executive of what was by then called American National Can, and Considine would remain its chairman.)

Considine arrived at National Can as a sales manager in 1961, when he was forty, and worked his way up through the ranks, becoming president of the company in 1969 and chairman and chief executive officer in 1973. He admitted that the transition to life under Peltz has not been easy. “You feel very possessive about the company,” he said slowly, “you feel you've built it—but you have to remind yourself that it is a public company. And you have to cross that bridge, it has to be something you accept intellectually. But it's difficult—that's why a lot of CEOs walk out when this happens.”

When the deal was negotiated with National Can, Considine received stock options for about one percent of the company—management's stock options, taken all together, were for 2.7 percent. He confessed to sometimes thinking about “what this has cost me personally”—in not having been able to do a management leveraged buyout, or in not having negotiated for a heftier stake of stock
options. “I don't really mind. Money's never been what drives me, I have enough to always get by—as Victor would say, I'm not going to change my standard of living,” he said, smiling.

“And I don't believe in being greedy,” Considine added. “It's just when you look around you and see everyone making so much, and you know that you and your people are the ones who built this company, and instead here is Drexel making all this money. And with the warrants and more warrants, they own sixteen percent of the company. But,” he concluded, seeming to chide himself, “you can't spend time looking back.”

Considine, of course, is not delivering a polemic against leverage or against takeovers, but is uttering the personal plaint of someone who built a company, tried to take it private, was beaten out—and now watches strangers reaping its rewards. He was beaten because the banks—which until then had happily serviced every request by National Can—would not or could not do for the management of National Can what Drexel did for the unknown, previously feckless Peltz and May. And, while Considine would not say this, he now works for two individuals whom he probably never would have hired, and who could not have gotten in the doors of those banks to discuss this transaction.

About this strange new world—which seems to be borne by one figure, Atlas-like—Considine commented, “It's a different game today. I don't pretend to know how it's going to turn out. You have nonoperating people running businesses. They're financial people—
financial
operators, that's for sure, but they're not operators.”

C
ARL
I
CAHN
was the living embodiment of a Drexel dilemma as the firm moved into financing the hostile megatakeover. The goal of Milken and his fellows was precisely what Leon Black had recorded at the Cavas Gobhai session back in 1979: to finance the “robber barons who would become the owners of the major companies of the future.” But these “robber barons,” as Black admiringly called them, or takeover entrepreneurs—men like Icahn, Sam Heyman, Sir James Goldsmith—tended to be a strong-willed, tough and egocentric breed, disinclined to be anyone's pawn, even Milken's. And Milken's construct, of course, placed an enormous premium on control. Still, what choice did Milken have, other than to play only rookies like Peltz? And besides, with legions of captive clients, Milken could tolerate a handful of freer spirits.

No one on the very short list of independent major Drexel players was more autonomous, and more obsessed with his autonomy, than Icahn. Icahn seeks to control every situation that he touches, whether small or global. He talks to reporters only on the condition that any quote be read back to him in context, and he goes over and over the quotes, listening for each nuance, demanding a word change here, a phrase deleted there. He allowed his employees to speak to this reporter on the condition that their quotes too be checked—not with them but with him.

In the early days of Icahn and Company, he had three partners who worked in the business with him and two others who were passive investors; over time, he managed to unburden himself of all of them, with the exception of one who owns one percent. He had
partners in his raids, too, in the early eighties, but eventually accepted only limited partners who would have no say. Fiercely self-reliant, for years using no investment banker, sharing none of the decision-making, Icahn has allowed himself to lean for support on only one individual, his financial analyst Alfred Kingsley. Kingsley is described by close associates of the two men as Icahn's “alter ego.” Except for one brief hiatus, he has been with Icahn for twenty years. Icahn has refused to make Kingsley a partner.