Three Who Watch, Wait and Strike

By John S. DeMott.

T. Boone Pickens is only the best known of today's corporate raiders. Dozens of others stride through the corridors of the financial world, examining balance sheets, calculating the value of assets and looking for attractive takeover targets. They are usually loners out to make their own millions, although sometimes they join forces or end up on opposite sides. Last week's battle for Phillips Petroleum involved not only Pickens but three other leading takeover masters:

The Prowler. Carl Icahn, 48, looks for all the world like a typical, affluent suburbanite. He lives with his wife Liba in Westchester County, near New York City, and likes nothing better than to hang around the house on weekends, playing tennis or going for a swim in his pool. While he does not look like someone who would frighten even a PTA board, he is a scourge to the giants of corporate America. Last week newspapers across the U.S. carried full-page ads with the scare headline IS ICAHN FOR REAL? The ads were part of a counterattack by Phillips Petroleum against Icahn's attempt to take over the firm.

Feelings were running high in Bartlesville, Okla., last week, where Phillips shareholders debated Icahn's proposal; they began voting on whether to accept or reject a financial plan proposed by Phillips' management. A group of 40 townspeople burned a pile of Icahn's proxy statements.

Angry stockholder meetings are a long way from Icahn's early life as the son of a synagogue cantor in New York City. After studying philosophy at Princeton, the future raider spent two years in medical school, but quit when he realized that he was not enjoying the work--and becoming a bit of a hypochondriac to boot. After a stint in the Army at Fort Sam Houston, he used a few thousand dollars won in barracks poker games to get started on Wall Street. He made $50,000 in the bull market of 1961, then lost it just as quickly when stocks tumbled. To this day he is wary of investing in the market. Says he: "I can't stand it when people try to predict what the market is going to do. It simply can't be done."

Icahn moved into a field where he could have more control: takeovers. He now specializes in finding poorly run companies and then launching a raid, which involves an effort to get con- trol of the firm. Icahn's record is impressive: since 1968 he has made more than $100 million in the takeover game. One premise of the Icahn strategy is that large American firms are staffed with poor managers. Says he: "Unfortunately, many of today's chief executives have spent the first 20 or 30 years of their business careers studying how to please their boards rather than concentrating on how to increase their corporations' profitability. Top management in America, with many notable exceptions, is sadly lacking in knowledge and leadership."

A corporate prowler since the late 1970s, Icahn has undertaken a major corporate raid about every six months. He buys stock in companies that he thinks are undervalued and then begins to tell the management how to run the business. That is hardly welcome news to executives, who usually try to get court orders to stop him from acquiring more shares. Icahn's most controversial takeover before his current fight with Phillips came in 1982, when he went after Dan River, a Virginia textile company. Residents of Danville rose up in protest against the aggressor from the North, and more than 100 of them began buying Dan River stock as a sign of local support. After six months of struggle, company officers bought up the public stock and turned Dan River into a private firm. Icahn, who had started buying shares at $12, sold out for $22.50, for a total profit of $8.5 million. After his victory, Icahn named his new German shepherd attack dog Shiloh in honor of the Civil War battle in which the North defeated the South.

A Greenmailer. One of Icahn's partners in the Phillips struggle is Saul Steinberg, 45, an expert in the fine art of greenmail. In that corporate maneuver, an investor buys up a large block of stock in a company and threatens to take it over in hopes that the firm's management will become frightened and buy the shares back at a higher price than the stockholders can get, just to get rid of the raider. Last summer, in such a ploy, Steinberg bought 11.1% of Walt Disney Productions. After a long battle with Disney management, he sold the stock to the company for $32 million more than he had paid for it. Says Lee Isgur, a longtime follower of Disney stock for Paine Webber, a Wall Street broker: "It was obvious that it would be very difficult, if not impossible, for Steinberg to buy Disney. But he played the publicity game very well. The stock was bid up, and he made a nice profit." Just before Disney, Steinberg greenmailed Quaker State Oil Refining, buying 8.9% of the firm on the open market and then selling it back to the company. His profit: $10.5 million.

Steinberg has been making deals for a quarter of a century. While preparing his senior thesis on IBM at the Wharton School of the University of Pennsylvania in 1959, he got an idea. Why not buy IBM computers on credit and then lease them for less than IBM charged? His father staked him $25,000, and Steinberg in 1961 formed his own leasing company, which later became Leasco. By 1965, when it offered stock to the public, Leasco had assets of $5.4 million and was growing fast.

Steinberg then tried new gambits. In 1968 he bought Reliance Insurance, a company ten times larger than Leasco. In 1969, at the age of 29, he went after a real giant: Chemical Bank, then the seventh largest U.S. bank. In that case, though, Steinberg's reach exceeded his grasp. Says Paul Hallingby, a friend and longtime business associate: "The Chemical caper never had a chance of succeeding. They were an Establishment bank, and they had ways of heading him off." The bank had plenty of old friends and ties and could afford just to ignore the brash young man.

