The Predators’ Ball (30 page)

The measure of success that for Icahn has always been the most compelling is dollars. Friends say that while he has clearly begun to think about his place in history (one said that Icahn sees himself as heir to the merchant-banking tradition of the Rothschilds and Samuel Montagu), his drive for dollars appears unabated. And the two preoccupations are hardly in conflict; the more successful he is as the manager-owner of once-floundering companies, the more money he will make. As one longtime associate said, “For Carl, it's his report card. Every week, every month, every year.”

Another friend recounted that he had recently remarked to Icahn, “You know, Carl, before too long you're going to be worth a billion dollars. What will you do, if you're not happy then?”

“And Carl said, ‘I will know I made a big mistake,' ” his friend recalls. “ ‘It will mean I picked too low a number.' ”

I
N THE EARLY
evening of June 14, 1985, Ronald Perelman appeared at the lavish penthouse apartment of Michel Bergerac. Perelman had just acquired control of Pantry Pride, Inc., a supermarket chain discharged from Chapter 11 bankruptcy reorganization in 1981, which had assets of $407 million and a net worth of about $145 million. Bergerac was the chairman and chief executive officer of Revlon Inc., the cosmetics and health-care giant, which as of December 1984 had over $2.3 billion in assets and net worth in excess of $1 billion. Implausible as it would have been in any era other than this one so dominated by Milken the magician, the small-time, unimpressive Perelman, transfigured by a wave of Milken's wand, had come courting.

The chemistry, however, was all wrong. According to Bergerac, Perelman told him about MacAndrews and Forbes Holdings, the mini-conglomerate he had amassed in the preceding eight years with interests including cigars, chocolates, licorice extract and film-processing. “I'd never heard of it,” Bergerac said. Perelman talked enthusiastically about Pantry Pride and its most alluring asset: a huge tax-loss carryforward of over $300 million that could be used to shelter income. The company, which Perelman was in the process of stripping into a corporate shell, was his planned vehicle for acquiring Revlon. He was about to go on a Drexel road show, traveling to cities around the country, making his pitch to junk-bond buyers, in order to raise about $350 million.

“He told me that the dream of his life was to buy Revlon,” recalled Bergerac. “I said that that was wonderful, but it was not
for sale. He said that he would bid in the low forties. He said that he would do wonderful things for me. I said that I didn't have much taste for being bribed, and goodbye.” Perelman had offered “wonderful things”—personal inducements—in addition to assuring Bergerac that all his severance agreements, including his $15 million golden parachute, would be honored, and that he, Perelman, would want Bergerac to stay on as chief executive.

One associate of Bergerac recalls Bergerac remarking angrily, shortly after the Perelman encounter, “Can you imagine this guy, saying he's going to make me a rich man?”

Lawyer Arthur Liman, whose firm, Paul, Weiss, Rifkind, Wharton and Garrison, had been counsel to Revlon for decades, had also worked for Perelman in recent years, and he had arranged this encounter. “Ronald was sensitive to Bergerac's position as the CEO, and he really wanted to please—but he went about it in the worst possible way,” Liman said.

Perelman said that he and Bergerac had a “very cordial” meeting, lasting about an hour and a half, and that Bergerac suggested that they make a dinner date to discuss the transaction further. Then, Perelman said, Bergerac canceled the dinner, saying it would be pointless to meet because he was not going to do the deal. Perelman denied that he offered Bergerac extra inducements. “I never even mentioned or hinted or winked about his getting anything.”

Associates of both men agree that their personal styles must have blended like oil and water. Bergerac is a courtly, somewhat imperious, urbane, witty Frenchman. Perelman is crude, brusque, humorless, speaks in a staccato manner and perpetually puffs an enormous cigar. “They didn't hit it off,” declared Perelman's lawyer and constant cohort, Donald Drapkin, who was at Skadden, Arps, Slate, Meagher and Flom. “Bergerac with his Château Lafite, and Ronnie with his diet Coke.

“And I think that after that meeting Bergerac checked with his friends, and most of them had never heard of Ron Perelman. Or if they had, they said he was young, really aggressive, and Jewish. I think it was just beneath him.”

