The Predators’ Ball (36 page)

With his enormous parachute and his elegant, European lifestyle—much of it supported by company perks—Bergerac had made an easy target. From the time the Forstmann Little-management buyout was announced, he had received a working-over in the press. At the outset of the battle he had announced that Revlon was worth $65 a share, and he had derided Perelman as a “bust-up artist.” Then he helped to engineer—with his roughly $35 million severance package—his own bust-up of the company, at a price that was $9 below what he had first said the company was worth.

For this, Bergerac was portrayed as a self-interested hypocrite. But what this attack ignores is that $56 was a good price for the company, and that Bergerac had fought hard to bring it up from Perelman's $47.50 (and then $42, when he factored in the cost of Revlon's exchange offer). He had done well for his shareholders. It is true that he was attempting to do the very thing he had accused Perelman of—busting up the company. But there was no white knight to take the company whole. Was Bergerac to do nothing and let Perelman bust it up for $53? In his own bust-up, he would have
been able to take care of his people, something his advisers concur was a foremost concern throughout this battle. Had Bergerac been solely self-interested, he could have accepted Perelman's lavish inducements.

Of his defeat Bergerac said, “It was a terrible experience. I would hope to never go through something like that again. At the final board meeting, people were bawling, I cried. . . . You must understand, people had a love for this company. It was like a woman's being raped.”

Revlon was a public company. It did not belong to Bergerac or to the others on the board who wept for it. But shareholder ownership is an abstraction, compared to the tangible reality of a company, its directors, its employees who come to work every day, its customers and its community. It is the dislocation or destruction of that tangible reality that makes hostile takeovers so fraught with emotion.

Felix Rohatyn contrasted Revlon—which he calls his “virginal experience” in defending against a bust-up, junk-bond raid—with other hostile raids in which he has been a defender. “People on the other side are usually a company interested in a product, in business strategy, and the emphasis is on how do you put two companies together and make them grow, where do we go from here to make them bigger and better.

“Here the overriding issue was, what can we sell for how much, to be left with a small piece for nothing, or virtually nothing. On the other side was a group of people tearing at a carcass—a group of people interested in numbers on pieces of paper, and nothing having to do with people, customers, quality, is this good, bad, or indifferent.”

This world
had
changed. And it had not changed for the better. It was not simply a matter of the old members of the club not liking the style of these shrewd, dollars-and-cents-driven parvenus, who had started their own club and were now running things—though that, certainly, was a part of it. It was also that these newcomers, in their desperation to break in, seemed to flout not only social values, but the law. Revlon's defenders had alleged and then failed to prove violations of the law, but they remained convinced that it was true.

As one participant declared, “In the seventies, among the people I dealt with . . . there were some I liked and some I detested but
they were all bright, decent people. The arbs were Bob Rubin [of Goldman, Sachs] and Bunny Lasker [of Lasker, Stone and Stern], and they were honest, and if they thought they had inside information they'd call and ask, and if we said yes, then they'd freeze their position. And the clients were people like Larry Tisch going after CNA—or big companies going after other big companies, because they believed they could run them better.

“Now it's the Icahns and the Jacobses and the Pickenses and the Peltzes and the Perelmans.

“And,” this participant continued, displaying the paranoid-sounding mind-set that the junk-bond wars had induced, “we have to have detectives in to make sure our rooms aren't bugged and our phone lines aren't tapped, and that they aren't sending electronic beams into our offices, and we have to look for hidden cameras when we go into and out of meetings. They have ruined my life. You feel like you're in the gutter, like they're piling shit on you and you have to keep struggling to get up from it. And it's all been made possible by Drexel. Without Drexel, none of it could have happened.”

W
HILE
R
EVLON
'
S
defenders mourned, the “blue team” celebrated. When the deal closed in early November, Perelman hosted a dinner for thirty aides, lawyers and investment bankers at Le Club, an exclusive Manhattan nightspot. Perelman's favorite champagne, Cristal, flowed freely, and some of the key players put on a skit which—in the continuing color-war motif—was referred to as the “songfest.”

