The Predators’ Ball (46 page)

Wickes was one. Sanford Sigoloff, Wickes's chairman and chief executive, sees himself as the doyen of troubled companies. In the seventies, Republic Corporation and then the Daylin Company, both of which had gone into Chapter 11, were successfully reorganized under his aegis. And by early 1985, after Sigoloff had steered Wickes, a lumber and building-materials retailer, out of its bankruptcy, he was intent on raising about $300 million in junk bonds in order to make an acquisition.

Troubled companies, of course, were the specialty not only of Sigoloff but of Milken, who had seeded his fortune in the seventies by analyzing the assets of troubled or bankrupt companies and buying the bonds of those with value at rock-bottom prices. Thus, he had accumulated a sizable portion of Daylin's debt, which then led to his futile attempt to exert control over Sigoloff at that abbreviated lunch where Sigoloff told Milken that the last time he had checked he was still chairman and CEO of the company. Later, Milken had acquired Wickes's debt.

Now Wickes, having emerged from Chapter 11 in January 1985, had one enormous asset: a $500 million tax-loss carryforward. Sigoloff believed that the best way to capture the value of that enormous tax benefit was to raise debt capital and make a major acquisition. Drexel was by no means his only option as an underwriter. Nearly everyone was eager to break into Milken's market by early 1985, and Salomon Brothers courted Wickes vigorously. According to one associate of Sigoloff, Sigoloff favored doing the deal with Drexel but members of his board of directors, worried about Drexel's reputation, preferred the prestige of a Salomon underwriting. So Salomon got the deal.

Milken had apparently not been paying much attention to the Wickes deal—perhaps because he doubted that Sigoloff, who had made a presentation at the 1984 bond conference about taking Wickes through bankruptcy, and who was Drexel's Santa Monica neighbor, would dare to go anywhere else. But in early March a Drexel employee told Milken that he had just seen Sigoloff socially and learned that he was preparing for his road show—with Salomon.

On Friday, March 22, after Salomon had already drafted and printed its red herring (the preliminary prospectus that must be filed with the SEC prior to the underwriting) for the Wickes offering, Saul Steinberg's Reliance Financial Services Corporation filed with the SEC a 13D (required whenever one acquires more than 5 percent of a company's stock) stating that he owned 10.4 percent of Wickes's stock. Sigoloff received a call from Milken, and the two arranged to meet on Saturday, March 23.

On Saturday, “Mike told Sandy [Sigoloff] what Saul held, what Drexel held, and how, when you combined that with whatever other pockets Mike might have placed the stock in, it meant they would have control of the company,” said a Wickes director close to Sigoloff. “So Mike told him the facts of life.” If they were indeed in collusion, Steinberg and Milken at least—and the other “pockets” if they were aware of this anticipated action—were violating the securities laws by not filing 13Ds as a group.

According to Steinberg's 13D filing, he had started his accumulation of Wickes stock on March 12—by which time Milken had been apprised by the Drexel employee that Salomon had won the Wickes deal. He crossed the 5 percent line on March 14 and continued to add to his position aggressively. However, according to a Drexel spokesman, this 13D—reflecting the purchases of approximately
8 million shares during the period March 12–21, 1985—reflects the settlement date of the purchase of “when-issued” Wickes shares by Reliance back in November 1984 (5 million shares) and in January 1985 (5 million shares). (Approximately 2 million shares had not yet settled.)

It seems noteworthy, however, that this 13D gives no hint that these transactions occurred as Drexel claims. It states that these purchases of securities were made “during the past sixty days, all . . . by brokerage transactions.” It does not mention that these are settlement dates rather than trading dates—though 13Ds generally reflect trading dates. And (suggesting that this is not simply a carelessly drawn 13D) it takes the trouble to state that a Reliance official's 1,200 shares (less than .1 percent of Wickes's outstanding stock) were acquired under Wickes's “Plan of Reorganization”—which would seem to refer to the kind of “when-issued” transaction that Drexel claims accounted for the entire 10 million shares.

During the March 23–24 weekend, Sigoloff suggested to Salomon that Drexel co-manage the deal. Sources say Salomon replied that the quid pro quo for Drexel's joining the deal should be that Steinberg sell his stock. John Gutfreund, the chairman of Salomon, is said to have been so enraged that he attempted to intervene. He phoned Sigoloff during the weekend.

