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A Giant Cow-tipping by Savages: the Boom, Bust, and Boom Culture of M & A
By John Weir Close
Reviewed by Karl Wolff
On this High Holy Day of Capitalism, let's look at mergers and acquisitions. At its peak in the Eighties, mergers and acquisitions became a major sector of the global economy. A Giant Cow-tipping by Savages: the Boom, Bust, and Boom Culture of M & A, by John Weir Close traces the history, deals, and personalities that shaped this economic sector. Beginning with the Erie Gang's war with Cornelius Vanderbilt over railways. In the Gilded Age, robber barons and their paramilitary apparatus connived, intimidated, and bought out their competitors, paving the way for monopolistic capitalism. Like the nineteenth century novel, capitalism sought to become a universalized integrated structure. What do I mean by that? It means that moguls like J.D. Rockefeller and Andrew Carnegie sought to monopolize the means of production. The sought to own the production and distribution of their products. Rockefeller, besides owning oil wells and oil refineries, owned the railroads and the track on which he shipped his oil. The movie industry, once the government took Thomas Edison's patent-hogging boot off its throat, established the same principle. Movie studios owned the studios, the theaters, and, to a lesser extent, their stars. Vertical and horizontal integration became key to establishing a foothold in the market. Vertical integration means owning production and distribution; horizontal integration involves owning all of one kind of production (like with like). Media conglomerates are a good example of horizontal integration.
Mergers and acquisitions is still alive today. Witness the reaction to Disney acquiring Lucasarts. (Shock! Outrage! Price points!)
A Giant Cow-tipping shows how several notable individuals altered the way business was done. Unlike the monopolizing trend of the Gilded Age, the Second Gilded Age (Reagan's Eighties) went, like literature, meta. The apogee of business became The Deal. As the decade progressed, deals became bigger and bigger. The Deal itself is a meta concept. Mergers and acquisitions (M & A) shifted the priorities in deal-making. Unlike the robber barons, who made deals for a specific end, M & A turned the deal into an end in itself. The Deal became a point of pride for venture capitalists, a way to boast to fellow capitalists about one's acquisitions.
The book profiles important deals, including Carl Icahn's acquisition of TWA. The story will be very familiar to anyone who has seen Wall Street. There's a fascinating biography of Sir James Goldsmith, a model for Wall Street's Sir Larry Wildman. Goldsmith was a British Jew whose personal life was just as wild as his life. He had several families and a penchant for creative risk-taking. Another storyline explored by Close, a former M & A lawyer and founder of The M & A Journal, is the changing demographics of venture capitalism. For decades, capitalism was dominated by WASPs and Old Money types. Venture capitalism changes character, from the staid exemplars of wealth one finds in Edith Wharton and Louis Auchincloss novels, to the rise of several Jewish financiers.
Before I go on, I want to clarify the whole Jewish thing. It's easy to see accusations of anti-Semitism coming up. In truth, it's challenging to find an accurate description that fits snugly into the biographies of the venture capitalists profiled. Sir James Goldsmith was a British citizen descended from German Jews. There is the Zilka clan, "proud members of the free Jewish community that thrived in Iraq for centuries," who became bankers in a Baghdad that was one-quarter Jewish and totally integrated with the community. In the United States, the WASP ascendancy excluded Jews from "real power at the bar, on the bench, at banks, and in boardrooms." Weir continues, "Again, the Jews found themselves in control of a monopoly that perpetuated their own stereotype, that of the omnipotent, conniving Machiavellian with hands sullied by the unsavory. But the business of takeovers paid the rent. And then some." (To extend this metaphor, one also saw Jewish-Americans ascendancy in American literature. See Norman Mailer, Philip Roth, and others.) The challenge is exploring this demographic shift in our present hyperventilating, over-reacting PC culture. Remember, it's a very short step from critiquing the foul business practices of banksters and corporate thugs to making anti-Semitic generalizations and taking the David Icke crazy train. Suffice to say, this wasn't Newland Archer's Wall Street any longer.
Close writes about a series of important deals that have shaped our modern business landscape. The tragic demise of Orion Pictures and Sumner Redstone's battle to acquire Paramount, along with the disastrous merger of AOL and Time-Warner. What Ted Turner, predicting the merger wouldn't be a good idea, called, "A giant cow-tipping by savages." There is the story of M & A lawyer Ilan Reich. Reich got caught for insider trading, disbarred, and then fought valiantly to get re-admitted to the bar. He also fought a near-fatal brain tumor and reinvented himself as a businessman. Despite a rogue's gallery of personal and corporate malfeasance on these pages, the story of Ilan Reich was actually inspiring. Not an easy task, when even this reviewer thinks the best deterrent to corporate misbehavior is to put heads of board members on pikestaffs. (Unfortunately, only criminals from the lower classes and those using guns to commit their crimes have the honor of getting the death penalty. Yet somehow America thinks lethal injection for investment fraud is less effective than, say, a big fine.)
One not knowledgeable in the business of mergers and acquisitions will become well-versed after finishing the book. Everything from hostile take-overs, leveraged buy-outs, and junk bond investment are explained and explored. The legality of these deals is weighed in the Chancery Court of Delaware. Delaware's unique pro-business environment makes this little state highly important in the annals of venture capitalism. When mergers and acquisitions are discussed, one has to weigh the interests of the multiple parties involved. These include: the shareholders, the board, and the employees. Is the board acting in its own interest at the expense of the shareholders, or vice versa? These questions remind one of issues like federalism and checks and balances in civic government. As one who finds the machinations of the Supreme Court fascinating, along with the inner workings of the Federal Reserve and the State Department, corporate law explored relevant issues in terms of governance and power-sharing.
Unlike government where, ideally, one person means one vote, corporate governance is a different species. M & A involves venture capitalists buying massive blocks of shares in order to get minority or majority ownership of the company. The more shares you own means you own more of the company. (Along with variants like regular stock and preferred stock.) The good thing about publicly traded companies is that anybody can own stock. The bad thing about publicly traded companies is that anybody can own stock, even venture capitalists looking for another trophy to mount on their walls. Since cash is the preferred commodity in M & A, cash becomes central to deal-making. Stock, less so. And phat pension funds means lots of cash for future M & A deals. In addition, should there be legislation that mandates mergers occur that don't involve stripping companies of their pension funds and breaking up companies for simple financial gain? Does the government really have that authority? One should ask the hundreds of millionaires in Congress for their unbiased opinion. They accept counsel from all denominations, but prefer non-consecutive tens and twenties.
In the end, A Giant Cow-tipping entertains and educates. It reads like a book-length business section of the newspaper. Despite the business section's tendency to be boring, technical, and conservative, one should read it anyway. Close's journalistic tone is also refreshing, avoiding the Horatio Alger by-their-bootstraps mythologizing and libertarian temper tantrums-as-philosophy that often gums up business writing.