Corporate Raid - History

History

Corporate raids became the hallmark of a handful of investors in the 1970s and 1980s. Among the most notable corporate raiders of the 1980s were Carl Icahn, Victor Posner, Nelson Peltz, Robert M. Bass, T. Boone Pickens, Harold Clark Simmons, Kirk Kerkorian, Sir James Goldsmith, Saul Steinberg and Asher Edelman. These investors used a number of the same tactics and targeted the same type of companies as more traditional leveraged buyouts and in many ways could be considered a forerunner of the later private equity firms. In fact it is Posner, one of the first "corporate raiders" who is often credited with coining the term "leveraged buyout" or "LBO"

Victor Posner, who had made a fortune in real estate investments in the 1930s and 1940s, acquired a major stake in DWG Corporation in 1966. Having gained control of the company, used it as an investment vehicle that could execute takeovers of other companies. Posner and DWG are perhaps best known for the hostile takeover of Sharon Steel Corporation in 1969, one of the earliest such takeovers in the United States. Posner's investments were typically motivated by attractive valuations, balance sheets and cash flow characteristics. Because of its high debt load, Posner's DWG would generate attractive but highly volatile returns and would ultimately land the company in financial difficulty. In 1987, Sharon Steel entered Chapter 11 bankruptcy protection.

Carl Icahn developed a reputation as a ruthless "corporate raider" after his hostile takeover of TWA in 1985. The result of that takeover was Icahn systematically selling TWA's assets to repay the debt he used to purchase the company, which was described as asset stripping.

Icahn also attempted the grand prize of U.S. Steel, launching a hostile takeover for 89% of the industrial giant for $7 billion ($14.8 billion today) in late 1986 and only being rebuffed finally by CEO David Roderick on January 8, 1987.

T. Boone Pickens hostile takeover bid of Gulf Oil in 1984 lead to shockwaves that such a large company could be raided. Gulf eventually sold out to Chevron for a then record $13.3 billion ($29.8 billion today) "white knight" buyout.

British raider Beazer also launched several successful hostile takeovers in the 1980s, the largest being that of Koppers in early 1988 for $1.81 billion $3.7 billion today).

Many of the corporate raiders of the 1980s were onetime clients of Michael Milken, whose investment banking firm, Drexel Burnham Lambert helped raise blind pools of capital which corporate raiders could use to make legitimate attempts to take over companies and provide high-yield debt financing of the buyouts.