East Texas Empresario HAROLD SIMMONS, born in Golden, Texas, a town of 200 souls, more or less, in rural East Texas, apparently is five times as successful an investor as his fellow raider, Pickens of Amarillo at least as of last August. Simmons earned an M.A. in economics \(and a Phi Beta a job as a government investigator to buy a pharmacy with mostly borrowed money, put together chains of drugstores into a superchain of 100 of them, and sold out to drugstore tycoon Jack Eckerd for $50 million in Eckerd stock. In an account of Simmons’s career in Braniff Destination last August, Barbara Wegher reported: “Just this year, Simmons merged two of his major holdings to form a company known as Valhi, Inc. . . . At the time of the merger, Valhi fetched about $4 a share. A few months later, those same shares were going for more than $8 each, making Simmons worth an additional $400 million. His holdings in Keystone Consolidated Industries, another NYSE-listed company controlled by Simmons, have increased from $4 to more than $15 a share in the last year. Forbes lists his personal wealth at more than $400 million; Simmons says it’s closer to $500 million.” He now has palatial homes in Dallas and Santa Barbara. By Wegher’s report, Simmons across ten years, as of the August story, averaged 95 percent annual return on holdings i in 19 enterprises. His method is simply to study financial information, he told Wegher. “I’ve gotten most of my education from just reading The Wall Street Journal, Forbes, Fortune, and Business Week,” he said. What he is looking for is little-known and undervalued companies. In company reports, “First I read the footnotes .. . the footnotes and the small print at the back,” he said. Wegher reported that early in his career, Simmons was charged with and cleared of fraud in connection with some failed insurance companies which he controlled and that in 1983 the Labor Department and the United Auto Workers charged him with mishandling pension fund assets while pursuing new acquisitions. Simmons neither admitted nor denied any violations in connection with the latter accusation but was found guilty and agreed not to use pension funds in his takeover efforts for eight years. Wegher reports that Simmons “claimed that his difficulties were due primarily to lack of political savvy, and [he] promptly retained a lobbyist and began sponsoring fundraisers for influential Republicans.” The stock market hit its historic high, after Wegher’s report was prepared and then crashed on October 19. In 1987 Valhi reached a high of 14 but closed the year at 9 1/4; Keystone’s 1987 high was 30, but it closed at 14. R.D. learn that in 1984 Money magazine ranked Mesa’s benefits among the 10 best plans in the country and in 1985 and 1986 Forbes listed Mesa at the top in net income per employee. Fine. In 1986, however, Business Week ranked Pickens second in its list of the 10 chief executives who gave their shareholders the least for the executives’ pay. In the three years, 1983 through .1985, Pickens had himself paid an incredible $31,729,000 even Iacocca received a mere $17,585,000 during the same million as his share of the $41 million aftertax profit Mesa made from its raid on Phillips Petroleum Company, in addition to the $4.2 million he received in both salary and bonus,” according to Business Week. Greenmail occurs when a corporation under attack pays the raider but not its other stockholders a premium price in buying back from the raider the block of stock with which he has been threatening to take over the target firm. As the champion of the stockholders Pickens could not be thought to be a greenmailer, and throughout his memoir he makes it clear he has never done such an awful thing. However, on September 22, 1987, the New York Times reported: “Traders are worried that [Pickens] will take disguised greenmail as many maintain that he did when he attacked the Phillips Petroleum Company three years ago and then, on Christmas Eve, sold his stock to First Boston and Morgan Stanley & Company, advisers to Phillips. The Phillips stock plunged nearly $10 a share. ‘People aren’t forgetting that Christmas massacre,’ one arbitrager said.” On this point, whom are we to believe T. Boone and Conover, et al., or “many traders” cited by The New York Times? \(On the evidence I have, Pickens acknowledges that a couple of good questions about raiding come up. Concerning the effects of takeovers and “restructuring” on concerns like research and development funding, he says in effect that the managements of his target companies should have sold their long-term plans to their shareholders before he struck. “Junk bonds” used to finance takeovers are OK because they are used only by “the most sophisticated financial institutions and individuals in the country.” Now, “It’s true that restructuring often turns equity . into debt. But where is that money going? It’s going right into the hands of stockholders, who then use it to make purchases or investments that invigorate the economy. In other words, Pickens admits that his raids turn equity into debt, and by not denying it, he admits that there is then less capital available for research and development, but he argues, first, that it’s the fat corporations’ fault, not his, and second, that the added debt burdening down the stockholders’ corporations is justified by the increases in the paper value of their stocks. These arguments are glib at best and evasive at worst. The broadest issue posed by the activities of the corporate raiders is the misuse of capital. As Texas Commissioner of Agriculture Jim Hightower has set forth, corporate debt is increasing at a rate of about $200 billion a year. Interest rates are taking more than 50 percent of corporations’ pretax earnings, compared to less than 40 percent in the 1970s and less than 20 percent in the 1960s. There is no doubt that predators like Pickens are acting as a devil-take-the-hindmost corrective to corporate sloth, empire-building, and managerial profiteering. Among the Reaganauts, government regulation is seen as an evil exceeded only by anti-trust; mergers are good because monopoly is good. In an environment like this the predators have seen their chance: they can get very rich by aggression in the name of probity. But the resulting disorder in the corporate world makes a total mess of the already unrealistic theory of a free market in which the allocation of capital is supposed to be directed by rationally evolving productive needs and opportunities. The men who run the vulnerable corporations protect their own jobs and perks at the expense of their own companies’ jobs, research, and development. The raiders preach all the way to the bank, but their self-enrichments have been made possible by the Reagan administration’s dismantling of responsible government. The corrective answer to our multiform corporate failure is not takeover raids by fast talkers making millions but strict enforcement of antitrust laws, the fostering of robust small business without which there cannot be a truly competitive economy, and conscientious federal regulation of the giant corporations. STILL, THE CORPORATE raiders have provided the most vivid glimpses that ordinary people get of what has been going on in the corporate world during the Reagan era. Consider T. Boone’s recent raid on Newmont Mining Corporation. Here what Pickens wanted was Newmont’s gold mine in Nevada. As James Flanigan explained in a brilliant column in the San Antonio Express-News, Newmont is 26 percent owned by Consolidated Gold Fields of London, which is 28 percent owned by Minerals and Resources of Bermuda, which is 39 percent owned by Anglo American Corporation, the world’s largest gold producer, which is 38 percent owned by De Beers Mines, the world’s largest diamond producer, which is dominated by the Oppenheimer family of South Africa. Backed by an agreement by Wells Fargo Bank to arrange for a syndicate of institutions to raise part of the money needed for the takeover and by a promise by Drexel Burnham Lambert that it would arrange for the balance 22 JANUARY 15, 1988
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