Although the idea was not new, Bruce's insight was to use a coercive two-part tender offer in the largest M&A deal in history. Bruce advised DuPont to offer cash at a premium to the Conoco shareholders tendering early, while leaving those who failed to tender with DuPont stock of undetermined value instead. The strategy, of course, was to get voting control of the company quickly by offering shareholders a high price in cash for their shares and penalizing those who did not tender. The tactic worked, and DuPont was able to win Conoco. The press coverage of DuPont's win was breathless, with Bruce as the genius and mastermind. In its own way, the canonization of Bruce as the tactical insurgent was the precise complement of the lionization of Felix as the ultimate insider.
Bruce had, literally, written the blueprint for the strategy some three years earlier. In Corporate Finance Law: A Guide for the Executive, published in 1978, he penned one of the first and most comprehensive handbooks on the arcane rules, regulations, and tactics of public financings, takeovers, and acquisitions. One section included a detailed overview of how to wage a takeover battle using tender offers. In another, Bruce wrote about the role of antitrust laws in mergers and took a dig at his former mentor Ralph Nader and the very observations he had himself made before he went to Wall Street.
Bruce was still only a vice president at First Boston when he wrote the book--on weekends and on vacations--and was thirty years old when it was published. Not only was the book--which he dedicated to his second wife, Chris, a tall, thin, red-haired psychotherapist--exactly what it set out to be, a useful guide for corporate executives, but it was also an exceedingly clever advertisement to them of the professional skills of its author: Bruce Wasserstein, experienced deal practitioner and former lawyer who understood the complex legal nuances of deal tactics. "Warning: In corporate financial transactions, ignorance of the law can be costly," the book's jacket proclaimed. "Whether you are working on deals as an executive, corporate director, banker, attorney, broker or accountant, you must understand the legal ramifications to be effective."
In his introduction, Bruce made the world of deals seem as exciting and as dangerous as war and a battleground not to enter unprotected. "The deal business is unfortunately replete with dangerous minefields," he wrote. "Hurtling roughshod over the intricate layers of governmental regulations is a prescription for disaster. The trick is to tiptoe lightly and not get blown up. Disciplined creativity, a very precious commodity, is required. It has sometimes been said that a bad lawyer is one who fails to spot problems, a good lawyer is one who perceives the difficulties, and the excellent lawyer is one who surmounts them. As J. P. Morgan is said to have remarked about his attorney, Elihu Root, 'I have had many lawyers who have told me what I cannot do. Mr. Root is the only lawyer who tells me how to do what I want to do.'" Bruce was both a lawyer and a banker who could tell his clients at First Boston how to do what they wanted to do. Furthermore, while younger than his colleagues, he was one of the first Wall Street lawyers to switch successfully to banking from law (leading a wave of other lawyers who followed suit) and thus ushered in the era of investment bankers skilled not only in valuation but also in legal nuance and tactics.
Bruce's skills were nearly the opposite of, say, Felix's. Felix was long on client relationships, reputation, and deal wisdom. He left the lawyering to the lawyers. Bruce, shorter on diplomacy, public profile, and deal experience, relied instead on his brilliance and encyclopedic knowledge of merger law. Sometimes he openly questioned the advice M&A lawyers were giving their clients. Although this rankled, he knew how to get things done in the context of the existing restraints, and he refused to be told something couldn't be done when he had an inkling it could.
In his physical demeanor, too, Bruce could not have been more different from the typical star investment banker. Somewhere along the way--some say as early as Cravath--he decided deliberately and with great skill to turn his bloated, disheveled, nerdy appearance into a distinguishing and memorable professional asset. "He has great ambition and great confidence," said someone who knows him well. "He knows how to cultivate his personal demeanor. That sort of studied sloppiness is very deliberate. He likes people thinking of him as Einstein or the Nutty Professor."
The Bruce brand got a boost in May 1980 when the New York Times economics columnist Robert Metz devoted his entire column to Bruce's views on whether the use of hostile tender offers was due for a renaissance. That anyone would care what a thirty-two-year-old, newly minted managing director at First Boston thought about this subject is a testament to Bruce's precociousness. But the Metz article also marked the beginning of Bruce's constructive and symbiotic relationship with the press, one of the most important assets of the late-twentieth-century investment banker. Felix had it. Steve had it. And Bruce Wasserstein, the former executive editor of the Michigan Daily, had it, too. They all used the media to advance their own interests.
