Icahn

"The first prospective buyer, Resorts International, put forward a weak bid of $22 a share for a merger, 60 percent of which would be in cash, the balance in debentures. In addition, Resorts simultaneously proposed an alternative plan known as a front loaded tender offer. As popular shareholders move, in some cases stampede them, into the raider’s camp for fear of winding up in the back end of the deal. Under this scenario, Resorts would pay $24 for 60 percent of the stock and a $19 debenture for the balance of the shares. The idea amounted to a poorly camouflaged strategy to box Icahn into a corner. In this case, Resorts would attempt to use the two-tiered takeover strategy to coerce Icahn into accepting its $22 bid. Central to this, Resorts knew that as an owner of more than 10 percent of TWA’s stock, Icahn had a “section 16(b)” problem, which meant that if he sold his shares of TWA within six months of buying them, any profit would revert to the company. This would leave Icahn unable to benefit from Resorts’ front-loaded price. In this context, Resorts was prepared to warn Icahn that if he fought their bid to acquire TWA, they would proceed with the front-loaded tender, forcing Icahn to take the back-end debentures. But if he did not oppose them, Resorts would switch to the one-step merger with an equal price for all the shareholders. As part of its strategy, Resorts planned to create an artificial deadline, giving Icahn an hour to decide which way he would go. As a seasoned M&A negotiator, Freund knew the Resorts attempt to stymie Icahn would fail. Presented with an ultimatum in which he is told to choose between evil A or lesser evil B, Icahn moves into intellectual overdrive, expanding the range of options. In this way, he turns the tables on his adversaries, who find themselves facing a more ominous threat than they hurled at the raider. “We felt that Carl would have said ‘no’ on principle,” Freund said, referring to the Resorts ultimatum. “He would challenge it in the courts and buy in the market underneath the tender, presumably sweeping the streets to get 51 percent. Then he would provide the TWA shareholders with a lower-than-$18 back end.”"

"Why, I thought, would Icahn care about book advances that—even if we had a bestseller on our hands—would pale by his financial standards. At first, I chalked it up to Carl’s voracious appetite for every dollar he could claim but one night after I trounced him in two sets of tennis 6-0, 6-0 and he brooded about his losses over dinner, I connected the dots. Carl wasn’t interested in sharing anything with anyone at any time. He wanted the agreement, which gave him limited rights of approval on the manuscript, in order to stall, alter or otherwise use his contractual leverage to altogether kill the book. To prove that he in fact outsmarted me and was right at the outset: there would be no biography."

"discovered that he was a speculator of sorts, a financial genius and a bully, who had managed to go head-to-head with the corporate establishment and force them into taking actions they resisted. In virtually every case, these captains of industry erected firewalls of lawyers to protect their positions, did everything"

"possible to intimidate Icahn but in the end they would fold or otherwise cede to his demands and in doing so would line his pockets with tens or hundreds of millions of dollars. I began to think of Icahn as a Rhodesian ridgeback, who leapt onto corporate CEOs, clamped his teeth into their jugular veins and took them down as his prey."

"Negotiating is probably the thing Icahn does best in life. He brings to it his considerable talents as a poker player, bluffing masterfully, so his opponents never know whether he is going to play or fold. He sketches so many options, and so many variations—or hedgings—on those options, that his adversaries often feel they are lost in a maze. The positions he takes are in such flux that for his adversary to try to challenge or attack them is, as one recalls, like “wrestling with a ghost.” And he keeps constant vigil over his own vulnerability. As one individual who has dealt with Icahn says, he is “so paranoid, always looking over his shoulder and behind every door, constantly thinking everyone is screwing him. As a result, Carl gets few surprises.”"

