Even as Levine was dazzled by his conquest of Boesky, he had set his sights on a new and grander role model. That year, 1985, Levine attended his first Predators’ Ball, where he basked in the afterglow of the successful Coastal/ANR transaction. Kay and other Drexel officials touted Levine as their new star, and introduced him to an array of Drexel’s big-money clients. He finally met Boesky face to face. But the one who made the greatest impression on him, he told Wilkis repeatedly, was Sir James Goldsmith, who gave a speech at the conference.
Few men could outwardly have had less in common than the Queens-bred Levine and the worldly Anglo-French financier. Sir James was one of the few early raiders to have powerful intellectual and ideological underpinnings for his pursuit of fortune. He was impatient with the ennui of the old European order, hated the entrenched “corpocracy” of complacent corporate management, and believed passionately in meritocracy and free markets—all, at the time, wildly unconventional ideas in his native Europe. He had assembled a far-flung empire, often through hostile takeovers, ranging from French publishing (he owned the influential weekly L’Express) to the Grand Union grocery chain to European foodstuffs manufacturers and American forest tracts and natural resources. None of this made much of an impression on Levine, however. He coveted Sir James’s lifestyle.
Sir James had a wife, a former wife, and a mistress, and had even vacationed simultaneously with his two families, shuttling back and forth by boat between the Italian peninsulas where each was housed. His Manhattan townhouse, with its marble floors, antique furniture, damask wallpaper, and art and statuary, was the embodiment of Old World taste, money, and refinement. He owned or rented equally palatial houses in London and Paris, the Costa del Sol, Sardinia, and Barbados, and later launched construction of a lavish estate on the Pacific coast of Mexico. He was gracious, disarmingly polite, friendly, and open to the unconventional. Levine arranged a vacation in Barbados; he excitedly told Wilkis after returning that he’d gotten a good look at Sir James’s estate. He started imitating some of Sir James’s mannerisms. Wilkis thought it was ridiculously pretentious, but still an improvement over Levine’s usual crass demeanor.
One of the deals generated at the bond conference was a Drexel-backed bid by Sir James for Crown Zellerbach Corporation, a huge forest-products and paper company based in San Francisco. Sir James had already accumulated a substantial stake in the company, which had rebuffed his approaches about a friendly acquisition. Levine was thrilled when Kay tapped him to head the Drexel M&A team on the deal. (Financing, of course, stayed under control of the Milken operation on the West Coast.)
After Sir James launched his bid, Crown Zellerbach began negotiations to be acquired by a “white knight” rescuer, Mead Corporation, another paper company. Mead, Crown Zellerbach hoped, would keep the company whole, rather than breaking it up and selling off pieces as threatened by Sir James. Mead agreed to buy the company at a substantial premium, $50 a share, and arranged to buy Sir James’s large stake to end the hostilities and complete the transaction. Levine had already built a healthy stake of his own in Crown Zellerbach stock, trading as usual on inside information. Now, in anticipation of the Mead deal, Levine called Bank Leu to arrange another large purchase of Crown Zellerbach shares, spending a total of about $4 million. Boesky also took a big position, and Levine was thrilled to be able to impress Sir James by lining up Boesky’s support and arranging for Sir James to buy Boesky’s stake.
The day Mead’s board was meeting in Dayton, Ohio, to approve the deal, Sir James hosted a celebratory luncheon in his elegant town-house dining room, with food prepared by his staff and served on Limoges china with rare wines, both red and white. Levine was in a jovial mood, and Sir James seemed to enjoy his high spirits. Several others involved in the bid were also there, including Roland Franklin, an aide to Sir James, and George Lowy, a partner at Cravath, Swaine & Moore, the firm representing Mead. During lunch, Lowy excused himself to take a phone call from Mead.
When he returned, Lowy looked sheepish. “You won’t want to give me dessert,” he said to Sir James, announcing that, in a surprise move, the Mead board had rejected the Crown Zellerbach acquisition, dashing the company’s hopes for a white knight rescue and the lucrative buyout of Sir James’s position. The decision, once announced, was certain to cause Crown Zellerbach stock to plunge. Sir James was remarkably nonchalant, shrugging and announcing that he would simply proceed with his own hostile bid. He insisted Lowy stay and enjoy the rest of the meal.
