Word: buyouts
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Mergers and Acquisitions: the bank helps its clients buy other, or sell their, companies. The client company may want to sell an unprofitable division, expand by buying another's division, merge with another company, or defend themselves against a buyout or takeover, in order to make themselves more competitive...
...roaring '80s, Carolyn Roehm became the archetype of what Tom Wolfe called the social X ray: a super-thin, high-profile fashion designer who consorted with the ultra-rich and married multimillionaire leveraged-buyout- king Henry Kravis. With Kravis' backing, she launched her own couture in 1985 and specialized in luxe items like ball gowns that cost as much as $6,000 each...
Such mergers are red meat to Wall Street, even if the fees they generate cannot match the profits from takeover wars. Investment bankers, lawyers and accountants raked in a staggering $1 billion for plotting strategy and raising the cash that enabled the buyout firm Kohlberg Kravitz Roberts to acquire RJR Nabisco for $25 billion in 1989. But the new deals are smaller and generally arranged by executives of the merger partners, so advisers play a smaller role and receive a correspondingly thinner slice of the overall purchase price...
...fairy tale is heading for a no-no era denouement. In 1976 ex- encyclopedia salesman William Farley bought a California citrus processor with just $25,000 of his own money. Within years, he ruled over a multibillion-dollar empire. Then came Farley's folly: the 1989 leveraged buyout of sheet-and-towel giant West Point-Pepperell, for $1.6 billion. Burdened by debt, he endured the junk-bond collapse, the recession and the gulf war. But last week Farley accepted a "prepackaged" bankruptcy plan that will slash his share of West Point-Pepperell from 95% to 5%, the biggest blow...
...with the help of $900 million in Drexel junk bonds, for example, First Executive Corporation, bought more than one-third of those bonds. Once in charge, Hurwitz terminated the pension plan and grabbed the $55 million worth of surplus pension funds to pay down part of his buyout debt. He then bought $38 million worth of Executive Life annuities to cover 2,500 people, thus shedding his obligations and saving himself the cost of the premiums for the federal pension insurance. Had he picked another insurer, of course, those annuities might have been sound. Instead, Pacific Lumber's retirees lost...