Most of you may not have heard of Bruce Wasserstein. He just passed away at 61. NY Times' obit is here.
Wasserstein was a very big deal on Wall Street. He, more than most, turned "investment banking" into a monopoly game generating off-the-chart fees for himself and his partners. As the obit mentioned, one of his deals was to help a private equity firm to take over RJR Nabisco.
The deal inspired two journalists to write the gripping true story of the takeover process naming it "Barbarians at the Gate". The title captures the frenzy, the brazen, no holds-barred, rough to-your-face onslaught on corporations by "raiders".
Corporate mergers and acquisitions used to be done quietly behind doors and with decorum. Wasserstein was a master of public warfare was the best of that breed of investment bankers who wear the "I know more than you will ever know" attitude on their sleeves.
By the time RJR Nabisco was taken over by the private equity firm of KKR, the deal was worth $25 billions, the largest corporate takeover in the entire history up to that point and that deal was not surpassed by almost another 2 decades if I am correct with my memory
So what was Wasserstein's "contribution"?
He was smart and fanned the bidding frenzy as more bidders came out of nowhere all wanting to buy RJR Nabisco largely based on Wasserstein's reputation of finding "good" values and his persuasiveness that went with it.
The idea of a takeover was this: whoever bought the company would be able to sell it at an even higher price to make a profit -- after cleaning up the balance sheets by downsizing, by selling parts off. Money to buy RJR Nabisco was mostly borrowed from banks who were more than eager to lend to large borrowers.
As an investment advisor doing mainly talking, gaming, scheming or "strategizing" and some number crunching, Wasserstein walked away with a reported $100 million for his time and sweat.
Believe me few people could command that kind of respect in the business world. The question remains to be asked. What exactly did all that mean to the real economy?
Did the economy then and now benefit from takeovers and mergers and acquisitions?
Not much. The bubble that recently burst is yet another reminder that so much of Wall Street does for its clients then and now is all about greed and hot air supported by banks. And all of them except the sellers were playing with leverage based on debt. Bubbles happen because of leverage. Bursting of bubbles happens because at some point the greater fool game stops with the real fools holding the bucket.
RJR Nabisco made history not only because it was the hugest deal ever done but also the fool who owned it lost money on the deal. KKR was always known as the firm with the "golden touch".