In striking contrast, Levine suddenly turned “gray” at the news, Franklin noticed. Levine’s mood plunged, and he left at the earliest opportunity. He ran, panicked, to a pay phone, and ordered Bank Leu to liquidate his large position. “He must be calling his broker,” Sir James observed after Levine had rushed from the room. He smiled, and everyone laughed at the prospect. No one took it seriously.
By calling his broker when he did, Levine avoided a big loss in his trading account, and emerged with a small gain. Sir James eventually completed his takeover of Crown Zellerbach, despite a vigorous defense. While Levine was lauded by Kay for his work within Drexel, Sir James showed scant interest in furthering his relationship with Levine.
Levine’s honeymoon at Drexel was coming to an end. Soon he was again in a familiar mode, complaining to Wilkis that he wasn’t sufficiently appreciated. He hated Leon Black, he said, the obnoxious fellow M&A strategist, whom he referred to as “the fat slob.” Black, Levine claimed, was the only banker in New York who had any influence with the firm’s real power center in Beverly Hills. And he complained that Drexel, unlike Shearson, was all finance-driven. The West Coast operation was bringing in all the M&A and corporate finance business, which meant that his share of the bonus pool would be correspondingly smaller.
Wilkis, eager to leave Lazard, feeling that his career was going nowhere, wished Levine would complain less, and help him get a job at Drexel. But Levine seemed increasingly uninterested in Wilkis’s future. Although Wilkis managed to get an interview at Drexel, his cerebral approach and more reserved demeanor didn’t seem to be what the firm was looking for, and he didn’t get an offer. Wilkis blamed Levine for not going to bat for him. Finally, on his own, Wilkis did get an offer from E. F. Hutton. He seemed thrilled—until Hutton told him he’d have to take a routine lie-detector test for prospective employees.
Wilkis broke into a cold sweat, terrified that he’d have to lie about a foreign bank account and his illicit trading. He begged Hutton to exempt him, saying it was demeaning, an imposition. But Hutton insisted. A Lazard colleague who overheard some of Wilkis’s pleas asked him why he was upset. “Everybody has done something,” Wilkis said. “Everybody’s stolen something.” The day before he was scheduled to take the test, Wilkis broke out in hives from head to toe.
But in the event, he took the test and passed without incident. In the typically cursory examination common at the time, there were no questions he couldn’t answer truthfully. He was asked about drug use, but not insider trading.
At Hutton, Wilkis seemed finally to find his niche. He felt he was treated as a seasoned professional, an important member of an M&A team that, while not a major force, was growing. He celebrated the new job by buying a Park Avenue apartment to rival Levine’s, and again began to consider distancing himself from his best friend.
At dinner with Wilkis and his wife, Levine would drone on, bragging about his exploits at Drexel. Laurie Levine would gaze dreamily into space, but the evenings drove Wilkis’s wife to distraction, and she begged not to continue them. Wilkis also lost his Lazard source, Cecola, who completed his analyst program at Lazard and left that fall for Harvard Business School. “Can’t you throw me some bones while I’m at business school?” Cecola had pleaded, eager to keep up his trading. Wilkis couldn’t see recruiting another source, and he didn’t want to compromise his work at Hutton. In any event, Levine was drifting away from him, increasingly preoccupied with a world that offered riches and glamour that Wilkis could never rival.
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br /> At Drexel, after having worked there for just 10 months, Levine had his first bonus review with Kay, an event he’d anticipated by working up a departmental profit calculation, demonstrating his own contribution to the bottom line. He’d made no secret of the fact that compensation was extremely important to him, frequently reminding Kay that “I want to become as wealthy as one can get” and that he wanted “to make more money every year than I did before.” Kay saw such attitudes as a plus, and thought they typified star qualities in the M&A business. At their session, Kay reviewed Levine’s work during the year, telling Levine he felt he could be “relied upon to take a transaction and work on it at the highest level of confidence.” Then, feeling certain that he was about to bestow on Levine a sum that exceeded even Levine’s measures of his own abilities, Kay said, “Your bonus for 1985 is . . . one million dollars.”
“That,” Levine replied, “is an insult.” He stood up and stalked out of Kay’s office.
6.
