The Predators’ Ball (2 page)

On the second night of the Predators' Ball, while the lower-ranking troops (money managers and executives of medium-sized companies) were sent in buses to a show at a movie lot, some one hundred of the real players—takeover entrepreneurs, major investors, arbitrageurs, deal lawyers—attended a cocktail party at a bungalow at the Beverly Hills Hotel. From there they were chauffeured to dinner in a private room at the swank Chasen's in Beverly Hills.

In addition to Drexel's female employees, there were a number of extremely attractive young women at this dinner—so good-looking, in fact, that one takeover lawyer, George Katz of New York's
Wachtell, Lipton, Rosen and Katz, renowned for his naiveté, remarked to a companion, “I've got to hand it to these guys—I've never seen so many beautiful wives!”

In fact few if any wives attended this dinner. An assessment closer to the mark was made by arbitrageur Martin Weinstein, who, noting that Irwin Jacobs had been deep in conversation for hours with one of these women at the far end of the room, commented to a friend, “Tell Irwin he doesn't have to work so hard. She's already paid for.”

According to Julian Schroeder, a former corporate finance partner at Drexel, the “girls” have been a staple of the conference since the early years. They were seen as necessary bait for clients in the days when Drexel was “laughed at” by those whom he and his colleagues called for business. These women were recruited chiefly by Donald Engel, a close associate of Milken and a longtime managing director of Drexel. In 1984 Engel resigned and became a “consultant” to the firm, but he continued to carry out his traditional function vis-à-vis the “girls.”

Fred Sullivan, chairman of Kidde, Inc., who has attended the conferences for years, confirmed that the women were paid by Drexel—“varying amounts, depending on how pretty they are, and what they'll do,” said Sullivan, with a chuckle. “Don [Engel] always says to me, ‘How could I get all these guys to come, if I didn't have the girls?' ”

Following the dinner at Chasen's, many of the guests and the women had repaired to Bungalow 8 at the Beverly Hills Hotel, where the cocktail party had been held earlier that evening. Bungalow 8, the one Engel traditionally occupies for the conference, is situated at a far remove from the hotel and most of the other bungalows, and is therefore quite private. As in past years, Engel was sharing it with a Drexel client, Joel Friedland, a partner of the Pritzkers. As one participant who partied there late into that night puts it, “All these big takeover guys were in that place together, and we've all got tremendous egos, we're all trying to prove ourselves all the time, to show we can get the girl we didn't get in high school, we're basically a bunch of exhibitionists—things just got out of hand.”

On the final night of the conference, there was a gala dinner and show for all fifteen hundred guests, held in a huge auditorium at the Century Plaza. During dinner, Milken did a video presentation,
courtesy of Lorimar, a Drexel client. There was a takeoff on the E. F. Hutton commercial. “When E. F. Hutton talks . . .” says the buttoned-down gray-suiter, pausing as a woman sashays by him. “Did you see the tits on that broad?” There was an adaptation of the theme from
Ghostbusters,
with the chorus “When you need money, call Drexel!” Milken tried for levity, but his natural demeanor is so unmistakably serious and intense that the strain showed. It didn't matter. The applause was deafening. He was the King.

Then it was time for the performer of the evening. In the early years of these conferences, Stephen Wynn of Golden Nugget—who, as he has said, was “made” by Drexel—was the dinner speaker. Then, in 1984, Wynn recruited Frank Sinatra as a surprise guest. This year too, the identity of the performer was a well-kept secret. It had been a matter of speculation among some of the lesser troops at this conference, who were awestruck at being in such proximity to this tidal wave of money and power that was building. “Everyone was saying,” recalls one portfolio manager for a savings and loan, “ ‘It's going to be either Michael Jackson or God.' ”

It was Diana Ross. According to Wynn, Ross entertained gratis, in return for the chance to invest in one of Milken's investment partnerships, Reliance Capital Group, L.P. She was in the same well-heeled company there that she was on this night—with Wynn, Steinberg, the Spiegel family, Ivan Boesky, Victor Posner, the Belzbergs, Mantar Associates (a partnership of Milken and his Drexel colleagues) and others.

