Bye bye bid-’em-up Bruce
Bruce Wasserstein hated the soubriquet “Bid ‘em up Bruce”, perhaps because the truth is always the worst insult. Wasserstein was the driving force behind some of the worst deals of recent history. They generated vast fees for the banks he ran, but frequently failed to create any value for the shareholders who were ultimately paying them. Too many among the $250 billion of deals he squeezed through have proved to be lemons.
An early example was Du Pont’s white knight takeover of Conoco in 1981. The $9 billion acquisition was founded on the doubtful premise that Du Pont’s chemicals would benefit from ownership of Conoco’s crude. Buying your supplier seldom makes business sense, and the merger was unwound 16 years later.
The leveraged buyout of RJR Nabisco in 1988 by KKR, advised by Wasserstein, was a spectacular example of the power of gearing up with debt, at a time when the market’s appetite for junk bonds made hubristic bids possible. The deal was a financial coup, but the businesses were effectively smothered under the mountain of debt. As Andrew Beattie put it: “Tobacco and food were separated and recombined in a shuffle involving almost as many players as the original dance.”
Perhaps the most impressive example of value destruction is the string of deals which first combined Time Inc and Warner Communications, and rammed Time-Warner into AOL, then the leading internet media group. The earlier merger, in 1990, had been a real blood-and-thunder affair, with a competing bidder for Time and two court cases, and set the tone for Wasserstein’s later deals.
The merger was not a runaway success, and when the infamous $350 billion top-of-the-market deal dreated AOL Time Warner in 2000, some suspected that each partner was trying to escape its own concealed weaknesses. By 2003, following the collapse of the dotcom boom, the lawsuits were flying. To be fair, the 2000 deal had been so big that there was a place for almost every banker on the slate, and Wasserstein did not play a major role. He did, however, publish an excoriating report in 2006 calling for it to be broken up again, before pitching for the business.
Over his career, he changed the way Wall Street takeovers were conducted, rather as Sigmund Warburg did in London. The direct approach to shareholders, the active use of public relations and lawyers to exploit the rules, the day-by-day operations in the markets during the contest were hallmarks of both men’s banks.
Joseph Perella, his partner for 16 years, described him as “a rare talent”, noting, “this is a great loss for Wall Street.” In the middle of a $16 billion bid for Cadbury, this is undoubtably true. Whether his career would pass Adair Turner’s test for being socially useful is a much more awkward question.