“Let’s have coffee,” Siegel said to Boesky on the phone, using their new code to indicate he wanted a meeting. Siegel now insisted they meet in person; he worried that Boesky’s phones were tapped. With all Boesky’s CIA talk, and after his recent experience with the exotic courier, Siegel thought anything was possible. He walked the few blocks from Kidder, Peabody to Water Street, then paced back and forth. He wondered briefly what he’d say if he encountered anyone he knew. It was winter, January 1983, not a time of year when one would ordinarily go for a stroll around the block.
Boesky soon emerged from the lobby of his office building at 55 Water Street and hurried toward Siegel. As they walked, Siegel explained that Kidder, Peabody had been retained by Diamond Shamrock Corporation, a large chemical and natural resources company, to explore the acquisition of an oil company. While nothing was definite yet, Siegel had been shown a list of possible acquisition candidates, and a likely target was a comparatively small oil producer, Natomas Co.
Siegel thought that Natomas fit into the Boesky scheme in two important ways: If Boesky started buying the stock now, months before any transaction was likely, the trading would be so far in advance as to elude any monitoring for possible insider trading; Siegel himself wasn’t even certain there would be a deal. Of course, Boesky wasn’t the only one who would profit if he started buying now. Siegel wanted some buying pressure to show in Natomas’s stock. He wanted to soften up the company for the possibility of a friendly overture from Diamond Shamrock, and the best way to do that was to convince Natomas that it was “in play,” likely to be the target of a much less attractive hostile takeover bid.
The men turned off Water Street, walking toward the East River in a largely deserted section of Manhattan south of the South Street Seaport. Talking quietly, glancing around occasionally to see if they were being observed, Siegel laid out Diamond Shamrock’s plans, urging Boesky to begin buying slowly, and warning him of the possibility that the deal wouldn’t be consummated.
Shortly thereafter, Boesky started buying. Things went smoothly until, in March, Diamond Shamrock briefly decided to scrap the deal because it was having trouble raising money for the acquisition. Boesky nearly panicked, but Siegel reassured him, urging him to hold on to his position.
Ultimately, the money for the acquisition was raised through a stock offering, and the deal was closed in May. By then, Boesky had built up an enormous position, though he never disclosed to Siegel exactly how much he was buying, or at what prices. Siegel wouldn’t let him discuss any aspect of his position on the phone. Only while reviewing data for the merger did Siegel note, to his amazement, that Boesky had acquired over 800,000 shares. Boesky’s total profit on the deal came to $4.8 million. That, Siegel thought, ought to ensure his generosity later on.
Siegel soon had another opportunity to serve Boesky and his own client, as well. In September, Gordon Getty, the eccentric heir to the J. Paul Getty fortune, called. He was dissatisfied with the way Getty Oil was being run. Siegel thought he was likely either to launch a bid for the company himself, probably with other allies, or to sell his stake to someone likely to acquire the entire company.
The stocks of companies controlled by family interests are often depressed by an expectation that they can’t be taken over, so any news of disaffection in a powerful family is eagerly sought by arbitrageurs. Siegel leaked the news to Boesky, who bought some Getty options, later disposing of them at a profit of $220,000. Boesky later played the deal for even more profits, as first Pennzoil and then Texaco made bids for Getty. Some estimated that Boesky’s Getty profits were as high as $50 million.
Siegel tried to tailor his leaks to what he perceived as the interests of his clients. He kept far more information secret than he gave Boesky. Boesky pressed him for more leaks, even offering to put money for Siegel in a European account. “Ivan, I’m not interested in that,” Siegel had replied. “I’m not going to flee the country, for God’s sake.” Boesky kept trying, offering to invest in real estate for Siegel, even going so far as to offer to hire Siegel’s father.
Perhaps the most striking example of Siegel’s failure to tip Boesky came when Brown-Forman Distillers Corporation launched a cash tender offer for Lenox Inc., a maker of fine china. Lenox retained Siegel, who helped pioneer, during the course of the deal, one of the most effective antitakeover techniques of the eighties: the “poison pill.” The poison pill was largely the brainchild of takeover lawyer Martin Lipton, but Siegel had contributed significantly to its evolution. The pill, now widespread in corporate America, is used to make a hostile takeover prohibitively expensive by giving shareholders exorbitant rights if such an attempt is launched. Lenox, for example, tried to save itself by developing a pill giving its shareholders the right to buy Brown-Forman stock if Brown-Forman launched a bid.