After about forty minutes of a dazzling performance, Ross began circulating among the guests. Finally she settled on the lap of straitlaced Baptist Carl Lindner and sang to him.

M
ILKEN IS SAID
by close associates to spend barely a moment in his twenty-hour workday that is not dedicated to business purpose. It is not surprising, therefore, since this extravaganza was his creation, that it was such an intensely purposeful event.

It was an evangelical happening that stirred a mass excitation in its participants, many of whom felt they were part of a large and unstoppable force destined to change the world. It was deal heaven. There seemed to be a deal for everyone. Money, as Ivan Boesky once told a group of prospective investors in his arbitrage partnership, was falling off the trees. It was a glorified road show for the buyers
and for the scores of companies that made presentations, many of whom would soon be doing junk-bond offerings. It was a reunion for Milken's high-rollers, whose camaraderie, if not collusion, he encouraged. One Drexel lawyer later recalled having seen Ivan Boesky, Carl Icahn, Carl Lindner and Irwin Jacobs huddled in a corner.
“Anything
could have been happening there,” he remarked with a laugh. It was a good time. Bungalow 8 would not soon be forgotten, and client loyalty gets forged in sundry ways.

And it launched Milken's now full-blown tour de force. Within the first two weeks of April 1985, hard on the heels of the Predators' Ball, five more Drexel clients—in addition to Triangle Industries—would make bids for companies, all backed by Milken's junk bonds.

Mesa Petroleum, with a net worth of $500 million, would go for Unocal.

Lorimar, with a net worth of $105 million, would offer $1 billion for Multimedia.

Sir James Goldsmith would make a bid for Crown Zellerbach Corporation for $1.1 billion.

Golden Nugget, with a net worth of $230 million, would go for Hilton Hotels for about $1.8 billion.

And Farley Industries, with earnings of $6 million, would go for Northwest Industries, for about $1.4 billion.

Other bids would take longer to germinate—but they would turn out to be the most fruitful of all.

N
ELSON
P
ELTZ
went through the four days of the Predators' Ball, as he would later say, as a “nervous wreck.” Peltz, who had a track record in business that can be described as lackluster, saw National Can as the opportunity of a lifetime. He had run his family's frozen-food business, expanding it through acquisitions and then selling it in the midseventies; it later went bankrupt. Peltz had struggled for years, been close to broke, finally managed in 1982 to acquire with Peter May a controlling block of Triangle Industries, which he intended to leverage up as his vehicle for acquisitions. Until now, nothing had worked. And he was terrified that this deal too would somehow get away from him.

What had probably gotten Peltz to this point, however—to be one of Milken's players, on the verge of acquiring one of the largest can-manufacturing companies in the United States—was his longtime conviction that he would someday make it very, very big. This
was a conviction shared by few others, and unsupported by events. But it made him persist, and continue to think in grandiose terms. Now he began to picture the vistas that would open to him if he were to acquire National Can. At Don Engel's cocktail party at Bungalow 8, Peltz was introduced to Gerald Tsai, then the vice-chairman of American Can. “Someday,” Peltz said eagerly, “I'd like to talk to you about buying your cans.”

R
ONALD
P
ERELMAN
brought more to the party than Peltz did. Perelman, for whom Drexel had been doing junk-bond financings since 1980, had boot-strapped himself into a series of acquisitions—keeping the profitable core, selling off the pieces, paying down the debt and leveraging up for the next acquisition. They were small by Drexel's new standards—who had ever heard of Ronald Perelman in 1985?—but at least they had worked.

With Drexel's assistance, Perelman had just taken private his mini-conglomerate, MacAndrews and Forbes. And he was in the process of acquiring Pantry Pride, a supermarket chain discharged from Chapter 11 bankruptcy reorganization in 1981, which had a huge tax-loss carryforward of over $300 million that could be used to shelter income. It would be his vehicle, he hoped, for the kind of acquisition exponentially bigger than anything he had attempted before, something that would vault him forever out of the minor leagues. For the last month or so, Perelman, a crude Napoleonic type who was drawn to glamour and status, both in companies and on the social scene, had been eyeing Revlon.

