If there ever was a company with a curse on it, it has to be Fischbach Corp., the New York-based electrical contracting company. Not only has Fischbach itself been devastated by the takeover shenanigans of the 1980s, but so have the key players involved in the 1985 takeover of the company by Victor Posner, corporate carnivore and convicted felon.
And now, the cloud that hangs over Fischbach has cast its shadow in a new direction, on American International Group, and its chairman, Maurice "Hank" Greenberg. AIG, a huge, successful insurance holding company, is in the midst of buying Fischbach for $11 a share. Greenberg is one of the most respected and astute executives in the insurance industry.
The AIG takeover of Fischbach is an unusual transaction, to say the least. AIG is buying Fischbach for $44 million, stuffing some of Fischbach's operations and Fischbach's new business into a company to be managed and 51 percent owned by Peter Kiewit Sons Inc. of Omaha, and keeping some existing Fischbach business and other assets. If you have trouble grasping this, join the club. You don't see $44 million deals this complicated every day. Thank God.
Let me stress that Greenberg's Fischbach problem isn't remotely comparable to the trouble that others -- Ivan Boesky, Michael Milken and Posner -- got into with Fischbach.
These players have big legal problems -- all but Posner copped guilty pleas to securities fraud involving Fischbach. Posner, who pleaded guilty to criminal tax fraud in an unrelated case, faces possible indictment. Plus, as you may recall, all these players lost money in the Fischbach follies.
AIG and Greenberg don't have any legal problem that I can see. But I think that a company with AIG's reputation ought to disclose certain facts, unpleasant as they may be, and ought to engage in open dealing with Fischbach's shareholders. Not to mention AIG's. I couldn't get Greenberg to talk to me. AIG, in the form of communications Vice President John Wooster Jr., says it doesn't see any problem. Let me tell you what's going on, and you can draw your own conclusion.
AIG says it's buying Fischbach to protect itself against losses in the $500 million of construction surety bonding that it has outstanding to Fischbach. This bonding guarantees Fischbach's customers that money will be available to finish a job if Fischbach can't or doesn't complete it. No bonding, no new business.
After Posner took over Fischbach in 1985, its bonding company, a subsidiary of Chubb, resigned the account. It didn't want to do business with a company controlled by Posner, who has a well-deserved reputation for taking excessive salaries and for putting his personal interests ahead of the interest of his companies' employees, customers, vendors and stockholders. Many, if not most, of the major bonding companies also refused to do business with Posner-controlled Fischbach.
AIG took over the business in 1986. Guess what? It's having so much trouble getting paid that it had to take out second mortgages on Fischbach properties to ensure payment of more than $20 million of past-due premiums, has had to lend Fischbach money to keep it afloat -- and now has to go through a complicated and expensive takeover of its client to protect itself against losses on the policies that the client took out.
And Fischbach, it turns out, isn't just any piece of insurance business. It was business brought to AIG by Mel Harris, an insurance broker at Alexander & Alexander in Miami. Harris, a big producer at A&A, is related to Greenberg's wife -- they're cousins -- and socializes with Greenberg.
Harris says that despite his relationship with the Greenbergs, none of his business -- including the Fischbach business -- got any special treatment from AIG's underwriters. "Being a cousin of Mrs. Greenberg is not of any value when you are dealing with the surety department of AIG," Harris said wryly.
Harris's statement notwithstanding, the Harris-Greenberg relationship strikes me as a piece of information that I would like to have if I owned stock in either Fischbach or AIG. To me, it looks bad not to have disclosed this relationship, because it looks like AIG is hiding something. I also would be curious whether AIG has gotten Alexander & Alexander to bear part of AIG's effort and expense in tending to the Fischbach account.
AIG's answer: There is no legal requirement to disclose any of this. And AIG PR man Wooster asserts that the Fischbach business was treated by AIG the way similar business is treated.
When I asked Wooster how many other times AIG has had to spend more than $40 million to buy a customer to protect itself against insurance losses, he said that question was outside the Fischbach transaction, and he wouldn't answer it.
Once upon a time, Fischbach was a proud, productive and profitable company that helped build electric generating plants, trash-to-energy plants and other facilities that society needs. Thanks to the fancy and illegal dancing that went on, the company and the people who helped Posner buy it were destroyed.
After this deal goes through, there will probably be plenty of Fischbach employees' blood on the streets as Kiewit slashes the work force. When that's over, though, there seems to be a reasonable chance that Fischbach in its Kiewit-AIG incarnation will be proud, productive and profitable again.
It's a pity, though, that a once-fine company that has been under a cloud for so many years is losing its independence under a cloud, too. But given the Fischbach Curse, it was probably to be expected.
Allan Sloan is a columnist for Newsday in New York.