The Business of America/The Selling of America
Stelzer, Irwin M.
• .................................................................................................................. THE BUSINESS OF...
...The Japanese, in particular, are expected to become more vigorous acquirers of American properties...
...And what could be better than lending to top companies bent on sound acquisitions...
...Some 50,000 investment bankers, commercial bankers, and lawyers spend their days-and nights-looking for deal-making opportunities and a chance to earn impressive fees...
...This led Wall Street sages to assume that arbitrageurs, who generally helped the raiders to gain control of their targets by buying large blocks of stock and then voting with the takeover team, would no longer play that game...
...But does anyone doubt that American travelers would be better off if British Airways' superior managers took over Continental, or BBC programmers took over a few TV stations...
...In that then-much-heralded work, Servan-Schreiber saw Europe's "economic system...
...The reasons are simple: foreigners are loaded with American dollars...
...Now, no one can deny that every country must prevent some of its industries from falling into the hands of foreigners even though, in a national emergency, most facilities can be seized by our government...
...THE BUSINESS OF AMERICA...
...And now it's Europe's turn, and Asia's, to take over America...
...But the Delaware statute was never intended to stop takeovers...
...Buyers and sellers abound...
...still others are simply worth more combined with another firm...
...Our call-in programs with law reporters let cable viewers talk to the press who cover the judiciary...
...Finally, the October 19 collapse of share prices rattled the investment community...
...Many deals have been prompted by the very fall in share prices that was supposed to mark the death knell of mergers...
...The securities industry as a whole now earns about one-third of its profits from mergers and acquisitions...
...others are in the hands of managers who act as if the internationalization of business and the globalization of finance hasn't happened...
...2. Court correspondents...
...in a state of collapse...
...All of these predictions ignored one fundamental fact: the wave of acquisitions has been triggered by basic economic forces which make many companies worth more in the hands of new managers...
...But they did get the state of Delaware, where most major companies are incorporated, to adopt what has been widely trumpeted as an anti-takeover statute...
...some are conglomerates of unrelated enterprises, the value of whose parts exceeds the value of the combined enterprise...
...And they didn't...
...So far this year, takeover bids valued at close to $90 billion have been announced, about twice the amount as in the same period in 1987...
...THE SELLING OF AMERICA W e are being attacked by "a highly organized economic system, based on enormously large units, nourished by an industrial-academic-governmental complex and stimulated, financed and girded by the national government...
...One need not be a cynic to doubt that businessmen opposed to "the selling of America" are largely unconcerned about national security...
...The drop did, after all, create bargains-companies whose market value was cut to by Irwin M. Stelzer levels that made them attractive to potential buyers...
...4. Hearings on the judiciary...
...We already, for example, prevent foreigners from owning U.S...
...One deal maker says that it is so easy to raise money, "it's kind of scary...
...chemical producer Celanese...
...assets can be valued with some precision...
...20001 36 THE AMERICAN SPECTATOR JUNE 1988...
...Some have bloated payrolls and overcrowded executive suites...
...Id When a Supreme Court justice speaks at an open public gathering, you're likely to see it on C-SPAN...
...political and economic correspondent for the Sunday Times of London...
...For foreign acquisitions are only one part, Irwin M. Stelzer, who with this issue begins a new monthly business column for The American Spectator, is the director of Harvard University's Energy and Environmental Policy Center and the US...
...They worry, instead, about their jobs...
...the British, three of America's largest advertising agencies and button-down America's Brooks Brothers clothiers...
...Add to this source the continued availability of junk bond financing, and it becomes clear that financing is no constraint...
...Tune in for inside looks at the Supreme Court, the U.S...
...Richard Gephardt's 1988 description of Japan, Inc.'s assault on American markets...
...That's how we got our railroads built in the nineteenth century, and that's probably how we're going to get a lot of our automobiles built in the latter part of the twentieth...
...Since both of those costs are falling sharply, the geographic reach of the world's corporations is increasing...
...First, Ivan Boesky confessed to insider trading (and then wired himself so that he could gather just a few more bits of inside information-these for federal prosecutors...
...Since the sale of this higher risk debt is a crucial source of financing for takeovers, pundits declared that the crippling of Drexel (in fact, its business rolled along) would so reduce liquidity in the junk bond market as to make such borrowing unavailable to the Goldsmith-Pickens crowd...
...In Campeau's successful hostile bid for Federated Department Stores, for example, the commercial and investment bankers took in between $250 and $300 million...
...The Firestone acquisition showed them to be determined bidders, and the close relationships that exist between Japan's industrial companies and its major banks should provide the former with flexibility and muscle...
...So, too, commercial banks: with new loans to so-called Third World countries clearly unattractive, banks need new business...
...5. ABA conferences...
...the decline in the dollar has made American assets cheap, in terms of yen, marks, and pounds...
