NEW YORK — Carl Icahn, a legend in the world of mergers and acquisitions, believes that there are some good investment opportunities in retail and apparel.
This story first appeared in the March 17, 2003 issue of WWD. Subscribe Today.
He made that comment Thursday in an interview following his presentation at the “The Buyouts Symposium,” hosted by Thomson Venture Economics, at the Waldorf Astoria here.
“I do think that a lot of them have been knocked down a great deal. Some will be Chapter 11 filings. Some are cheap, but you have to do something about management. [Some others] are just well run and they’re cheap at the same time,” Icahn pointed out.
He cited Perry Ellis International Inc., itself in the process of acquiring Salant Corp., as one of the managerial outperformers.
He was fairly critical of U.S. chief executives and boards of directors, asserting that the real surprise about Enron, Tyco and other recent examples of corporate malfeasance was that they didn’t occur sooner. He felt that, in these situations and many others, the obligation to reward shareholders’ investments has been all but forgotten.
“Shareholders’ concerns are nonexistent. Companies do not believe that shareholders have any rights. Management thinks that they own the company,” he said.
The M&A legend recalled an incident involving his $4 billion bid to buy Phillips Petroleum. One of the investment bankers called him to arrange a meeting, and then proceeded to ask questions ranging from why he wanted to buy the company to what he knew about the oil and gas industry. Icahn put him in his place, telling the banker, “I’m not here for an interview.”
Icahn’s point is that in some instances there is still an “attitude about how outsiders have no right to come in and make a bid,” somewhat akin to telling citizens to leave the war to the generals.
Some of the problems with corporate America also involve the use of the poison pill, an anti-takeover mechanism that allows shareholders to buy more shares under certain circumstances to prevent a hostile entity from becoming the majority shareholder. It is a maneuver often criticized for allowing management to keep a tighter grip over their jobs.
“The poison pill is supposed to give shareholders rights, but the only thing they give a shareholder is the right not to make money. A shareholder can’t do anything and can’t buy more than 10 percent of the stock. We do not have accountability in corporate America today. With a poison pill, no one can buy a piece of the company,” he said.
Icahn also had some choice words about the bankruptcy process, and the “pernicious intimacy” that occurs between investment bankers and the debtors-in-possession.
“The group [of people] I find most reprehensible in bankruptcy are the investment bankers for the huge fees that they charge,” he said.
Icahn, who currently holds a controlling stake in the Sands Casino and Hotel after helping the firm emerge from bankruptcy in 2000, explained that while bankers should get paid for their work, those fees should also be in proportion to the work that is done. He described one instance where he successfully fought a request by an investment banking firm that was seeking bankruptcy court approval for a $20 million fee, or about $8,500 an hour, even though they did very little work.
The billionaire investor also said that the bankruptcy process needs to be restructured because much of the money that should belong to creditors instead goes out of the estate to pay professional fees and retention bonuses.
“Why do we have to pay [management] a retention bonus? These are the people that screwed up the company and I don’t see a line to hire them. Why pay a retention bonus when you don’t want to retain them?”
According to Icahn, management has a bit too much job security in situations like these: “They let thousands go [on the unemployment lines but] no one lets them go.”