"When major corporations launched their hostile takeovers, they did so on the basis of commitment letters for the financing from commercial banks. Drexel, Icahn suggested, should act like those banks and give him a commitment letter. Sorte and Black thought that Icahn’s demand was outrageous. Drexel, they argued, was acting merely as agent for the lenders to Icahn, and if it gave him a commitment letter, the amount would be charged against the firm’s capital. In two years, however, this strange notion would be known as “bridge financing” and would be the rage on Wall Street. Investment banks would commit their own capital to a deal, in a “bridge” between the time of the offer and the time it actually had to be funded. By funding time, the investment bank would have placed much if not all of the debt with bond buyers. Trying to respond to Icahn’s demand for a letter of commitment, Black finally ventured, “Why don’t we say we’re ‘highly confident’ that we can raise it? It’s really different. It hasn’t been done before.” “Carl looked at me,” Black recalled. “He turned to his lawyer and said, ‘What do you think?’ His lawyer said, ‘Leon’s full of shit. It’s not legally binding, what good is it?’ ” Sometime in the early hours of the morning the meeting broke up, with Icahn saying he was no longer interested in doing the tender offer. But the next morning he called Black and said, “You know that ‘highly confident’ letter you were talking about? . . .” That was the beginning of Drexel’s famed “highly confident”—the pronouncement that would seem, for a time, almost talismanic in its power. One after another, multibillion-dollar tender offers were launched on the power of those two words, uttered by Drexel. It became an article of faith for Milken that once he had said he was “highly confident” that he could raise a given amount of financing for a bid, he would never renege or cut back on the terms, because then, of course, the words would be just words."

"Icahn, of course, is no one’s fool. In an apparently unprecedented arrangement—and the terms were to be kept secret—Paine Webber placed $ 1 million in escrow, to be forfeited if they were unable to do the deal on the agreed-upon terms. The way the deal was structured, the $ 750 million would enable Icahn to buy out all the shareholders and also take out his investment of about $ 300 million in TWA stock. In addition to getting all his money out, he planned to take out TWA’s computerized reservation system, PARS. It would be given to the Icahn Group as a dividend, and Icahn planned to lease PARS back to TWA for ten years for an amount that would have given Icahn an annual profit of $ 25 million."

"Icahn, “I don’t like giving up equity. I’ve learned over the years, a dollar bill is a better partner than a partner.”"

"“It was a mistake to feature Icahn—you use the operating guy, that’s whom the debtholders want to hear from. And you keep it to relatively small groups. Otherwise, if one person has a valid concern and stands up and voices it, all of a sudden two hundred fifty people who never would have thought of it are worried. “That wasn’t a road show, it was a media event,” Adams scoffed. “Icahn at the Waldorf.”"

"Now Black returned to the scene, telling Icahn that Milken not only would raise the $ 750 million with PARS out of the company, but would raise another $ 500 million war chest, or “blind pool,” in the company in which PARS would be placed. Bond buyers who liked the airline could buy its debt; those who were enamored of PARS could buy that company’s debt; others could mix the two. The company that would be formed to receive PARS—and the $ 500 million—would be called Mandrake (as in the magician)."

"Weinroth lapsed into the familiar refrain (articulated by Milken, Icahn and others of their persuasion) about the decline of corporate America in the hands of its managers, and its rescue by the new breed of manager-owners. “Old companies were started by true entrepreneurs, who had children some of whom were affected by the ills of the rich,” he continued. “They brought in professional managers, who ran the companies in a conservative fashion . . . but those professional managers didn’t have an ownership stake. Their risk-reward ratio was skewed to being a conservator, not an initiator. Then the second-generation [managers] grew to the top. And even if they were high quality as managers, they were certainly not entrepreneurial. And then that group promoted people who couldn’t threaten them, and they in turn hired people inferior to them, who lived for their perks and compensation and ran their companies conservatively because they had no upside interest. And by the time you go through several generations of these managers, you have a company run by dull-normals!"

