Ivan F. Boesky is Wall Street's best known independent arbitrageur. As an "arb," his specialty is buying the stocks of companies that are takeover targets. For example, Boesky made an estimated $100 million by buying about 2 million shares of Getty Oil Co. and then selling them to Texaco Inc. for nearly double what he paid, when Texaco acquired Getty. He currently is the second-largest stockholder of CBS Inc., which is the target of a hostile takeover bid by Ted Turner. His CBS stock is worth about $150 million.
Boesky, who heads a firm bearing his name, is the author of "Merger Mania," a recently published book about the world of corporate takeovers and arbitrage activities. He recently discussed CBS, corporate takeovers and his book in an interview with staff writer David A. Vise. The following is an edited version of that interview:
Q. Does Ted Turner have a chance to gain control of CBS?
A. He sure does. I think anyone who underestimates his chances is being foolhardy. Those securities that Turner is offering in exchange for CBS stock are going to have a market value, and those values will be in the $150 to $160 range. And if that's true, that's more than the current price of CBS stock. People are going to find that more interesting.
Q. What is the underlying value of CBS stock? In other words, if the CBS conglomerate were dismantled and the company's assets were sold to the highest bidders, what would the stock be worth?
A. Well, in my judgment, somewhere between $220 and $240 a share, conservatively speaking. CBS stock closed Friday at 120 1/2, up 1 5/8. CBS is just a significantly undervalued security. Q CBS has a lot of defensive tactics it can use to fight Turner's bid. Who do you think will end up in control of the company? A As an arbitrageur, I am indifferent. I just want my stock to go up.
Q. Do you expect CBS to undergo a financial restructuring? For example, the company could repurchase shares at a price above the market, increase the price of its stock and make Turner's bid relatively unattractive.
A. Because CBS is the publisher of my book and enlightened management, one expects them to do the right thing. And the right thing would be to cause their stock to go up and increase in value, and I would hope that they would do that. Q Many professional investors try to play the stock market by following you, and people believe that you use a highly sophisticated system to conceal your trading activity. What is it like being so closely watched? A I guess the answer is that first of all, I want to put up a caution light to all those who follow everything I do. I am the same person who owned some Phillips stock on the wrong date and reportedly suffered heavy losses . So not everything I do is right.
The myth of my being superconscious of concealing our activity is fantasy, more fiction than fact. It doesn't really terribly bother me whether people are observant of what we do. Indeed, sometimes, as in Washington, we understand the concept of misinformation.
Q. In other words, people may be correct about detecting your actions but incorrect about what they mean?
A. That's right. It's not possible to sit and watch us buy or sell something and reach a conclusion about what we're going to do. Q You invest in companies that are targets of takeover bids. What is your outlook for merger activity? A The most ebullient merger and acquisition environment and deconglomeratization, all at the same time, ever in the history of America, for the next five years.
A. It's all there. You've got basically cheap money, high stocks, high bonds, means of exchange, still some inflation in the system, cheaper to buy than to build, cheaper to buy that oil at six bucks or five bucks on Wall Street by buying oil company stocks than to go out and prospect at 12 bucks. It's going to be a terrific time for America.
Q. You already are active as an investor in England, where there recently have been some unfriendly bids for British companies. Do you expect to see more hostile takeover bids for British companies?
A. As you know, our presence is known and felt in England. We have a very substantial investment in England, and our English activities have resulted in the best performing investment trust in England for the last three years. We have great confidence in the U.K.
It's going to be interesting. It's going to be slower. The English move at a slower rate. They haven't learned.
For example, interestingly in the last three or four tender offers that I've observed where institutional investors have had the opportunity to profit because the price being offered by a hostile bidder for their stock was considerably higher than the previous market, the institutions have actually refrained from tendering selling the bidder their stock on the theory that the fellow who's running the company was a good fellow, and "Why allow his company to be taken over just for us to profit?"
It's a very noble kind of gesture. You see less of it over in America. Very genteel, actually. It's very nice. I was told once upon a time that it was not polite to make too much money in England.
Q. Many articles have described Ivan Boesky as a man who works 18 to 20 hours a day, day after day, year after year. You already are a wealthy man. What are you chasing?
A. Well, I sometimes say casually that I was given the God-given gift of being a horse that's kind of good at running around a track. I don't know any other way. I don't how to be a milk horse and I don't know how to go to pasture, so I just keep doing what I was allowed to have the good fortune to do well and try to do it better and better and better.
As far as whether my system or formula will continue to work or not, the jury is still out. It's quite possible that tomorrow you'll see my epitaph and it will be something like "News Pending Stop Trading." Q There are a lot of Boesky rumors floating around. One of them, during the CBS takeover battle, has been that Ivan Boesky is conducting a sophisticated misinformation campaign designed to pump the price of CBS stock, using his elaborate network of contacts and well-placed people on Wall Street. A I think people like to imagine things about other people because it somehow fills in the gaps of their ordinary day. So we all tend to imagine things about the other fellow, a lot of which is fantasy. And I can't really control other people's fantasies. But if they wish to have them, so be it, if it gives them pleasure.
Q. What do you think about junk bonds risky, unrated, high-yielding securities ? The case is being made by some in Washington that federally insured savings and loans should not be allowed to invest in these bonds.
A. Stop right there. That's foolish. And what's foolish about it is the nomenclature. It's a label, it's a fantasy. If you eliminated junk-bond financing, every city in America would probably go down the tubes. Probably most states in America would go down the tubes. I might add that the United States government's paper might also cause the United States government to go down the tubes. You know that, with the kind of deficit that this country is running, if securities when issued had to be A-rated, the country couldn't finance. What are we saying? That only the establishment who are in power can finance? Eighty percent of the corporations in America are financed with these so-called junk bonds.
Q. What was your goal in writing a book about arbitrage and "Merger Mania?" Who are you trying to reach with this book?
A. About 80 percent of all securities are impacted by arbitrage. And that is a word that is unknown to so many and yet affects so many. It's my belief that a book was necessary to bring arbitrage as an investment technique out of the closet to make it known to the ordinary investor, the most sophisiticated investor and the institutional investor.
Q. How do you think the book will be perceived?
A. I hope it's perceived as a serious book that should be read in a spirited way, a new way to make money for the uninitiated. But also as a scholarly book that can be relied on as a primer for this unique segment of the securities market. This book was designed to be technically correct so that it could serve as a text and at the same time be readable for investors.
Sex appeal and intrigue in the boardroom are interesting for certain levels of readership, but I wanted this to be a respectable disclosure of what there is to know. It may not titillate, but some of the most valuable things on this earth are not designed to titillate.