It opened with the first Perelman-Bergerac encounter, in June '85. Dennis Levine played Bergerac, dressed as a big-game hunter, mimicking his French accent, calling Perelman an “upstart” and a “Jew from Philadelphia.” Engel played Perelman. Wearing Gucci loafers and one of his $3,000 Fiorentino custom-tailored suits, he fondled and puffed a fat Macanudo cigar and dropped its ashes on Bergerac's rugs. When Bergerac (Levine) offered Perelman (Engel) some Château Lafite, Perelman asked for vodka. “Peasant!” snorted Bergerac.

There was plenty to celebrate for those on hand that night. Perelman had gotten the company of his dreams—though not for free, as he had originally planned. Its real cost would not become clear for some time, until the divestitures were completed. But for
most of these merrymakers, particularly the lawyers and the investment bankers, the bust-up of Revlon had already spouted geysers of gold. Fees paid to lawyers and investment bankers in this deal came to over $100 million—making it the most lucrative takeover yet. Even the $13.4 billion acquisition of Gulf Oil Corporation by Standard Oil (instigated by Pickens) threw off only $60 million in fees.

Revlon's legal bill, from Wachtell, Lipton and Paul, Weiss, is estimated at about $10 million, while Pantry Pride's from Skadden, Arps is estimated at $7–8 million. Fried, Frank, Harris and Shriver, representing Forstmann Little, was paid at least $1 million.

But as is always the case, the investment bankers' take makes the lawyers' seem modest by comparison, though the bankers typically have far fewer people working on any deal than the lawyers do. Goldman, Sachs and Company received about $3 million from Forstmann Little. Lazard Frères received about $11 million from Revlon. Morgan Stanley, once all the divestitures were done, received under $25 million—far less than the $30 million that had been established as their ceiling. In fact, Drexel had tried to persuade Perelman to ditch Morgan Stanley when they refused to put their name on the tender offer, and Drexel continued to argue that all Morgan Stanley deserved was its fee for having brought Perelman the idea.

Not surprisingly, Drexel claimed the lion's share—over $65 million. In its July public offering of $750 million of Pantry Pride notes, Drexel received an underwriting discount, or fee, of about 3.5 percent, which equaled $25 million. It received another $11 million as an advisory fee. And then it received on its private placement of $770 million about $30 million.

Moreover, when MacAndrews and Forbes made its purchase of 37.6 percent of Pantry Pride stock for $60 million in the spring of '85, Drexel-related entities known as Prime Capital Associates had bought $10 million worth of that stock on the same terms as MacAndrews. This stock was distributed, as such extras always are, to those whom Milken favored—himself, his people, some of the key individuals in corporate finance. Engel was one of those in Prime Capital Associates.

Revlon's most senior executives lost their jobs, though they did not walk away empty-handed. Golden parachutes totaling $42.2 million were paid out to thirteen executives. Fifteen million of this went to Bergerac's own parachute—the largest ever given. In addition,
he received five years of salary and bonus, valued at about $7 million; and stock options and accelerated payment of restricted stock worth $13 million. In all, his severance package came to $35 million.

Revlon's shareholders also did well. The stock was trading in the low thirties before the Pantry Pride rumors drove it up, and Pantry Pride paid $58 per share in the end. (Immediately after the argument in Chancery Court but before Justice Walsh wrote his opinion, Pantry Pride had raised its bid from $56.25 to $58.)

Pantry Pride shareholders were not left out. That stock was trading at about three and three quarters before Perelman took control of the company in the spring of 1985. Less than a year later it had tripled.

And those who signed up for the bonds and bought them but wanted to trade out quickly also profited. One of the buyers said that over a period of several months—starting before Perelman announced his offer, but when the company was known to be “in play”—he had accumulated about $16 million of Revlon stock. When Drexel called to sell him the bonds, therefore, he had a powerful interest in seeing the deal go through. He sold his stock for about $18 million, he says, and then put that money up for the bonds at an interest rate of 13.75 percent, plus his commitment fee of .75 percent.