In April 1982, the Wall Street Journal published a lengthy front-page article on Bruce and Joe. The article added to the studied mythology of Bruce as the disheveled, overweight Einstein--this time with red hair (a year before the Times described Bruce as "heavy-set and blond")--and Perella as his sartorially splendid foil. "Wasserstein is best at figuring out what a client should do and Perella is best at getting the client to do it," a competitor observed. The Times referred to them as the "Simon and Garfunkel of the merger and acquisition business. They are a poet and a one-man band; the abrasive but brilliant tactician and the immensely likable supersalesman with one major product on his shelf: Bruce Wasserstein." "I'm one of those people who needs a crisis to be at my best," Bruce told the paper, adding that conceptualizing a new takeover defense was "like playing chess where the rules change after every move." The reporter did allow a few anonymous digs into the piece. He described what "some say" was Bruce's "overweening ego." An unnamed competitor, though, seemed to be scratching his head in wonderment. "Bruce is a genius," the head of M&A at a competing firm said, "but when I see some of the companies he has put together, I wonder if he has even a shred of common sense."
Regardless, First Boston finished 1981 as the number-two adviser on M&A transactions worldwide, second only to Morgan Stanley, earning the firm huge bragging rights. Wasserstein and Perella, who by then were presiding over a thirty-six-member department, received identical seven-figure compensation packages and had identically sized corner offices on the forty-second floor of First Boston's midtown office tower on East Fifty-second Street. First Boston was the hot shop.
Bruce also began the time-honored Manhattan real estate and trophy-wife march of the nouveau riche. After the dissolution of his first marriage, he had been living at 240 East Eighty-second Street. He had become reacquainted with his Michigan Daily colleague Clarence Fanto, and the two of them would go barhopping on the Upper East Side. One night they went to a club together. "I spotted this tall, red-haired, rather very slim, willowy-looking woman across the room," Fanto said, "and I remember saying to Bruce, 'Oh, look at her. She's much too tall for me'--because I'm a very short guy. 'She's much too tall for me, but you might want to talk to her.' And Bruce was never shy about such things. As I recall, he went right over and spoke to her." Fanto left the club before Bruce, but Bruce called him later. "He sounded really excited and was thrilled to have met her, and it struck me that there had been an immediate connection there," he said. That night, Bruce got Chris Parrott's phone number. Their romance was swift. When he and Chris first married, they lived on East End Avenue. But as Bruce's wealth and family slowly started to grow, he moved up the East Side social ladder, too--first to 1087 Fifth Avenue and then to 1030 Fifth Avenue.
First Boston's M&A business continued to improve. In short order, Bruce advised Texaco on its controversial $10 billion acquisition of Getty Oil (breaking up a deal with Pennzoil), Cities Service on its $5 billion sale to Occidental Petroleum, and Marathon Oil on its $6.6 billion sale to U.S. Steel, eluding a hostile offer from Mobil Oil in the process. This unprecedented success land
ed Bruce a lengthy profile, "The Merger Maestro," in the May 1984 issue of Esquire. In the article Bruce made sure to point out to the reporter that he was the only investment banker to be involved in the four largest deals in American history to that time--a claim not even Felix could make in 1984. For the first time, the public got a rare and fawning glimpse of Bruce, in full. "Overweight and chronically rumpled, Bruce Wasserstein commands the same respect in a corporate boardroom as a general does before a major battle," the reporter, Paul Cowan, wrote. No doubt captivated by Esquire's attention and certain he could use the publicity to further his professional goals, Bruce let down his guard.