At the conference, Milken and Perelman had agreed that when the Pantry Pride deal closed, Milken would raise about $350 million for that company in a “blind pool”—for the purpose of an acquisition, but with no target identified.

C
ARL
I
CAHN
had been successful for years at threatening companies with a takeover only to have management buy his stock back at a premium not offered to other shareholders—a practice that came to be known as greenmail. He had started doing business with Milken just about six months earlier. Strong-willed, fiercely independent, smarter than most, he could not be controlled by Milken in the way that Peltz and Perelman could. And Milken's was a construct—intricate, highly interdependent, requiring constant fine-tuning—where control mattered. As one former Drexel employee
puts it, “Mike feels most comfortable when you owe him your life.” And most of the people Milken touched owed him.

Nonetheless, Milken and his colleagues had sought Icahn out, offering to refinance the bank debt he had used for his acquisition of ACF (only the second company he had acquired in six years, during which time he mounted a dozen major campaigns) and to provide him several hundred million dollars in surplus funds for what they called a “war chest.” Icahn had just completed his raid on Phillips—where Milken had stunned the corporate world by raising commitments for $1.5 billion in forty-eight hours—and had walked away from that ten-week escapade with a profit of $52.5 million.

Icahn gave a presentation on ACF at the conference and then wandered about, dropping in on others'. One he found especially interesting was given by Robert Peiser, the chief financial officer of TWA (Drexel had raised $100 million for the airline in the past year). He asked Peiser several questions. It made Peiser uneasy. Afterward, a few onlookers warned him that Icahn was up to no good.

T
HE WORLD
that Milken created for his faithful would last much longer than those four days and would extend far beyond the enclave of Beverly Hills. Before his awesome machine was forcibly slowed nearly two years later, it would transform the face of corporate America.

It would introduce terror and mayhem into countless corporate boardrooms. It would cause frightened managements to focus on short-term gains and elaborate takeover defenses rather than the research and development that make for sustained growth. It would cause the loss of jobs, as companies were taken over and broken up.

But it also would help to bring the owner-manager back to American business. And it would dramatically accelerate the trend toward restructuring, as once-placid managements hastened to take measures—such as selling low-earnings assets, pruning work forces, renegotiating labor contracts, closing hundreds of older, outmoded plants—before others did it for them.

In doing all these things, the good and the bad, Milken's machine would stir hatreds and prejudices as bitter as those in any social revolution—not surprisingly, since that in part is what this was. The denizens of corporate America would be challenged, and
some would be dispossessed. In their place would come Milken's own—a band of mainly small-time entrepreneurs, raiders, green-mailers, the have-nots of the corporate world, who had had only bit parts to play until Milken made them its stars.

Experts would long debate whether the value that Milken's onslaught had added to American business outweighed the damage it had done. Some of the raiders' cant, of course, had been self-serving, but some of it was true. What was not debatable was that Milken, some of his Drexel colleagues and his anointed players had made more money in a shorter period of time than any other individuals had done in the history of this country. And they may have broken lots of rules and perhaps even a few laws to do it.

A
T
5:30
A.M
. each weekday in the early 1970s, a bus pulled up to a stop in Cherry Hill, New Jersey, and a young man lugging a bag that bulged with papers mounted its steps. He was making the two-hour commute to New York City, where he worked at the investment-banking firm of Drexel Firestone. The train would have provided a more comfortable and faster ride; but, for those very reasons, it also offered more opportunity to meet other Wall Street acquaintances. They would want to engage in the kind of idle small talk that commuters share to pass the time. The thought must have been intolerable. He did not wish to be rude, but he wanted no interruption.

As soon as he had settled into his seat, being sure to take one with an empty one adjacent, he unloaded a mountain of prospectuses and 10ks (annual Securities and Exchange Commission filings) onto the seat next to him. On winter mornings the sky was still pitch black and the light on the bus was too dim for him to be able to read. He wore a leather aviation cap with the earflaps down; he had been bald for years, and although he wore a toupee his head always felt cold on these frosty mornings. Now over his aviation cap he fitted a miner's headlamp—strapped around the back of his head, with a huge light projecting from his forehead.