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Chapter One
Deal Makers
It's no strange thing that great deal makers trip over one another at every turn. When Kohlberg Kravis Roberts bought the battery maker Duracell for $1.8 billion in 1988, Ted Forstmann and Joe Rice were standing in line just a few million dollars shy. When Sumner Redstone bought the cable company Viacom, the yet undistinguished owner of MTV and Nickelodeon, his 1987 deal incidentally minted $110 million for Carl Icahn, who had looked over the company a year before and held stock warrants that were given to him as part of a package to make him disappear. Sandy Weill took a run at BankAmerica before Hugh McColl finally got it. Gary Wilson and Stephen Bollenbach both did stints as top financial executives at Marriott and Disney. Henry Silverman and H. Wayne Huizenga competed for the same car rental companies in the 1990s. And on and on.
For all the millions to be made buying and selling corporate assets, the "deal" community just isn't that big. When you whittle down the club to those who really excel at it--and have for years--the number shrinks to maybe a few dozen. That's why the same names pop up continually in any discussion of the money men behind the bustling practice known on Wall Street as M&A (mergers and acquisitions). It's unlikely that any major U.S. bank that was sold in recent years wasn't looked at by Hugh McColl. The same thing goes for any major diversified financial services firm and Sandy Weill. You think any large company looking to unload an underperforming division doesn't immediately think of Ted Forstmann and Joe Rice? Think again.
These are the great deal makers of our day. There are,of course, others. Henry Kravis, Leon Black, Sam Zell, and Ronald O. Perelman. A book like this one cannot begin to profile them all. But those I have selected, who talked to me about their peculiar line of work, represent the gamut of deal-making styles. Each is a veteran of three distinct decades of merger mania: the 1970s, which provided the origins of bank and brokerage consolidations and leveraged buyouts; the 1980s, which gave us heated bidding wars and corporate raiders; and the 1990s, when a roaring bull market made high-priced stock swaps the strategy of choice.
As a new decade dawns, it's not yet clear what distinction it will claim. There are modest hints that the mega-merger--a deal worth $20 billion or greater, so common in the latter half of 1990s--will fade from sight for a while as it did after the $29 billion blockbuster for RJR Nabisco in 1989. Of the nine deal makers profiled here, four--Gary Wilson, Hugh McColl, Sumner Redstone, and Sandy Weill--say they've probably done their last really big one. Weill (Citigroup), Redstone (Viacom), and McColl (Bank of America), especially, have built their companies through acquisitions, each of them more than once doubling the size of his company with a single transaction. Now, their companies are finally so large that there just isn't much left for them to buy that would have that kind of impact. So the mega-merger business could be in for a slowdown as these titans of takeover digest the prizes they've captured in a hectic period that produced a mind-boggling $2.4 trillion in takeovers around the world in 1998. No other year came close.
The biggest year of the renowned 1980s merger decade was 1989, which produced only $568 billion in deals. The biggest year for deals before 1998 was the previous year, with about two-thirds the volume.
Besides, as 1998 closed, the stock market had hit a rough patch. Numerous large deals, such as the one between chemicals giants American Home Products and Monsanto, had fallen apart. In some cases, the values were no longer there as one stock declined more than another. Weill's blockbuster deal to merge Citicorp with his Travelers Group was completed anyway. But that deal still serves as an example of how steeply prices had fallen. When the deal was announced in the spring of 1998, the market was just peaking and the merger was valued at $72 billion. By the time the deal was completed in the fall, both companies' stocks had plunged, and it turned out to be "just" a $39 billion deal. As stocks slump, companies look more skeptically at the partners they are marrying. The deals typically get fewer and smaller.
Counteracting that force, though, is the group known as financial buyers, investors who scan the market for undervalued assets and pay in cash--borrowed, to be sure, but cash nonetheless. Financial buyers with some $80 billion in unleveraged, untapped war chests were licking their chops as they surveyed the wreckage of the 1998 stock market pullback. Some were clearly thinking that the turn of the century might belong to them. If so, the volume of deals probably won't fall off much and could even pick up around the world. It would be just another turn in the ever-changing business of shuffling companies and their various parts.
And I wouldn't look for the likes of Redstone, Weill, and McColl to sit completely still. Once a deal maker, always a deal maker. I asked Weill point-blank if he had done his last deal. His return was a simple telltale grin. McColl is no different. Just months after our interview, in which he told me that his final mission was to integrate NationsBank and BankAmerica and then retire, he had already switched gears and persuaded the board to extend his tenure two years beyond his planned retirement date. Redstone may not be done either. He believes the entertainment industry has consolidated about as far as possible for now, but he's quick to note that if some unforeseen force changes the nature of his business, he'll be quick to jump back into the fray.
Masters of the Universe. Copyright © by Daniel Kadlec. Reprinted by permission of HarperCollins Publishers, Inc. All rights reserved. Available now wherever books are sold.