In case there was even the slightest shred of doubt left, Bruce showed Cowan that he had moved light-years away from the adolescent sympathy he once had for the common man. The men were discussing the fate of the thirty-five thousand residents of Findlay, Ohio, the home of Bruce's client Marathon Oil. Had it been successful in acquiring Marathon, Mobil had all but promised to close down Marathon's headquarters in Findlay. To "save" Marathon from Mobil, Bruce found U.S. Steel to buy the company. As part of the merger agreement, U.S. Steel agreed not to move "a substantial number of people" from Findlay. "Of course that is a good thing from the point of view of the town," Bruce said. "But from the corporate view there's no reason why one of the nation's leading oil companies should be located in Findlay rather than Houston." Would Bruce have supported a deal if it had meant moving people from Findlay? Cowan wondered. "Sure, I'd do that," he said, before letting out a nervous "whooping chuckle." "In fact, I think all those people should--" Bruce looked over to Cowan's tape recorder. "Oh, we're still on tape," Bruce continued. "Sorry. I believe in Findlay, Ohio. I really liked Findlay, Ohio." He whooped again.
IN RETROSPECT, BRUCE may have been at the peak of his M&A skills in the Orwellian year of 1984. On January 4, Getty Oil and Pennzoil publicly announced a roughly $9 billion deal whereby Pennzoil would buy Getty for $112.50 per share. At 8:00 p.m. that night, Texaco hired Bruce and First Boston to see if Texaco could break up the Pennzoil deal and win Getty for itself. Having anticipated this moment for at least six months, Bruce went into deal mode--a round-the-clock series of negotiating and strategy sessions--and advised Texaco it had to act quickly and pay up if it wanted to defeat the competition. Texaco took Bruce's advice and agreed to pay Getty $125 a share, a price that, not surprisingly, won the support of Gordon Getty, the largest Getty shareholder, despite his having just agreed to a deal with Pennzoil. Texaco's price was later increased to $128 per share, or around $10 billion, to accommodate the wishes of the Getty Museum, the other large Getty shareholder.
The Texaco-Getty deal was the largest takeover in American corporate history. As part of the new deal, Texaco had agreed to indemnify Getty against any legal fallout from breaking up the Pennzoil-Getty deal. Bad idea. Almost immediately, Pennzoil sued Getty to unwind the Texaco-Getty deal on the grounds that Pennzoil and Getty had an agreed-upon deal, even if the two sides had not executed a fully negotiated merger agreement before making their public announcement. A huge legal battle ensued, resulting in a jury trial in Houston, Pennzoil's home turf. On November 19, 1985, in one of the most shocking moments in American corporate history, the jury ordered Texaco to pay Pennzoil $10.53 billion, one of the largest such jury awards. The judge in the case later raised the award to $11.1 billion to include accrued interest. The legal battle continued until the spring of 1987, when the Supreme Court ruled that Texaco had to post a bond of $11 billion for the award. Soon thereafter, Texaco filed for bankruptcy protection, one of the largest bankruptcies in corporate history.
Whether a deal such as that between Texaco and Getty worked out for the principals involved was of little concern to most M&A bankers (Bruce among them), who were in the business of dispensing advice, banking their fee, getting publicity, and moving on to the next deal. Why bankers get paid millions for this Teflon-coated advice remains a mystery. But deals do have consequences for the stakeholders involved--for the employees of the companies, for the debt and equity investors, and for the management. Why should the investment bankers be the only ones to walk away with pockets overflowing and nothing at all at risk if their advice proves to be woefully wrong? Of course, bankers talk all day long about how their reputations are sacrosanct and how dispensing bad advice will inevitably damage those reputations, crushing their ability to win new business in the future. Bruce has said this himself. "What I'd like to think of as the hallmark of a Bruce Wasserstein deal is that the client got good advice, whether that is saying they should not do a deal or that they should do it and pay a dollar more," he said in 1987. "In the long run, they will appreciate that." But Wasserstein is living proof that there are very few consequences, other than a little negative publicity here and there, for delivering poor advice. In fact, in Bruce's case, he became a billionaire.
As would eventually become all too clear, the Texaco deal was a harbinger of serious troubles to come for Bruce's reputation. But this would take some time to become apparent. Bruce was certainly well respected for his tactical brilliance and for the increasing amount of fees he was generating for his firm. In February 1986, he and Perella were named co-heads of investment banking at First Boston, a major promotion that put the two men in charge of all the firm's corporate relationships while keeping them in control of the M&A group.