...Once again, the experts argued that acquirers, no longer able to pay for their acquisitions with high-priced stock, would be forced to the sidelines...
...We've spent more hours covering the federal judiciary than any television network...
...From the court's budget hearings to judicial confirmations, C-SPAN airs them gavel-to-gavel from Capitol Hill...
...grew by 20 percent last year, to about $250 billion, with British acquirers leading the way...
...Watch the newsmakers who address the nation's largest gathering of legal professionals...
...MIT's Charles Kindleberger pointed out in a recent lecture at the University of Cambridge that the geographical area over which a company can effectively manage its operations "depends upon the costs of transport and communications...
...And commercial banks' placement fees for syndicating loans are so attractive that, according to America's preeminent merger lawyer, Joe Flom, they are falling over each other to finance acquisitions...
...Indeed, so vigorous and deep has the market for companies become that it is now not very different from the market for real estate or other big-ticket assets...
...Ineffective in Congress, unprotected by the new Delaware law, some of America's businessmen are thus trying to use the fear of foreign acquisitions to whip up anti-takeover sentiment...
...No: Historian Arthur Schlesinger, Jr.'s 1968 description of American penetration of European markets, written as a foreword to J. J. Servan-Schreiber's The American Challenge...
...That's what the Treasury has been doing...
...American consumers will be the ultimate beneficiaries of the redeployment of corporate assets into their highest-value uses...
...And Louis Perlmutter, a leading investment bank with Lazard Freres, has said he doesn't think it likely that the new law will have any significant effect on the pace of merger activity...
...financing is almost routine...
...Then Drexel Burnham, the founder of and major player in the misnamed "junk bond" market, began to have troubles with the Securities and Exchange Commission...
...So the Japanese have bought Firestone Tire...
...In all, direct foreign investment in the U.S...
...Add to that the internationalization of the capital markets which are now so liquid, and you have a recipe for international acquisitions...
...All of this is good news, and not only for fee-earning bankers and renascent arbitrageurs (the latter earned more in January-March than in any previous quarter...
...But America must somehow finance its trade deficit...
...3. `Supreme Court Review.' Scheduled for the weeks the high court hears oral arguments, this series features legal experts discussing the cases heard and the decisions handed down...
...And we are likely to see a continued high level of merger and restructuring activity, with both domestic and foreign firms competing vigorously for assets they feel are worth more to them than they are in the hands of existing managers...
...Panicky managers, some seeing a threat to their jobs, others genuinely concerned that takeover threats make long-range planning difficult, failed to persuade Congress to adopt anti-take T,"-BUS 1?NtrV /1 h THE AMERICAN SPECTATOR JUNE 1988 35 over measures...
...the Canadians, yuppiedom's heaven, Bloomingdale's...
...But the danger points are few...
...And how would our security be threatened if they did...
...Michael Goldman, chairman of the Delaware bar's Takeover Law Subcommittee, says, with unlawyerlike directness, that Delaware's law "is not designed to take a side on...
...Testimony as to its limited reach comes from three sources...
...Acquisitions, in short, are no longer peripheral to the main activity of American corporations...
...They have become an integral part of corporate strategies...
...It does not ban takeovers...
...America and the Courts' Over 400 Hours of Television on the Federal Judiciary Since 1985 (sm An Available throughout the nation on cable television 444 NoRm CAPrroc SCREEr, NW • Surre 412 • WmmNC1ON, D.C...
...Boesky's troubles, the SEC investigation of Drexel, and the drop in share prices could not change that fact...
...the Germans, U.S...
...takeovers...
...6. Specials...
...The law does make it a bit more difficult to offer to buy only some of a company's shares, and it does place some restrictions on the activities of anyone who has acquired 15 percent of a company's stock...
...One way is to borrow dollars from foreigners who have accumulated them by selling goods and services to us...
...and a small one at that, of a merger movement that continues to regard its repeated death notices as premature...
...I 1 • Justices' speeches...
...Insurance companies are competing with one another to make cash available to acquirers...
...airlines or television stations...
...Second, Marty Lipton, the New York lawyer famous for his anti-takeover defenses and rhetoric, feels the Delaware law is inadequate to discourage raiders...
...Rather, it was designed to restrict certain of the acquirers' tactics...
...hree times we have read that parT ticular obituary...
...and the costs of internationalization are dropping...
...This is because, as still another merger maven puts it, "the world is awash in cash...
...We] watch American investment skim gently across the earth like the fabled swallow, and watch what it takes away...
...El ON 6 COUNTS OF PUBLIC SERVICE We admit it...
...Court of Appeals, the Justice Department, the FBI, and more...
...Or so some of our xenophobic businessmen, and their congressional allies, would have us believe...
...Another way is to induce foreigners to invest those dollars here-to buy real estate, factories, businesses...
...Financing is no problem...
...Nor is there any shortage of ideas...
Vol. 21 • June 1988 • No. 6
