By this time, many of the great LBOs had begun to collapse. Robert Campeau's retail sales empireof Allied and Federated stores blew up in the fall of 1989, bring down almosty $10 billion of LBO (^)
debt. Revco, Freuhauf, Southland (Seven-Eleven stores), Resorts International, and many other
LBOs went into chapter eleven proceedings. As for KKR's deals, they also began to implode: SCI-
TV, a spin-off of Storer Broadcasting, announced that it could not service its $1.3 billion of debt,
and forced the holders of $500 mbetween 20 and 70 cents on the dollar. Hillsborogh Hillion in junk bonds to settle for new stocks and bondsoldings, a subsidiary of Jim Walker, went worth (^)
bankrupt, and Seamans Furniture put through a forced restructuring of its debt.
It was clear at the time of the RJR Nabisco LBO that the totality of the company's large cash flow
would be necessary to maintain payments of $25 bicrackers and Winstons. If RJR Nabisco had been a foreign country, it would have ranked among thellion of debt. That will take a lot of animal (^)
top 15 debtor nations, coming in between Peru and the Phillipines. Within a short time after the
LBO, RJR Nabisco proved unable to maintain payments. KKR was forced to inject several billion
dollars of new equity, take out new bank loans, and dunning its clients for an extra $1.7 billion. RJR
Nabisco by the early autumn of 1991 weconomy. If citizens are bright enough to follow the line that leads back from Milken to Kravis toas a time bomb ticking away near the center of a ruined US
Bush, RJR and similar horror stories could politically demolish George Bush.
In September 1987, Senator William Proxmire submitted a bill which aimed at restricting takeovers.
Two weeks later, Rep. Rostenkowski of Illinois offered a bill to limit the tax deductability of theinterest on takeover debt. The LBO gang in Wall Street was horrified, even though it was clear that (^)
the Reagan-Bush team would oppose such legislation using every trick in the book. Later, LBO
ideologues blamed the Congress for causing the crash of October, 1987.
Kravis has always been adamant in opposreviewed. "I'm very much of a free-market person," says Kravis. I don't want interference. Mying any restrictions on the kind of insanity we have briefly
life...you've listened to my life story, I don't want interference! The best thing to happen to people
and this country is a free market system, and I'm very concerned, if we don't keep the right people
in office, that we're not going to have this free-market environment. And we should have it!" [fn 7]
This corresponds exactly to Bush's policy. During the 1988 campaign, Bush presented his views on
hostile takeovers, using the forum provided by his old friend T. Boone Pickens' USA Advocate, a
monthly newsletter published by the United Shareholders Association, which Pickens runs. In the
October, 1988 issue of this publication, Bush made clear that he was not worried about leveraged
buyouts. Rather, what concerned Bush was the need to prevent corporations from adopting defensesto deter such attempted hostile takeovers. Bush indicated he wanted to ban poison pill defenses,
which often take the form of a new class of stock in a company that lets its holders buy stock in the
successor company at rock-bottom prices after a buyout. Poison pills were invented by New York
lawyer Marty Lipton, and did not deter raider Sir James Goldsmith from seizing control of Crown
Zellerbach in the mid-1980's, although Goldsmith's costs were increased.
Bush also railed against "golden parachutes," which provide lucrative settlements for top executives
who are ousted as the result of a takeover:
I am frankly a bit skeptical about claims that these so-called 'defensive' tactics are necessary to
encourage long-term investment. Studies suggest that prices of stock reflect information that ispublicly available. Sometimes it seems that managers use these tactics to save themselves from the (^)
competitive pressures of the market for corporate control, not to protect the interests of the
shareholders.
Bush was clearly hostile to any federal restrictions on hostile takeovers. If anything, he was closer
frankie
(Frankie)
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