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The growth of large mergers coincides with the term of the Reagan Administration, which has been much more favorable than its predecessors to corporate couplings. There is a general impression in both business and Government circles that any merger today will win Washington's approval. Democratic Senator Howard Metzenbaum of Ohio says, "The climate created by the Administration encourages companies to expand through merger rather than through their own growth." A Washington wag has dubbed this the "let them eat each other" policy.
The big-buck merger era was heralded by T. Boone Pickens, chairman of Mesa Petroleum, a small energy producer in Amarillo, Texas. Pickens was one of the first to realize that the low stock prices of oil and gas firms made many of them remarkable bargains. He saw that the companies could be worth far more if they were broken up and their assets sold separately. In a dazzling series of raids that earned Mesa nearly $1 billion in windfall profits, Pickens drove up the stock of one oil company after another by threatening to buy them and dismantle their properties. He then profited greatly when his target fled to a white knight for safety and his shares were bought back at a higher price. In his biggest winning, Pickens and friends collected $760 million last year when Gulf, whose stock had been trading for about $41 a share when Pickens launched a bid for it, finally sold out to Chevron for $80 a share, or $13.3 billion, history's largest merger.
The Gulf episode proved to speculators that virtually any company, no matter the size, was vulnerable to a takeover. All a raider needed to get rich in a hurry was a gambler's nerves and access to enough borrowed cash to make an offer. Put another way, America's corporate elite suddenly found that there was no longer safety in big numbers.
The ease with which companies are being bought and sold has been fueled in part by the rising power of some once obscure players of high finance. Among the most prominent are arbitragers, or speculators who snap up stock when an acquisition is announced, in the hope that the deal will go through. Their willingness to take big risks can give arbitragers like Ivan Boesky, who heads his own company, enormous influence over the fate of a company. Says Andrew Sigler, chairman of Champion International: "Within hours or days a major portion of your stock can be in arbitragers' hands, and your company is in play." In other words, it is up for grabs.
A determined arbitrager who has acquired 25% or more of a firm's stock usually sides with a raider during a takeover battle. Arbitragers, of course, can lose millions when a deal falls through and leaves them stuck with stock that plunges in value. That happened to Boesky and others last December in a Pickens-led battle for Phillips Petroleum. The Pickens raid drove the Oklahoma firm's stock from $37 to $56 and attracted a covey of investors in search of a quick killing. But Pickens abruptly withdrew his offer, causing the speculators to sustain huge losses. Chief among them was Boesky, whose company lost, by some estimates, more than $40 million.