According to one Drexel source, Drexel was assured of being co-manager from the time of the Saturday Milken-Sigoloff meeting, and an investment banker from the Beverly Hills office, Joseph Hartch, met with Sigoloff and started working on the deal the following Monday morning. “But it is obvious that two giants can't walk the earth,” this source declared. And by the next Thursday, Salomon was out, and Drexel was in as sole manager.

Sigoloff reached Milken by phone on Thursday in the Beverly Hilton auditorium, where he was holding court at the 1985 Predators' Ball. Sigoloff told Milken he was giving him the keys to the washroom and Milken had better not let him down. The next day's conference schedule was revised to insert a Wickes presentation. And there, attentive in the front row, was the company's 10 percent holder, Saul Steinberg. Sigoloff and he had a friendly conversation, and Sigoloff felt threatened no longer; they were in the same camp. Within the next couple of months, Steinberg reduced his position to 3–4 percent.

At the conference, Sigoloff also met Martin Davis, chairman of
Gulf + Western. Some four months later, Wickes bought Gulf + Western's consumer- and industrial-products group for about $1 billion. Drexel raised the debt for that acquisition, and one year later, in June 1986, it raised another $1.2 billion for Wickes in a “blind pool”—the largest ever. Its coffers brimming with that cash, in early November 1986 Wickes announced that it was buying Collins and Aikman Corporation, a manufacturer of fabrics and wall coverings. And only days later, Wickes announced it had completed negotiations to take over Lear Siegler, the aerospace concern and maker of automotive parts. Together, these acquisitions would cost nearly $3 billion.

Wickes, like Heyman's GAF, had been the kind of client Milken simply refused to lose. Each became one of the handful of quintessential players, Milken's giant acquisitors with appetites large enough to be Milken's “monsters,” as Riklis had put it. To win GAF, Milken had done a deal that probably cost him money, one that no other firm would have done. To win Wickes, he had used a different kind of persuasion—in this writer's view, extortion. Milken, of course, would not have used that word. He was recruiting his players, aligning them, disciplining when necessary, forcing when he had to force, and reforming the corporate world.

M
ESSIANIC VISIONS
aside, there was also the visceral satisfaction of having taken on a competitor, Salomon, a Wall Street titan. In 1985 Salomon was perceived as the most powerful investment-banking firm on the Street, with a viselike grip on underwriting and trading. Milken had beaten it to a pulp. The fact that they had been able to expunge Salomon from a done deal was a source of great glee and self-congratulation at Drexel. Referring to Steinberg's sudden appearance and Salomon's disappearance, Leon Black said, laughing, “That's power investment banking. Things like that have always happened on the Street—although,” he added with a grin, “they're not usually so blatant.”

In fact, in this never-never land at Drexel where Gobhai wish lists kept being granted one after another, the Wickes deal marked the fulfillment of one more. In the notes of a Gobhai meeting back in 1983, this goal was recorded in block letters: “
TO BE AS BIG AS SALOMON SO WE CAN BE AS ARROGANT AS THEY ARE AND TELL THEM TO GO STUFF IT
.” And at the Wickes deal's closing dinner, held in the Garden Room at the plush Hotel Bel Air, one Drexel
employee presented to Milken, Joseph and others framed copies of three prospectus covers, mounted side by side—a Wall Street triptych. The first was Salomon's red herring; the second was the prospectus with Drexel and Salomon listed as co-managers; the third was Drexel's. The inscription that ran across the bottom of the mounting read, “As Yogi Berra said, ‘It isn't over 'til it's over.' ”

I
N
F
EBRUARY
1986, when Milken appeared before the money managers in Boston, speaking about the difference between perception and reality and ticking off his triumphs, he had begun by noting that he had seen pickets as he entered the building. That had reminded him of the time he offered to finance Frank Lorenzo's bid for TWA. “We had pickets circling our building night and day in Los Angeles, until we explained to them that we were just a small branch office and what they really wanted was 60 Broad Street [the executive offices of Drexel, in New York].”

It was an “in” joke that could only be relished by those who understood Milken's relationship to Drexel. But in this group, comprised of many old-timers in the junk market who had known Milken since he first came pushing his oddball product in the late seventies, it brought the house down. This audience realized that however much of a Wall Street powerhouse Drexel had become, it was first and foremost a facade for Milken.