"When major corporations launched their hostile takeovers, they did so on the basis of commitment letters for the financing from commercial banks. Drexel, Icahn suggested, should act like those banks and give him a commitment letter. Sorte and Black thought that Icahn’s demand was outrageous. Drexel, they argued, was acting merely as agent for the lenders to Icahn, and if it gave him a commitment letter, the amount would be charged against the firm’s capital. In two years, however, this strange notion would be known as “bridge financing” and would be the rage on Wall Street. Investment banks would commit their own capital to a deal, in a “bridge” between the time of the offer and the time it actually had to be funded. By funding time, the investment bank would have placed much if not all of the debt with bond buyers. Trying to respond to Icahn’s demand for a letter of commitment, Black finally ventured, “Why don’t we say we’re ‘highly confident’ that we can raise it? It’s really different. It hasn’t been done before.” “Carl looked at me,” Black recalled. “He turned to his lawyer and said, ‘What do you think?’ His lawyer said, ‘Leon’s full of shit. It’s not legally binding, what good is it?’ ” Sometime in the early hours of the morning the meeting broke up, with Icahn saying he was no longer interested in doing the tender offer. But the next morning he called Black and said, “You know that ‘highly confident’ letter you were talking about? . . .” That was the beginning of Drexel’s famed “highly confident”—the pronouncement that would seem, for a time, almost talismanic in its power. One after another, multibillion-dollar tender offers were launched on the power of those two words, uttered by Drexel. It became an article of faith for Milken that once he had said he was “highly confident” that he could raise a given amount of financing for a bid, he would never renege or cut back on the terms, because then, of course, the words would be just words."

"Now Black returned to the scene, telling Icahn that Milken not only would raise the $750 million with PARS out of the company, but would raise another $500 million war chest, or “blind pool,” in the company in which PARS would be placed. Bond buyers who liked the airline could buy its debt; those who were enamored of PARS could buy that company’s debt; others could mix the two. The company that would be formed to receive PARS—and the $500 million—would be called Mandrake (as in the magician)."

"“It was a mistake to feature Icahn—you use the operating guy, that’s whom the debtholders want to hear from. And you keep it to relatively small groups. Otherwise, if one person has a valid concern and stands up and voices it, all of a sudden two hundred fifty people who never would have thought of it are worried. “That wasn’t a road show, it was a media event,” Adams scoffed. “Icahn at the Waldorf.”"

"Icahn, of course, is no one’s fool. In an apparently unprecedented arrangement—and the terms were to be kept secret—Paine Webber placed $1 million in escrow, to be forfeited if they were unable to do the deal on the agreed-upon terms. The way the deal was structured, the $750 million would enable Icahn to buy out all the shareholders and also take out his investment of about $300 million in TWA stock. In addition to getting all his money out, he planned to take out TWA’s computerized reservation system, PARS. It would be given to the Icahn Group as a dividend, and Icahn planned to lease PARS back to TWA for ten years for an amount that would have given Icahn an annual profit of $25 million."

"Weinroth lapsed into the familiar refrain (articulated by Milken, Icahn and others of their persuasion) about the decline of corporate America in the hands of its managers, and its rescue by the new breed of manager-owners. “Old companies were started by true entrepreneurs, who had children some of whom were affected by the ills of the rich,” he continued. “They brought in professional managers, who ran the companies in a conservative fashion . . . but those professional managers didn’t have an ownership stake. Their risk-reward ratio was skewed to being a conservator, not an initiator. Then the second-generation [managers] grew to the top. And even if they were high quality as managers, they were certainly not entrepreneurial. And then that group promoted people who couldn’t threaten them, and they in turn hired people inferior to them, who lived for their perks and compensation and ran their companies conservatively because they had no upside interest. And by the time you go through several generations of these managers, you have a company run by dull-normals!"

"Negotiating is probably the thing Icahn does best in life. He brings to it his considerable talents as a poker player, bluffing masterfully, so his opponents never know whether he is going to play or fold. He sketches so many options, and so many variations—or hedgings—on those options, that his adversaries often feel they are lost in a maze. The positions he takes are in such flux that for his adversary to try to challenge or attack them is, as one recalls, like “wrestling with a ghost.” And he keeps constant vigil over his own vulnerability. As one individual who has dealt with Icahn says, he is “so paranoid, always looking over his shoulder and behind every door, constantly thinking everyone is screwing him. As a result, Carl gets few surprises.”"

"Icahn, “I don’t like giving up equity. I’ve learned over the years, a dollar bill is a better partner than a partner.”"

"In a classic confrontation over Icahn’s hostile bid for Phillips Petro¬ leum, Morgan Stanley investment banker Joe Fogg declared the proposal preposterous. “What the hell do you know about the oil business?” he de¬ manded to know. “You don’t understand, Joe,” Icahn calmly replied. “I’m not here for an interview.”9"