Oct. 23, a judge issued a ruling in the attempt by Pantry Pride to take over Revlon, the cosmetics and health-products company. When the dust settled, Pantry Pride was the big winner. The big loser was not really Revlon, nor its chairman, nor, really, just about anyone involved in the fight. The big loser, dear reader, was you.
Let us start with the winners. At the top of the list is Pantry Pride chairman Ronald O. Perelman. He got Revlon. Other winners were the holders of Revlon stock, who saw it go from $47.50 when the bidding started to $58 when it ended. Drexel Burnham Lambert, the world's leading seller of junk bonds, received about $50 million in fees; Morgan Stanley, another broker, got $25 million, and various lawyers and accountants punched the clock for several million more.
But how about the losers? There weren't any. On paper, the people who controlled Revlon lost, but it's hard to be convinced that in reality that's the case. Revlon Chairman Michael C. Bergerac got a $1.5 million bonus in 1974 just to join the firm, but that was nothing compared to what he got to leave it -- $36 million in stock options and severance pay. For Bergerac that kind of money must take the sting out of losing Revlon's Boeing 727 with its kitchen, bedroom, living room, backgammon board and gun rack -- a plane so much like home there must have been some risk of forgetting where you were and attempting to put out the cat.
Aside from Bergerac, the other losers include the banking house of Lazard Freres which "lost" by collecting $11.5 million in fees; Revlon's lawyers and accountants who got $13 million; Goldman Sachs, which got $3 million for advising another of the losers and even a piddling $2 million to yet another firm for the expense of getting mixed up in this particular dogfight.
In theory, there is benefit to the public in all this since the new company -- a combination of Pantry Pride and Revlon -- is now leaner and more efficient than the one it replaced. Maybe. Certainly that has been the result of some of these hostile takeovers, and certainly those raiders who contend that corporate executives have been living sweetly on the money of stockholders (or employees) have a point. Bergerac's flying palace puts a period on the end of that sentence.
But to the ultimate question -- what has been produced? -- there can be only one answer: Nothing. In the Pantry Pride-Revlon deal, $2.7 billion changed hands, more than $100 million in fees were generated, but not a single new product was created nor an existing one improved. A free enterprise system which is supposed to reward the innovator has instead been turned over to the paper shuffler. The really big bucks can be made in floating bonds and giving advice even if, in the end, that advice is no good. If this is where the money is going to be, then this is where the talent is going to be, too.
Usually, the debate over hostile mergers is conducted as if the world consisted of stockholders and management and no one else -- certainly not an entity called the public. But you and I really do have a stake in what's going on. Ted Turner's unsuccessful attempt to take over CBS forced the company to buy $954.8 million of its own stock -- and fire 125 people in the news division to help service all that debt. The public is hardly better informed because CBS is now deeply in debt and 125 employees are on the street.
Greed in a pejorative sense has become a pass,e word, used instead as if it were synonymous with efficiency. But old-fashioned, ugly greed is what's been corroding American corporations -- it weakens the economy as much as the vanishing work ethic or cocaine use on the job. For instance, the latest wage settlements in the auto industry were pioneered by company executives who dolloped bonuses on one another as if they had actually taught the Japanese a thing or two about making cars -- and then screamed bloody murder when workers said "me too."
Reportedly, the Pantry Pride-Revlon deal scandalized even Wall Street. Billions changed hands. Millions in fees were disbursed, but noth could be sold or traded was produced, and real wealth, instead of being created, was merely disbursed.
The glory of American industry -- its proverbial better mousetrap -- is now the junk bond. We've got the Japanese on the run now. All they make is cars.