We're not on the verge of a greedfest like the reckless '80s, a period that youngsters may be surprised to learn was far more rapacious than anything served up during the Internet bubble. But change is in the air, and the wolves have their noses up. Last week Federal Reserve Chairman Alan Greenspan cut interest rates for the second time in less than a month. The rate cuts make it cheaper to borrow, a must in almost all buyouts that aren't stock swaps.
Just as important, the stock market has fallen and can't get up, making takeovers more affordable. For the same reason, companies that use only stock for acquisitions have had that currency devalued. This leaves the raiders to rule, and they're suddenly finding they have renewed access to a crucial financing source--junk bonds. That well went dry as investors funneled their money into stocks in recent years. Junk-bond mutual funds suffered net outflows of $10 billion last year. But since Jan. 1, junk funds have had net inflows of $3 billion, according to AMG Data, bringing them to an aggregate total of $87 billion.
Odyssey Investment Partners and First Reserve Corp., a pair of buyout firms, were among the earliest to tap this replenished reservoir to finance a takeover. Last week they agreed to buy Dresser Equipment from oil-services giant Halliburton for $1.6 billion. More of that can't be far behind.
Already, unsolicited bids--the preferred '80s raider weapon--are on the rise. The value of these bids more than doubled last year, to $5 billion, reports Thomson Financial. Meanwhile, Kohlberg Kravis Roberts, which became a household name with its $25 billion takeover of RJR Nabisco in 1989, is in the process of raising $6 billion, its largest pool ever for deals.
Of course, a few key '80s players never went away. Bottom fisher Sanford Weill, for one, amassed an impressive array of financial companies on the cheap while others were getting tech-obsessed. He is now the head of Citigroup, one of the world's largest banks. Icahn, the '80s raider who shook Texaco and took TWA, has asserted influence in small doses throughout the '90s by buying large amounts of distressed corporate debt, as has former Milken colleague Leon Black at Apollo Advisors.
Icahn, though, has clearly stepped up his pace, pushing Nabisco Holdings into the arms of Philip Morris and briefly rattling mighty GM's cage with a large stock purchase last year. Now he's thrusting himself into the middle of American Airlines' plans to buy TWA--long after he sold his controlling interest in the latter.
The '90s have punished some raiders, who proved to be better bomb throwers than managers. Saul Steinberg once stalked high-powered execs at Disney and Chemical Bank. Now, with his company Reliance Group imploding, he is in such straits that he has liquidated his art-filled 34-room Park Avenue apartment. Even his mother is suing him. Ronald Perelman, another once formidable raider, is trying to clear up his own disaster at Revlon, which he controls. That company's stock has declined 90% in the past three years.
"Those of us who have survived are going back to acquiring companies because valuations have come down to reasonable levels," asserts Silverman, CEO of Cendant, which operates franchises in the real estate (Century 21) and travel (Ramada, Travelodge) industries. Silverman was a seller in recent years, shedding 18 businesses for $4.5 billion in 1999 alone. Since the stock market tanked last year, he has been buying again--at prices, he says, that are a third of what he would have had to pay just two years ago. So far he has bagged Merrill Lynch Real Estate, Fairfield Communities and the 82% of Avis he didn't already own.
Forstmann, controlling partner at the LBO firm Forstmann Little, is perhaps best known for his stand against the use of junk bonds to finance takeovers during the Milken era. In fact, LBO pros like Forstmann are a different breed, focusing on buying broken companies, fixing them and selling at a profit five or so years later. Classic raiders hope for a fast turnaround. Often they merely take a stake in a company and push for asset sales that produce immediate value to stockholders. Then they sell.
Still, Forstmann is another re-energized buy guy. On Jan. 16, he announced the $1 billion takeover of Citadel Communications, which owns more than 200 radio stations. The deal is his first big U.S. acquisition in five years.