Bergerac had long inhabited the corporate stratosphere. In the 1960s, when Harold Geneen was building International Telephone and Telegraph (ITT) into the world's biggest conglomerate, Bergerac helped negotiate about one hundred acquisitions of companies for ITT in Europe; and in 1971, at the age of thirty-nine,
Bergerac was promoted to the job of running all ITT European operations. During the next three years, he doubled European sales to $5 billion. But in 1974 Bergerac, considered the most likely candidate to follow Geneen as head of ITT, was wooed away by Charles Revson, the legendary founder of Revlon. Revson had courted Bergerac for several years, and when he finally won him Bergerac received what was then an unprecedented bonus: $1.5 million. For a time, the financial press referred to Bergerac as “Catfish,” after the Yankees' pitcher Catfish Hunter, who also won a seven-figure contract at that time.

In 1978 Bergerac was the subject of an admiring cover story in
Time
magazine, which noted that the company had survived “triumphantly” the death of its founder, Revson, and that in four years, since Bergerac had taken over, sales and profits had multiplied about two and a half times, twice as fast as the industry average.

In the last several years, however, Bergerac had lost some of his star quality. The company's earnings reached a peak of $192 million in 1980, dropped to $111 million in 1982, and essentially stayed at that level through 1984, though in the first half of 1985—just as Perelman was approaching—they began to rise by about 10 percent. The weakness was in the cosmetics business; when demand slackened in the early 1980s and competition intensified, Revlon lost market share and profits. Meanwhile, however, Bergerac had vastly expanded Revlon's health-care business, making eleven acquisitions and increasing revenues tenfold in the past decade.

With its stock in 1984 trading in the midthirties, considerably below its breakup value, Revlon had attracted the attention of some investors known as the Frates group (after their leader, Joseph Frates, a wealthy Oklahoma investor), who went to Milken to explore financing. According to one member of that group, secret talks were held with Bergerac, who was not opposed to the idea of a buyout in which he would continue to run the company and would own 10–15 percent. Bergerac asked repeatedly whether the financing was in place, and was assured that it was.

But when the group was ready to go public with their proposal and made their formal approach in a meeting at Arthur Liman's office in the spring of 1984, Liman determined—in a call to Milken—that their financing negotiations were in the most preliminary stage. Bergerac, furious, sent them packing with a cursory public
denunciation, referring to them as the “gin-rummy gang,” saying their only money came from the kitty for their card games in Southampton.

But in the acquisition-happy marketplace of 1984, once the Frates group had made their approach the company was in play. That summer, Alan Clore, the English investor who had climbed on the Icahn bandwagon in Marshall Field, acquired stock. Realizing his vulnerability, Bergerac explored with his investment banker, Peter Jaquith of Lazard Frères, the viability of his leading a management leveraged buyout; but they concluded that the price that would make the deal workable, in the low forties, would not pass muster with the board. And then, for about six months, the rumors quieted, and Bergerac did nothing to pursue his own buyout.

In the spring of 1985, however, Perelman had extended his feelers. Drapkin enlisted the help of Joseph Flom, senior partner of Skadden, Arps. Flom talked to Felix Rohatyn, senior partner of Lazard Frères, about Perelman's interest in Revlon. Rohatyn said later that Flom was talking about a leveraged buyout with management, and that he responded that for Lazard to render a fairness opinion the price would have to be in the midfifties.

Simon Rifkind, founder of Paul, Weiss, and, at eighty-four, a luminary in the bar, dipped his oar into these waters. Rifkind had been on the Revlon board since the late fifties and was executor of the Revson estate; he had also been counsel to the family of Perelman's first wife, Faith Golding Perelman, for generations, and had become a director on the board of MacAndrews and Forbes. Now, just before the June meeting, he spoke to Bergerac on behalf of Perelman, describing him as “a kind of young Larry Tisch.”

Arthur Liman, Rifkind's protégé and heir apparent in the Paul, Weiss firm, said Perelman came to have lunch with him and “talked about how Revlon was bound to be sold in any case, and he would do well by the shareholders and well by Bergerac. He said he really needed Michel because he was a wonderful operator and he, Perelman, was not an operating person.” Liman also recalled that Flom told him that Perelman had never done a hostile deal—“with the clear implication to me,” Liman added, “that he would not.”