Moreover, while Milken had fastidiously shunned the trappings of power at Drexel—refusing to be elevated from a mere senior vice-president, refusing to be mentioned in the annual report—he was not averse to the thing itself. He did not exercise power in the administration of the firm, because it did not interest him. But in his operation, which was all he cared about, he enjoyed untrammeled power. The trading floor in Beverly Hills, notwithstanding the fact that he expected no one there to work any harder than he did, notwithstanding his unwillingness to refer to his people as “subordinates,” notwithstanding his having no office, was his
throne room. And every other office—including Drexel headquarters in New York—was the hinterlands.

In L.A., Milken had gradually created his separate firm—much as earlier, after the Drexel Burnham merger, he had created his separate group. By this fall, 1986, his traders in Beverly Hills were trading not only junk bonds (straight and convertible debt) but common stocks, preferred stocks, the securities of bankrupt companies, and mortgage-backed securities. Drexel's mortgage-backed-securities and common-stocks departments were back in New York, but Milken traded whatever interested him in Beverly Hills. And in an adjacent building, connected to Milken's trading floor by a walkway, was the corporate-finance department. John Kissick, Drexel's investment banker in Beverly Hills (who had worked with Milken on that first Golden Nugget transaction for Steve Wynn), had built this department from three professionals in 1982 to about ten in early '85 and to sixty in '86. According to Kissick, 30 percent of the firm's investment-banking revenues then came from his group. Being in this corporate-finance department was still not the same as being in Milken's enclave. Milken insisted that not only these corporate finance people but
his
salesmen cover the accounts he cared most about, so that he ceded no control. But it was the next closest group to “the Department.”

Kissick idolized Milken. (“Mike,” said Kissick, “is what we would all like our sons to be.”) And since he and his colleagues were so close to the fount, they tended to incorporate the Milken ethos. Arthur Bilger had moved from the corporate-finance department in New York to L.A. in 1982, in order to be close to Milken. Being close to Milken, Bilger had found, meant living (more or less) on his schedule. “Mike gets in at four-thirty, and it's sort of a competition among guys out here, who gets in the earliest,” Bilger remarked. “Although Mike always wins.

“I'll be with him at the end of a day,” Bilger continued, “and I'll say, ‘I have to see you.'

“Mike will say, ‘How about in the morning?'

“ ‘What time?'

“ ‘How about four-fifteen?' ”

Bilger sighed. “And I smile and say, ‘What am I going to do with myself between two-thirty and four-fifteen?' ”

It was Bilger who in the summer of 1986 sent the framed quotation “Drexel is like a god . . . and a god can do anything it wants”
to several of his colleagues. But Bilger's excitement was mild compared to that of some of the younger associates in Beverly Hills. They had received their primer in corporate finance from Milken as he wrested control from the corporate elite and passed it to his chosen, the have-nots of American business life. Many of these investment bankers—and, even more, Milken's troops in “the Department”—felt that they were in the vanguard of a force that would change the world.

“There was no legacy out in Beverly Hills. They started out fresh. It was a real Wild West thing,” said one former Drexel investment banker from New York. “I remember [in 1986] one of the young corporate-finance associates in Beverly Hills said to me, ‘Maybe we'll take a run at IBM'—and he was only half kidding.

“Don't take me literally,” this investment banker added, “but I used to think about what was happening in Beverly Hills as the ‘five-o'clock what-if sessions.' In a sense, the most dramatic events in corporate takeovers in the last few years have come about because some guys out in Beverly Hills, tired at five o'clock after a day of trading, sat around saying, ‘What if. . . ?' ” He gestured, one hand seizing the other. “And then, instead of going out and getting a beer, they'd get on the phone and make it happen.”

B
ACK IN
'79, key members of the New York corporate-finance team had resolved in their Cavas Gobhai session to “merge with Mike.” That goal had been only partially realized. The investment bankers in New York had “merged” with Milken in that they had helped him build the junk business, prospered mightily from it, and invested as principals in some deals along with him. But as Milken's L.A. firm grew, the schism widened between East and West coasts. The Beverly Hills contingent tended to look upon at least some of their East Coast partners as ciphers who lived off the fruits of the West's labors, and the New Yorkers, for their part, looked askance at Beverly Hills as too wild, too reckless—and too greedy. The jealousy over the amount of money being made out in L.A.—which had spurred the resolve to “merge with Mike” in the first place—had not abated.