In business, acorporate raid is the process of buying a largestake in acorporation and then usingshareholder voting rights to require the company to undertake novel measures designed to increase theshare value, generally in opposition to the desires and practices of the corporation's current management. The measures might include replacing top executives,downsizing operations, orliquidating the company.
Corporate raids were particularly common between the 1970s and the 1990s in the United States. By the end of the 1980s, management of many largepublicly traded corporations had adopted legal countermeasures designed to thwart potentialhostile takeovers and corporate raids, includingpoison pills,golden parachutes, and increases indebt levels on the company'sbalance sheet. In later years, some corporate raiding practices have been used by "activist shareholders", who purchase equity stakes in a corporation to influence its board of directors and put public pressure on its management.
| History of private equity and venture capital |
|---|
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| Early history |
| (origins of modernprivate equity) |
| The 1980s |
| (leveraged buyout boom) |
| The 1990s |
| (leveraged buyout and the venture capital bubble) |
| The 2000s |
| (dot-com bubble to thecredit crunch) |
| The 2010s |
| (expansion) |
| The 2020s |
| (COVID-19 recession) |
Corporate raids became a hallmark of investors in the 1970s and 1980s, particularly highlighted by the public suicide ofEli Black. Among the most notable corporate raiders of the 1970s and 1980s wereLouis Wolfson,Carl Icahn,Victor Posner,Meshulam Riklis,Nelson Peltz,Robert M. Bass,T. Boone Pickens,Paul Bilzerian,Harold Clark Simmons,Kirk Kerkorian,James Goldsmith,Saul Steinberg andAsher 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".[1]
Victor Posner, who had made a fortune in real estate investments in the 1930s and 1940s, acquired a major stake inDWG Corporation in 1966. Having gained control of the company, he used it as an investment vehicle that could executetakeovers of other companies. Posner and DWG are perhaps best known for the hostile takeover ofSharon 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 generated attractive but highly volatile returns and ultimately landed in financial difficulty. In 1987, Sharon Steel enteredChapter 11 bankruptcy protection.[2]
Carl Icahn developed a reputation as a ruthless "corporate raider" after hishostile takeover ofTWA in 1985.[3] 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".[4]
Icahn also attempted the grand prize ofU.S. Steel, launching a hostile takeover for 89% of the industrial giant for $7 billion ($20.1 billion today) in late 1986, which was rebuffed finally by CEO David Roderick on January 8, 1987.[5]
T. Boone Pickens' hostile takeover bid ofGulf Oil in 1984 led to shock that such a large company could be raided. Gulf eventually sold out toChevron for a then-record $13.3 billion ($40.3 billion today) "white knight" buyout.
Paul Bilzerian launched a number of takeover bids includingCluett Peabody & Company,Hammermill Paper Company, Pay n Pack Stores,Allied Stores and theSinger Corporation. All of his takeover bids were for all cash and for all shares and he refused anygreenmail. Bilzerian was indicted for Schedule 13(d) disclosure violations and despite his claims of innocence he was convicted in 1989. After spending thirty years fighting the government in his attempt to overturn his conviction, he renounced his US citizenship in 2019.
British raiderBeazer also launched several successful hostile takeovers in the 1980s, the largest being that ofKoppers in early 1988 for $1.81 billion ($5 billion today).[6]
Many of the corporate raiders of the 1980s were onetime clients ofMichael Milken, whose investment banking firm,Drexel Burnham Lambert helped raiseblind pools of capital which corporate raiders could use to make legitimate attempts to take over companies and providehigh-yield debt financing of the buyouts.
Drexel Burnham raised a $100 millionblind pool in 1984 forNelson Peltz and his holding company Triangle Industries (laterTriarc) to give credibility for takeovers, representing the first major blind pool raised for this purpose. Two years later, in 1986, Wickes Companies, aholding company run by Sanford Sigoloff, would raise a $1.2 billion blind pool.[7] In later years, Milken and Drexel would shy away from certain of the more "notorious" corporate raiders as the firm and the private equity industry attempted to move upscale.
In 1985, Milken raised $750 million for a similar blind pool forRonald Perelman, which would ultimately prove instrumental in acquiring his biggest target: TheRevlon Corporation. In 1980,Ronald Perelman, the son of a wealthy Philadelphia businessman, and future "corporate raider", having made several small but successful buyouts, acquiredMacAndrews & Forbes, a distributor of licorice extract and chocolate, which Perelman's father had tried and failed to acquire 10 years earlier.[8] Perelman would ultimately divest the company's core business and useMacAndrews & Forbes as a holding company investment vehicle for subsequent leveraged buyouts includingTechnicolor, Inc.,Pantry Pride andRevlon. Using thePantry Pride subsidiary of his holding company,MacAndrews & Forbes Holdings, Perelman's overtures were rebuffed. Repeatedly rejected by the company's board and management, Perelman continued to press forward with ahostile takeover, raising his offer from an initial bid of $47.50 per share until it reached $53.00 per share. AfterRevlon received a higher offer from awhite knight, private equity firmForstmann Little & Company, Perelman'sPantry Pride finally was able to make a successful bid forRevlon, valuing the company at $2.7 billion.[9] The buyout would prove troubling, burdened by a heavy debt load.[10][11][12] Under Perelman's control, Revlon sold 4 divisions: two were sold for $1 billion, its vision care division was sold for $574 million, and its National Health Laboratories division was spun out to the public market in 1988. Revlon also made acquisitions includingMax Factor in 1987 andBetrix in 1989, later selling them toProcter & Gamble in 1991.[13] Perelman exited the bulk of his holdings in Revlon through anIPO in 1996 and subsequent sales of stock. As of December 31, 2007, Perelman still retains a minority ownership interest in Revlon. The Revlon takeover, because of its well-known brand, was profiled widely by the media and brought new attention to the emerging boom in leveraged buyout activity. Litigation associated with the takeover has also become standard reading for introductory business organization classes in most law schools, introducing what have come to be known as "Revlon duties" for boards of companies that are up for auction.
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In the late 1980s several famous corporate raiders suffered from bad investments financed by large amounts ofleverage, ultimately losing money for their investors. Additionally, with the fall ofMichael Milken and the subsequent collapse ofDrexel Burnham Lambert, the credit lines for these investors dried up. By the end of the decade, management of many largepublicly traded corporations reacted negatively to the threat of potential hostile takeover or corporate raid and pursued drastic defensive measures includingpoison pills,golden parachutes and increasingdebt levels on the company'sbalance sheet. Finally, in the 1990s the overall price of the American stock market increased, which reduced the number of situations in which a company's share price was low with respect to the assets that it controlled. By the end of the 1990s, the corporate raider moniker was used less frequently as private equity firms pursued different tactics than their predecessors. In later years, many of the corporate raiders would be re-characterized as "activist shareholders", such asCarl Icahn during his 2008 profile on CBS's60 Minutes.[14]
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Although private equity rarely received a thorough treatment in popular culture, several films did feature stereotypical "corporate raiders" prominently. Among the most notable examples of private equity featured in motion pictures included:
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