The deal closed in mid-November, and within two weeks there were reports that Revlon was going to sell its Norcliff Thayer health products and Reheis special chemical businesses to the Beecham Group of Britain for about $400 million, and its ethical-drug division to Rorer for over $600 million. Both deals were announced by the first week of December. Some onlookers were puzzled by the speed with which the Rorer deal, particularly, was done, and by the absence of an auction. Howard Gittis, however, explained, “They had an exclusive. Well, almost an exclusive. We said, ‘If we get the company, and you commit to us now, then we won't shop the deal.' ” This agreement should arguably have been disclosed in SEC filings if it was indeed made during the course of the deal. When later asked to comment, Gittis denied that anyone had been given an exclusive.

“At that point [in December], the money was just sitting there in the bank, but they couldn't call [buy back] the bonds for six months,” this buyer said. “So it was completely safe now, good for
the S&Ls, and Milken wanted the bonds back.” That suited him, he added, because he wanted to get his money out. And he was eager to be a team player so that Milken would come back to him in the next deal.

This is the same kind of movement of the bonds—out of the hands of a high-rolling buyer into those of the more reticent thrifts, insurance companies and pension funds—that took place in Triangle-National Can. Here the high-risk, private buyers were freed to go on to the next megadeal, which in December was GAF-Union Carbide; while the more risk-averse but still hungry players could be fed.

The only dissonant note in this chorus of happy profiteers came, as is usual in these transactions, from the bondholders of the acquired company who found their paper suddenly downgraded now that the company was so debt-laden. (Their prices, however, have since rebounded.) This illustrated the gospel according to Milken, which proselytized that while low-grade bonds might be upgraded, high-grade could go only one way—down. Of course, when he first started spreading that gospel he had been speaking as an observer; now, many years later—as Milken's raiders menaced companies which did defensive restructurings and then had their bonds downgraded, or acquired companies whose bonds were subsequently downgraded—he was often the propulsive force. According to Drexel, in 1985 $4.6 billion of junk bonds moved up into the investment-grade category, while $9.1 billion of investment grade moved down into the netherworld of junk.

O
NE YEAR AFTER
the “blue team” had had its high-spirited bash at Le Club, Perelman was still on the move. In October 1986 he had made a run at CPC International, the food-processing company, and had then sold his stake to Salomon Brothers for a profit of $41 million (in a trade which a
Wall Street Journal
“Heard on the Street” column suggested was prearranged, artificially inflated, and, if so, Perelman's first—albeit disguised—greenmailing).

By early November, Perelman had accumulated 15 percent of the stock of Transworld Corporation, a restaurant, hotels and food-service conglomerate. Transworld then decided to liquidate, but Perelman got the option of buying its prize, Hilton International Company, for $1 billion. That option aside, in one month he had achieved on his $223 million Transworld investment a paper profit
of $55 million. On November 14, he offered $4.1 billion in cash—with Drexel's “highly confident” endorsement—for the Gillette Company, the razor-blade manufacturer.

Perelman was thriving as a predator. But whether the Revlon acquisition, which had raised him from an obscure, small-time entrepreneur to a corporate mogul, would in fact turn out to be the world-class company that he envisioned was less clear. He had purchased Revlon shares for about $1.8 billion, assumed debt of roughly $1 billion, and had expenses and carrying costs that brought his total acquisition cost to about $3 billion. He had sold several of the health-care businesses for a total of roughly $1.4 billion. He had kept National Health Labs and Vision Care, whose value at the time of the acquisition (though it has since gone up) was probably about $1.2 billion. Therefore, Perelman had not acquired the cosmetics business for free, as he had initially planned—but for roughly $400 million. And Revlon's contract to sell the cosmetics business to Adler and Shaykin—for a price that Perelman puts at $780 million, not $900 million—ended in litigation that cost Perelman $23.7 million to settle. (By year-end 1987, Perelman would augment the cosmetics business—making it the world's largest—by buying Max Factor, Charles of the Ritz and Germaine Monteil for more than $500 million. According to Revlon, operating profits for 1987 would double what they had been in 1985.)