During the oil-induced recession of 1974-75, the computer-leasing business went bad, but insurance shielded Steinberg from severe troubles. He changed the name of his company to Reliance Group and in 1982 took it private, in part so that he could make all the decisions on his own and not have to worry about pleasing stockholders. Says he: "If I have a general manager who does extraordinarily well for us and I want to give him a seven-figure bonus, I do it and don't worry about how it's going to look."

A messy second divorce in 1983 put Steinberg all over New York City's tabloids. As part of the action, his wife filed a stockholder's complaint that accused him of taking drugs, diverting corporate funds to personal use and making payoffs to New York City officials to get business for his company. None of the charges, though, were ever proved.

After the divorce, Steinberg slowed down and changed many of his working habits. A few years ago, say friends, he regularly worked 18 hours a day, seven days a week when a deal was being made. But last summer, late on a < Friday and deep into a negotiation, Steinberg announced, "I'm going to the beach."

While he still makes all the final decisions, Steinberg now delegates more. Says a former employee: "As a boss, he is mostly carrot and very little stick. He is very demanding. His goal is to get more out of people than they realize they have to give." Steinberg lives with his third wife, Gayfryd, and two of his six children in a 34-room Park Avenue triplex once owned by John D. Rockefeller Jr.

Irv the Liquidator. Irwin Jacobs, 43, has trained his takeover artillery on such corporate giants as ITT, Pabst Brewing, Kaiser Steel and Disney Productions. He was in an earlier phase of the Phillips battle but sold his 4.6 million shares for a sizable profit shortly before last week's voting.

A University of Minnesota dropout, Jacobs started working full time in 1959 for his father, a Russian immigrant, who ran a gunnysack business. In the mid-'60s the company flourished, selling sandbags used to dam floods along the Mississippi. Jacobs early showed a trader's instinct, buying merchandise at business liquidation sales and reselling it. At 18, he got 300 pairs of skis at a U.S. Customs auction for $13 a pair, then sold them right outside the auction hall for three times as much.

After a decade of steady growth in the family business, everything started to go wrong. In 1975, at age 33, Jacobs was depressed and ready to quit. "I said to myself, 'What do I need any more money for? I've had enough of Big Business.' " At the root of his malaise was the failure of Grain Belt Breweries, which he had bought with a $4 million loan. In his attempts to make it more profitable, he filmed a TV commercial with the line: "It may be my brewery, but it's your beer." Nothing worked. Says he: "I got murdered. I never worked so hard in my life."

As it turned out, failing at brewing was one of the best things that ever happened to him. He sold his beer brands (Grain Belt, Hauenstein and Storz) to G. Heileman Brewing and auctioned off machinery, thus making a $5 million profit. He used that money in a joint venture with the Pohlad family of Minneapolis to buy nearly $300 million worth of property and uncollected bills from bankrupt retailer W.T. Grant for the fire-sale price of $44 million. Says he: "That was the mother lode that got it all going." It earned him the nickname Irv the Liquidator.

Jacobs, though, is far more than a liquidator. He is a takeover artist of the first magnitude. In 1981 he went after Pabst. In two hard-fought battles that spanned 14 months, Jacobs and the Pabst management struggled fiercely for shareholder votes and Jacobs spent $7 million in legal fees. In the middle of the affair, Pabst President William F. Smith Jr. posted a sign on his office wall: SHOW ME A GOOD LOSER, AND I'LL SHOW YOU A LOSER. Jacobs actually lost his bid, but he and his partners walked away with a profit of more than $20 million.

Jacobs has a knack for transforming failures into successes. When a snowmobile- and boat-making firm he acquired in 1978 went bankrupt, he salvaged some of the pieces to form a new company called Minstar. Last week Minstar, which in 1983 bought Bekins, the moving company, announced record earnings of $23 million for 1984. Minstar is selling off chunks of real estate owned by Bekins, hinting that more takeovers are in the works.

Late last year Jacobs went after his biggest target yet: ITT, which had sales of $14 billion in 1984. He bought a reported 2% of the company, an investment estimated at $84 million, and began bringing pressure on ITT officials to break up the firm, arguing that the parts of the conglomerate were worth more than ITT as a whole. Said Jacobs at the time: "ITT's management has created such a monster of overhead in its operations that something's got to happen." Partly because of those attacks, ITT decided in January to sell off $1.7 billion worth of subsidiaries.

A fast-talking, blunt-speaking man with a boyish face and ready grin, Jacobs wears his wealth casually. He sometimes answers his own phone and regularly drives himself to work from his home in the stylish Minneapolis suburb of Wayzata in a Rolls-Royce Silver Shadow II. He makes no claims to being a great long-range corporate planner, even to the point of refusing to keep an appointment calendar. Jacobs is a person of instinct and action. Says he: "You can't predict what I'm going to do next because there is no track, no character to it. Our big asset is our flexibility, being able to move on a moment's notice."

With reporting by J. Madeleine Nash/Minneapolis and Adam Zagorin/New York