But by the mid-1980s, the M&A fraternity would be thoroughly dislodged once again by the emergence of Michael Milken and his firm, Drexel Burnham Lambert. As has been well documented, Milken revolutionized corporate finance through the creation and use of high-yielding junk bonds. Not only did Drexel underwrite these bonds for corporations that could not get financing from more traditional sources--banks, insurance companies, and the public-equity markets--but also Milken pioneered the use of these securities to finance the huge financial ambitions of corporate raiders, like Carl Icahn and T. Boone Pickens, and of LBO firms, such as Kohlberg Kravis Roberts. Before long, the unknown firm of Drexel Lambert was both advising and financing these raiders and LBO firms in their acquisition sprees. Drexel was reaping huge fees as a result. Lazard's lackluster response to Milken was to have Felix protest loudly (and correctly) about his villainy and await his demise. Bruce and First Boston pioneered a different approach: together they decided to compete with Milken. It was a gutsy insurgent move that would later almost bankrupt First Boston and that certainly cost the firm its independence. Bruce, of course, walked away all but unscathed.
The unlikely conduit for Bruce's ambitions to compete with Milken was a man named Robert Campeau, an utterly obscure Canadian real estate entrepreneur in his early sixties. Although he had no discernible experience in retailing, Campeau was consumed by the idea of buying up the great names of American retailing and having them serve as anchor tenants in the American shopping malls he wanted to develop. In the early summer of 1986, with the help of the small investment banking division at Paine Webber, Campeau tried to reach a friendly deal to acquire Allied Stores Corporation, the United States' sixth-largest retailer at the time and the parent company for such admired stores as Ann Taylor, Brooks Brothers, Jordan Marsh, Bon Marche, and Stern's. Campeau was a minnow--with earnings of around $10 million--but like many a real estate developer he figured he could borrow the vast majority of the money he needed to buy the giant Allied, with earnings of around $300 million. He figured correctly. Thanks to Milken, the financing markets were heading into a period of excess. But by September 1986, Campeau had made little progress in his friendly pursuit of Allied and figured the time had come for both a hostile approach and a new M&A adviser with experience in hostile deals.
First Boston was hired. Bruce advised Campeau to launch a hostile tender offer at $66 a share for Allied, a 50 percent premium to where Allied had been trading two months before. But on October 24, Campeau dropped the tender offer and, on Bruce's advice, began to buy Allied shares in the open market at $67 per share. This brilliant tactic, known as a "street sweep," netted him 53 perc
ent of the Allied stock in thirty minutes (and has since been forbidden by the SEC). He now had control of the company, thanks to Bruce and First Boston, which had agreed to make an unprecedented $1.8 billion bridge loan to Campeau to allow him to buy the Allied stock. (Campeau ended up using only $865 million of First Boston's money after Citibank stepped in and loaned him the balance.) Campeau and Allied signed a $3.6 billion merger agreement on Halloween. For tax reasons, Campeau needed to close the deal before the end of 1986, and to do so, he needed $300 million to invest as equity in the deal. But he did not have the money. In what became something of an infamous cliff-hanger, Campeau negotiated until December 31 to borrow another $150 million from Citibank that he could contribute as "equity" to the deal and the remaining $150 million from Edward DeBartolo, a San Francisco real estate developer who had first attempted to compete with Campeau for Allied.
The deal was done. Bruce had accomplished the unprecedented: enabling an obscure Canadian (with, it turned out, a history of mental illness and philandering) to buy, with none of his own money, a paragon of American retailing and saddle it with a huge amount of debt. Bruce had also introduced to the world of finance the idea of an M&A adviser using its own balance sheet to help a client win a deal--an idea, Bruce told the Wall Street Journal, that would "transform Wall Street." Bruce was quite pleased with himself and his Allied victory. "There was a swirl of controversy around this deal," he told Institutional Investor in June 1987. "Our competitors were passing around stories about all the difficulties we were having. But there never were any difficulties as regards the bridge loan. Things went according to plan."
Technically, as far as the narrow issue of First Boston recouping its huge loan, Bruce was correct. In March 1987, First Boston underwrote a successful $1.15 billion junk-bond financing for Campeau's Allied, the proceeds of which were used to pay off the First Boston bridge loan. Allied's successful refinancing of this loan was more or less the end of the good news for Allied Stores, with the denouement being the largest retail bankruptcy in history.
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