The deal was an arbitrage challenge because Lenox fought back. After surging initially, its stock price dropped back. The situation moved into litigation, making the outcome even more uncertain. Many arbs panicked and sold, but Boesky continued buying. On the very day that Lenox decided to capitulate after all and accept a higher bid from Brown-Forman, Boesky bought a huge stake of over 62,000 Lenox shares. He ultimately owned about 9% of Lenox and made about $4 million on the deal.
Other arbitrageurs were amazed and jealous; rumors began circulating on Wall Street that Boesky had to have a source of inside information. No one, it was reasoned, could be so consistently prescient, especially in a deal with the peaks and valleys of a Brown-Forman/Lenox. Yet it was one of the deals in which Siegel didn’t breach his client’s confidence. Until almost the very end, Lenox wanted to fight. And Siegel thought the poison pill defense would actually succeed. He advised Boesky not to buy the stock. When the Lenox board suddenly capitulated, Siegel became convinced that Boesky had had another source of inside information on the deal.
In another instance, Boesky called Siegel, saying he’d gotten some confidential information on Gould Inc., a client of Siegel’s. Siegel suspected Boesky had gotten the information from a Kidder, Peabody institutional broker in Boston named Donald Little. Little, an avid polo player, handled a lot of trading for Boesky and was a close friend through polo circles of William Ylvisaker, the chairman of Gould. Boesky asked Siegel to confirm the information, but Siegel lied, saying he didn’t know.
Late in December 1983, the two met to discuss Siegel’s “bonus.” Siegel reminded Boesky of how valuable his information had been in the Natomas and Getty deals, and they also discussed at some length other advice Siegel had given, such as his estimates of valuation on a Utah pipeline. Though this was hardly as valuable as inside information, Siegel thought it was only fair to be compensated for that too; he rationalized what he was doing by seeing his relationship with Boesky as a sort of “consulting” arrangement. Finally Siegel asked for $250,000. He didn’t make any elaborate calculations; he knew Boesky had scored big in Natomas, and, though the Getty situation was still unfolding, he assumed Boesky stood to make a lot on that deal, too. Si
egel simply approached the matter as he did his bonus at Kidder, Peabody, and $250,000 was what he thought was “fair.”
It was also what Siegel thought he needed. His own salary and bonus that year, a substantial $733,000, was actually less than he’d made the year before. He’d bought a four-bedroom cooperative apartment on Gracie Square, just across from the New York mayor’s mansion, for $975,000, and the repair work and redecorating were just beginning.
Boesky readily agreed to the $250,000—the sum represented a tiny fraction of his own profits on Siegel’s information—and the cash drop was arranged. Again Siegel stood in the lobby of the Plaza Hotel, watching for the swarthy courier. The same code words, “red light” and “green light,” were repeated, and the briefcase was handed over.
When Siegel returned to his apartment, he counted the money, again wrapped in Caesar’s Palace ribbons, and found that a substantial amount was missing—taken, he assumed, by Boesky’s courier. In one stack of bills, instead of the hundreds he had requested, were one-dollar bills. The total only came to $210,000. He felt cheated.
Siegel arranged another meeting, and confronted Boesky, saying the courier was stealing. Boesky was indignant. He swore the courier was someone he could trust, someone who wouldn’t skim any of the cash. Siegel shrugged, deciding it wasn’t worth pressing the argument. Still, a deal was a deal. He vowed to himself that next year he’d increase his demands, assuming that 15% to 20% would end up in someone else’s pockets.
Within months, Boesky was making more money than ever, mostly from a deal that didn’t involve any information from Siegel: Gulf Oil, Boesky’s old nemesis, the company that, by abruptly pulling out of the Cities Service deal, had nearly ruined him. Texas oilman T. Boone Pickens, the corporate raider and Drexel client, had disclosed a large stake in Gulf in September, about the time Boesky received his first Getty tip. Eventually, with Drexel’s backing, Pickens launched a partial tender offer for the huge oil company. It scared Gulf enough to drive it into the arms of a white knight rescuer, Standard Oil of California (Socal), in what became history’s largest merger at the time. The deal rocked Wall Street by its sheer size, and demonstrated the power of a Drexel-backed raider.
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