Perelman felt like a welcome suitor. “The signals we were getting in May and June were all positive,” he asserted. “We were hearing back from Felix and Arthur things like ‘It [the price] has to start with a five, but it could end with a zero,' and ‘We like the music we're hearing.' ”

But all this high-powered matchmaking backfired when Bergerac met Perelman in mid-June and the reality of Ronald Perelman and Pantry Pride and Perelman's banker, Drexel, making it all possible via the sale of junk bonds hit home with Bergerac. Bergerac didn't know much about Drexel before Perelman's visit, but he quickly learned. “Michael Milken is very clever,” Bergerac declared. “He has done the same thing that Delfim Netto, who was finance minister of Brazil, did there. No one would lend Brazil money, so Delfim Netto said to the bankers, ‘What does it cost? I will pay whatever it takes.' Well, Milken realized people would do the same thing—all these people whom the banks would never lend to in a million years, and Milken says, ‘Here's a hundred million!' And they say, ‘Wonderful!'

“In the old days, people to whom the banks would not lend went to pawnbrokers, who charged an arm and a leg. Now Drexel has inserted itself between the pawnbrokers and the banks.”

As Bergerac's comments suggest, Revlon was indeed a class war, between the corporate America and Wall Street elite, and the Drexel arrivistes. It was not simply a turf battle, to be sure; most of the defenders of Revlon in this fight genuinely deplored the junk-bond depredations as financial free-for-alls hurtling toward disaster, and they believed, moreover, that these high-risk players were violating the law to achieve their goals. But beneath these complaints of principle lay something more visceral: the age-old hatred for the outsider, always exacerbated when that undesirable other dares to venture beyond his confines and encroach upon the elite's preserve.

Certainly those in Perelman's camp perceived the violent opposition they encountered as generated by class bias. Howard Gittis, a well-connected Philadelphia lawyer who left his law firm to join Perelman shortly before the Revlon battle, recalled Perelman's early overtures. “At the beginning, we really believed that we would be able to do it friendly. There was a lot of suggestion that, especially with his huge parachute in place, this was a chief executive who would not kick and scream. But I'm convinced that Bergerac's was a noneconomic, emotional reaction. He didn't want Revlon to be sold to Panty Pride, as he called it, and then Marty [Lipton, of the law firm of Wachtell, Lipton, Rosen and Katz] and Felix [Rohatyn] fanned that feeling of Bergerac's. Their attitude was, Who
are
these people, coming in to buy a company like Revlon—they're upstarts that nobody ever heard of, and they're financed by Drexel, an upstart itself.”

“P
ERELMAN IS
one of the great stories of coming from nowhere in the last decade,” commented one of his associates admiringly in early 1986. “Seven or eight years ago, when I met him, he didn't even have a business. Today he's worth maybe five hundred million.”

Indeed, Perelman's life story reads like a parable of these leveraged times. He grew up in comfortable circumstances in Philadelphia, where his father, Raymond Perelman, owned a small metal-fabricating firm, Belmont Industries. Ronald Perelman graduated from the University of Pennsylvania and then from the Wharton School, receiving an M.B.A. in 1966.

His marriage to Faith Golding—whose grandfather had founded the Sterling National Bank and the Essex House hotel in New York and had amassed a fortune—obviously pleased Perelman's parents. (In an interview in 1986, several years after Ronald Perelman had divorced Golding and married gossip columnist Claudia Cohen, Raymond Perelman ticked off the real-estate holdings of the Golding family and pointed out on the baby-grand piano the numerous photographs of Faith—including her bridal photo—noting rather acidly,
“He's
divorced, we're not.”)

For the next twelve years, Perelman worked in his father's business and managed his wife's money. Then, in 1978, at age thirty-five, he decided to venture out. He borrowed $1.9 million to buy 34 percent of Cohen-Hatfield Industries, a jewelry distributor and retailer with $49 million in revenues that year. In 1980, Cohen-Hatfield spent about $45 million to buy MacAndrews and Forbes, a maker of chocolates and licorice extracts, and the Cohen-Hatfield name was dropped in favor of MacAndrews. In the fall of 1980, MacAndrews issued its first batch of junk bonds, a modest $33 million, underwritten by Drexel with Bear, Stearns.